Income Taxes

12 Months Ended

Dec. 31, 2020

Income Taxes [Abstract]

Income Taxes

7. Income Taxes

The following summarizes our income tax provision (in thousands):

	Year Ended December 31,
	2020		2019
Current:
U.S. federal	$	(1,299)	$	(2,918)
State and local		25		2
Foreign		(250)		(250)
Total current		(1,524)		(3,166)
Deferred:
U.S. federal		(11,334)		(2,990)
State and local		(28)		3
Total deferred		(11,362)		(2,987)
Total income tax provision	$	(12,886)	$	(6,153)

Our current income tax provision includes an increase to our liability for UTPs of (in thousands):

	Year Ended December 31,
	2020		2019
Unrecognized tax benefits	$	(1,118)	$	(2,467)
Interest expense		(1,299)		(1,570)
Total	$	(2,417)	$	(4,037)

While our loss before income taxes and equity in net income of affiliates is domestic, the deferred income tax provision for each period includes the impact of equity in net income of affiliates in our consolidated statement of operations and the periodic effect of our accounting for GILTI. After utilizing our net operating loss (“NOL”) carryforwards and allowable tax credits, federal income tax on GILTI from Telesat was zero. Furthermore, since our deferred tax assets related to the investment in Telesat will be realized from the future recognition of GILTI, the federal portion of these deferred tax assets were valued at zero.

In addition to the income tax provision presented above, we also recorded the following item (in thousands):

	Year Ended December 31,
	2020		2019
Deferred tax benefit for adjustments in
other comprehensive loss (see Note 3)	$	756	$	412

The provision for income taxes differs from the amount computed by applying the statutory U.S. federal income tax rate on the loss before income taxes and equity in net income of affiliates because of the effect of the following items (dollars in thousands):

	Year Ended December 31,
	2020		2019
U.S. Statutory Federal Corporate Income Tax Rate		21%		21%
Tax benefit	$	2,255	$	1,154
Permanent adjustments which change statutory amounts:
State and local income taxes, net of federal income tax		(77)		107
Equity in net income of affiliates		(17,185)		(5,055)
Federal provision for unrecognized tax benefits		(1,138)		(1,226)
Nondeductible expenses		(2,380)		(695)
Change in valuation allowance		69		(118)
Income tax credits		5,820		—
Foreign income taxes		(250)		(250)
Other, net		—		(70)
Total income tax provision	$	(12,886)	$	(6,153)

The following table summarizes the activity related to our unrecognized tax benefits (in thousands):

	Year Ended December 31,
	2020		2019
Balance at January 1	$	43,037	$	43,055
Decreases as a result of statute expirations		—		(18)
Balance at December 31	$	43,037	$	43,037

With few exceptions, the Company is no longer subject to U.S. federal, state or local income tax examinations by tax authorities for years prior to 2014. Earlier years related to certain foreign jurisdictions remain subject to examination. To the extent allowed by law, the tax authorities may have the right to examine prior periods where NOLs were generated and carried forward, and make adjustments up to the amount of the NOL carryforward. While we intend to contest any future tax assessments for uncertain tax positions, no assurance can be provided that we would ultimately prevail. During 2021, the statute of limitations for assessment of additional tax will expire with regard to certain UTPs, potentially resulting in $16.4 million reduction to our unrecognized tax benefits.

Our liability for UTPs increased from $17.4 million at December 31, 2019 to $19.8 million at December 31, 2020 and is included in long-term liabilities in the consolidated balance sheets. At December 31, 2020, we have accrued $3.3 million for the potential payment of tax-related interest. If our positions are sustained by the taxing authorities, approximately $8.4 million of the tax benefits will reduce the Company’s income tax provision.

Other than as described above, there were no significant changes to our unrecognized tax benefits during the year ended December 31, 2020, and we do not anticipate any other significant increases or decreases to our unrecognized tax benefits during the next twelve months.

At December 31, 2020, we had federal FTC carryforwards of $109.6 million, federal NOL carryforwards of $43.1 million and New York NOL carryforwards of $1.5 million which expire from 2022 to 2034.

The reorganization of the Company pursuant to emergence from Chapter 11 of the federal bankruptcy laws during 2005 constituted an ownership change under section 382 of the Internal Revenue Code. Accordingly, use of our tax attributes, such as NOLs and tax credits generated prior to the ownership change, are subject to an annual limitation of approximately $32.6 million, subject to increase or decrease based on certain factors.

We assess the recoverability of our FTCs, NOLs and other deferred tax assets and based upon this analysis, record a valuation allowance to the extent recoverability does not satisfy the “more likely than not” recognition criteria. We continue to maintain our valuation allowance until sufficient positive evidence exists to support full or partial reversal. As of December 31, 2020, we had a valuation allowance totaling $128.4 million against our deferred tax assets for certain tax credits, primarily FTC carryovers from 2017, and loss carryovers due to the limited carryforward periods. During 2020, the valuation allowance decreased by $0.1 million, which was recorded as a benefit in our statement of operations. To the extent that profitability from operations is not sufficient to realize the benefit from our remaining net deferred tax assets, we would generate sufficient taxable income from the appreciated value of our Telesat investment, subject to the provisions of the Transaction Agreement, in order to prevent federal net operating losses from expiring and realize the benefit of all remaining deferred tax assets.

During 2019, the valuation allowance increased by $0.1 million, which was recorded as a provision in our statement of operations.

The significant components of the net deferred income tax assets are (in thousands):

	December 31,
	2020		2019
Deferred tax assets:
Net operating loss carryforwards	$	23,020	$	34,294
Foreign tax credit carryforwards		126,007		126,007
Compensation and benefits		701		961
Indemnification liabilities		98		66
Other, net		279		305
Federal benefit of uncertain tax positions		701		428
Pension costs		4,119		3,375
Investments in and advances to affiliates		828		992
Total deferred tax assets before valuation allowance		155,753		166,428
Less valuation allowance		(128,414)		(128,483)
Deferred tax assets	$	27,339	$	37,945