Income Taxes

12 Months Ended

Dec. 31, 2023

Income Taxes

Income Taxes

11. Income Taxes

Provision (Benefit) for Income Taxes

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

	December 31,
	2023		2022		2021
Current tax provision (benefit)—
Federal	$	(34,722)	$	58,040	$	31,283
State		4,222		26,376		8,741
Total current		(30,500)		84,416		40,024
Deferred tax provision (benefit)—
Federal		81,119		(80,130)		6,197
State		14,177		(14,375)		705
Total deferred		95,296		(94,505)		6,902
Provision (benefit) for income taxes	$	64,796	$	(10,089)	$	46,926

The provision (benefit) for income taxes for the years ended December 31, 2023, 2022 and 2021 resulted in effective tax rates on continuing operations of 16.7%, (4.3%) and 24.7%, respectively. The reasons for the differences between these effective tax rates and the federal statutory rates are as follows (in thousands, except percentages):

	December 31,
	2023			2022			2021
Federal statutory rate of—		21	%		21	%		21	%
Income taxes at the federal statutory rate	$	81,521		$	49,530		$	39,958
Increases (decreases) resulting from—
Net state income taxes		14,278			9,376			7,340
Net unrecognized tax benefits		9,049			(17,922)			640
Nondeductible expenses		5,774			4,045			2,381
R&D tax credit		(43,791)			(51,398)			—
Stock-based compensation deductions		(928)			(872)			(2,210)
Other		(1,107)			(2,848)			(1,183)
Provision (benefit) for income taxes	$	64,796		$	(10,089)		$	46,926

Following an Internal Revenue Service (“IRS”) survey of the previously filed refund claims for the 2016, 2017 and 2018 tax years, the Joint Committee on Taxation approved such refunds in late January 2022. As a result, our benefit for income taxes in the first quarter of 2022 included a $28.8 million reduction in unrecognized tax benefits plus approximately $1.6 million of net interest income on the refunds.

Our benefit for income taxes in the first quarter of 2022 was further increased by $26.8 million for the expected refunds due to our intention to claim the credit for increasing research activities (the “R&D tax credit”) for the 2019, 2020 and 2021 tax years. In the third quarter of 2022, we claimed the R&D tax credit on our originally filed 2021 federal return and recognized an additional $1.7 million benefit for the 2019, 2020 and 2021 tax years. Additionally, in February 2023, we filed amended federal returns for 2019 and 2020 requesting refunds primarily from claiming the R&D tax credit.

The Inflation Reduction Act was enacted on August 16, 2022. This law, among other provisions, provides a corporate alternative minimum tax on adjusted financial statement income over $1 billion, which is effective for tax years beginning after December 31, 2022, and a 1% excise tax on net corporate stock repurchases after December 31, 2022. The impact of the excise tax is recorded in “Treasury Stock” within our Consolidated Balance Sheet. These provisions were not material to our current year overall financial results, financial position and cash flows.

In early September 2023, the IRS issued interim guidance addressing, together with other topics, the treatment of research and experimental (“R&E”) expenditures for taxpayers using the percentage of completion method to account for taxable income from long-term contracts. We have chosen to rely on such guidance beginning with the 2022 tax year,

and the resultant reduction in taxable revenue offsets the deferral of tax deductions for R&E expenditures pursuant to the Tax Cuts and Jobs Act (2017) for the 2022 tax year. We filed our 2022 federal tax return in October 2023 requesting a refund of our $107.1 million overpayment, which was not received during the year ended December 31, 2023.

Deferred Tax Assets (Liabilities)

Significant components of the deferred tax assets and deferred tax liabilities as reflected on the Consolidated Balance Sheets are as follows (in thousands):

	Year Ended
	December 31,
	2023		2022
Deferred tax assets—
Accounts receivable and allowance for credit losses	$	3,203	$	2,530
Stock-based compensation		4,549		3,809
Accrued liabilities and expenses		44,209		34,179
Lease liabilities		51,065		32,048
Net operating loss carryforwards		5,877		5,361
Intangible assets		8,570		9,204
Research and experimental expenditures		195,444		106,002
Other		1,234		539
Subtotal		314,151		193,672
Valuation allowances		(156)		(379)
Total deferred tax assets		313,995		193,293
Deferred tax liabilities—
Property and equipment		(27,049)		(18,882)
Lease right-of-use asset		(51,058)		(32,025)
Long-term contracts		(193,144)		(1,870)
Goodwill		(24,452)		(23,288)
Other		(1,689)		(1,563)
Total deferred tax liabilities		(297,392)		(77,628)
Net deferred tax assets	$	16,603	$	115,665

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

	December 31,
	2023		2022
Deferred tax assets	$	17,723	$	115,665
Deferred tax liabilities	$	1,120	$	—

As of December 31, 2023, our deferred tax assets were primarily attributable to R&E expenditures, accrued liabilities and expenses, intangible assets and net operating loss (“NOL”) carryforwards. Beginning in 2022, R&E expenditures must be capitalized and amortized pursuant to the Tax Cuts and Jobs Act (2017). Of the $5.9 million deferred tax asset for NOL carryforwards, $2.5 million is related to $12.0 million of federal NOL carryforwards from the TAS Energy Inc. (“TAS”) acquisition. If not used, such carryforwards will begin to expire in 2034.

Pursuant to Section 382 of the Internal Revenue 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.

Our management assesses the available positive and negative evidence to estimate whether sufficient future taxable income will be generated to permit the use of the existing deferred tax assets. The most significant piece of objective evidence evaluated was three years of cumulative pre-tax income in the federal jurisdiction. Management determined there is sufficient positive evidence to conclude it is more likely than not our deferred tax assets are virtually all realizable.

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,
	2023		2022		2021
Balance at beginning of year	$	11,530	$	29,452	$	28,756
Additions based on tax positions related to current year		6,370		3,420		207
Additions based on tax positions related to prior years		2,723		7,427		489
Reductions for tax positions related to prior years		(44)		(13)		—
Reductions for settlements with taxing authorities		—		(28,756)		—
Balance at end of year	$	20,579	$	11,530	$	29,452

As of December 31, 2023, 2022 and 2021, we had $20.6 million, $11.5 million and $29.5 million, respectively, of unrecognized tax benefits, which if recognized in future periods, would impact our effective tax rates. We also accrued $0.6 million, $0.3 million and zero for potential interest and penalties related to the unrecognized tax benefits as of December 31, 2023, 2022, and 2021, respectively. We recognize potential interest and penalties related to unrecognized tax benefits in our provision for income taxes.

We are subject to taxation in the federal and various state jurisdictions. For the year ended December 31, 2022, our unrecognized tax benefits were reduced by $28.8 million due to favorable settlements with the IRS for the 2016 through 2018 tax years. As of December 31, 2023, we remain open to IRS examination for the 2020 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, 2023, we generally remain open to examination by various state taxing authorities for the 2019 tax year forward.

We believe it is reasonably possible that a reduction of up to $5.3 million in unrecognized tax benefits could occur within the next twelve months. Any reductions in our unrecognized tax benefits, due to the future recognition of those tax benefits, would affect our effective tax rates.