Income Taxes

12 Months Ended

Dec. 31, 2021

Income Taxes

Income Taxes

11. Income Taxes

Provision for Income Taxes

Our provision for income taxes relating to continuing operations consists of the following (in thousands):

	December 31,
	2021		2020		2019
Current tax provision—
Federal	$	31,283	$	36,556	$	33,281
State		8,741		12,798		8,388
Total current		40,024		49,354		41,669
Deferred tax provision (benefit)—
Federal		6,197		(5,483)		(3,750)
State		705		(2,470)		(501)
Total deferred		6,902		(7,953)		(4,251)
Provision for income taxes	$	46,926	$	41,401	$	37,418

The provision for income taxes for the years ended December 31, 2021, 2020 and 2019 resulted in effective tax rates on continuing operations of 24.7%, 21.6% and 24.7%, respectively. The reasons for the differences between these effective tax rates and the federal statutory rates are as follows (in thousands):

	December 31,
	2021			2020			2019
Federal statutory rate of—		21	%		21	%		21	%
Income taxes at the federal statutory rate	$	39,958		$	40,223		$	31,866
Increases (decreases) resulting from—
Net state income taxes		7,340			8,406			6,644
Valuation allowances		(39)			(254)			(279)
Net unrecognized tax benefits		640			18,557			7,338
Nondeductible expenses		2,381			2,470			2,180
R&D tax credit		—			(26,133)			(4,569)
179D deduction		(1,207)			(1,062)			(5,126)
Stock-based compensation deductions		(2,210)			(426)			(714)
Other		63			(380)			78
Provision for income taxes	$	46,926		$	41,401		$	37,418

In the third quarter of 2019, we filed an amended federal return for 2015 to claim the credit for increasing research activities (the “R&D tax credit”) and recorded a $4.6 million tax benefit that was fully offset by an addition to unrecognized tax benefits. We previously filed an amended federal return for 2014 to claim the R&D tax credit during 2018 and recorded a $2.7 million tax benefit that was also fully offset by an addition to unrecognized tax benefits. These $7.3 million of tax benefits were fully offset by additions to unrecognized tax benefits due to the uncertainty of the outcome from examinations opened by the Internal Revenue Service (the “IRS”). As a result, the R&D tax credit claimed had no impact on our effective tax rates.

For the year ended December 31, 2019, our provision for income taxes was decreased by $2.2 million due to benefits from the filing, and expected filing, of amended returns to claim the energy efficient commercial buildings deduction (the “179D deduction”) allocated to us.

During the third quarter of 2020, the IRS completed their examination of our amended federal returns for 2014 and 2015 and issued a Revenue Agent Report (“RAR”) allowing the $8.9 million of refund claims in full. Subsequently, the Joint Committee on Taxation (the “JCT”) reviewed and approved the refund claims. As a result, our provision for income taxes was decreased by $8.3 million due to a reduction in unrecognized tax benefits.

In early October 2020, we filed amended federal returns for 2016, 2017 and 2018 primarily to claim the R&D tax credit requesting refunds of $9.8 million, $9.5 million and $11.9 million, respectively. The $31.2 million of refunds requested was offset by unrecognized tax benefits of $28.8 million due to the uncertainty of the outcome of our IRS examination. The R&D tax credit had no material impact on our effective tax rate for the year ended December 31, 2020.

Following an IRS survey of our previously filed refund claims for the 2016, 2017 and 2018 tax years, the JCT approved such refunds in late January 2022. Since approval was received after the Balance Sheet date, our effective tax rate was not affected for the year ended December 31, 2021. However, our provision for income taxes in the first quarter of 2022 will be decreased by $28.8 million due to a reduction in unrecognized tax benefits plus approximately $1.6 million of net interest income on the refunds.

Deferred Tax Assets (Liabilities)

Significant components of the deferred tax assets and deferred tax liabilities as reflected on the balance sheets are as follows (in thousands):

	Year Ended
	December 31,
	2021		2020
Deferred tax assets—
Accounts receivable and allowance for credit losses	$	1,878	$	2,186
Stock-based compensation		3,392		2,791
Accrued liabilities and expenses		36,255		39,761
Lease liabilities		27,944		22,768
Net operating loss carryforwards		10,379		12,127
Intangible assets		3,851		—
Other		758		627
Subtotal		84,457		80,260
Valuation allowances		(475)		(514)
Total deferred tax assets		83,982		79,746
Deferred tax liabilities—
Property and equipment		(15,534)		(13,877)
Lease right-of-use asset		(27,905)		(22,715)
Long-term contracts		(964)		(609)
Intangible assets		—		(242)
Goodwill		(17,321)		(11,615)
Other		(1,098)		(2,626)
Total deferred tax liabilities		(62,822)		(51,684)
Net deferred tax assets	$	21,160	$	28,062

The deferred tax assets and liabilities reflected above are included in the Consolidated Balance Sheets as follows (in thousands):

	December 31,
	2021		2020
Deferred tax assets	$	22,905	$	29,401
Deferred tax liabilities	$	1,745	$	1,339

As of December 31, 2021, we had $7.2 million of deferred tax assets related to $34.2 million of federal net operating loss (“NOL”) carryforwards as a result of the TAS acquisition. If not used, such carryforwards will begin to expire in 2031. We also had $3.2 million of deferred tax assets related to $61.7 million of state NOL carryforwards, including carryforwards acquired from TAS. The state NOL carryforwards will expire in varying amounts between the years 2022 and 2041.

Pursuant to Section 382 of the Code, utilization of our federal NOL carryforwards is subject to annual limitations due to the ownership change in TAS. In general, an ownership change, as defined by Section 382, results from transactions increasing the ownership of certain stockholders or public groups in the stock of a corporation by more than 50 percentage points over a three-year period. While we expect to fully utilize the federal NOL carryforwards acquired from TAS before they begin to expire in 2031, valuation allowances were recorded against certain of its state NOL carryforwards. We do not believe it is more-likely-than-not that TAS will have sufficient revenue-generating operations in those states in the future.

Valuation allowances of $0.4 million have been recorded against certain of the state NOL carryforwards. The $2.8 million of deferred tax assets for state NOL carryforwards, net of valuation allowances, reflects our conclusion that it is more-likely-than-not these assets will be realized based upon expected future earnings in certain of our subsidiaries.

We regularly update our assessment of the realizability of our deferred tax assets, in particular, those related to state NOL carryforwards. A return to profitability in our subsidiaries with valuation allowances would result in a release

of a portion of the valuation allowances relating to realizable deferred tax assets. A sustained period of profitability could cause a change in our judgment of any remaining deferred tax assets. If that were to occur, then it is likely that we would reverse some or all of the remaining valuation allowances.

Liabilities for Uncertain Tax Positions

A reconciliation of the beginning and ending amount of unrecognized tax benefits, excluding accrued interest and penalties, is as follows (in thousands):

	Year Ended
	December 31,
	2021		2020		2019
Balance at beginning of year	$	28,756	$	10,199	$	2,966
Additions based on tax positions related to current year		207		—		—
Additions based on tax positions related to prior years		489		26,858		7,473
Reductions for tax positions related to prior years		—		—		(240)
Reductions for settlements with tax authorities		—		(8,301)		—
Balance at end of year	$	29,452	$	28,756	$	10,199

As of December 31, 2021, 2020 and 2019, we had $29.5 million, $28.8 million and $10.2 million, respectively, of unrecognized tax benefits, which if recognized in future periods, would impact our effective tax rates. We have not accrued any amounts for potential interest and penalties related to the unrecognized tax benefits as of December 31, 2021, 2020 and 2019. We recognize potential interest and penalties related to unrecognized tax benefits in our provision for income taxes.

We are subject to taxation in the United States and various state jurisdictions. For the year ended December 31, 2020, our unrecognized tax benefits were reduced by $8.3 million due to a favorable settlement with the IRS for the 2014 and 2015 tax years. As of December 31, 2021, we remain open to IRS examination for the 2017 tax year forward.

State income tax returns are generally subject to examination for a period of three to four years after filing the returns. However, the state impact of any federal audit adjustments and/or amendments remains subject to examination by various states for up to one year after formal notification to the states. As of December 31, 2021, we generally remain open to examination by various state tax authorities for the 2017 tax year forward.

We will have a reduction of $28.8 million in unrecognized tax benefits in the first quarter of 2022 due to a favorable settlement with the IRS for the 2016, 2017 and 2018 tax years. Any further reductions in our unrecognized tax benefits, due to the future recognition of those tax benefits, would affect our effective tax rates.