Taxes

12 Months Ended

Dec. 31, 2020

Taxes

Taxes

15. Taxes

The Company provides for deferred income taxes for temporary differences arising from differences between the financial statement and tax basis of assets and liabilities existing at each balance sheet date using enacted tax rates expected to be in effect when the related taxes are expected to be paid or recovered. The Company initially recognizes the effects of a tax position when it is more than 50 percent likely, based on the technical merits, that the position will be sustained upon examination, including resolution of the related appeals or litigation processes, if any. The Company’s determination of whether or not a tax position has met the recognition threshold considers the facts, circumstances, and information available at the reporting date.

The Company assesses the need for a valuation allowance by evaluating future taxable income, available tax planning strategies and the reversal of temporary differences. A valuation allowance is difficult to avoid when a company is in a cumulative loss position, as it constitutes significant negative evidence with regards to future taxable income. A cumulative loss position is defined as a cumulative pre-tax loss for the current and two preceding years.

As of December 31, 2018, the Company was in a cumulative loss position and held a full valuation allowance against its net deferred tax assets.

In 2019, the Company was no longer in a cumulative loss position. However, based on significant near-term uncertainty in market pricing and uncertainty surrounding other planned changes in our operating structure, the Company maintained a full valuation allowance.

As of December 31, 2020, the Company maintained the full valuation allowance, based on continued pricing uncertainty, ongoing operational changes and the significant pre-tax loss reported for the year.

Due to changes in ownership that occurred in connection with the Company’s emergence from bankruptcy in 2016, there was a change in ownership for purposes of IRC Section 382. Section 382 provides a combined annual limitation with respect to the ability of a corporation to use its NOLs, AMT credits and capital loss carryforwards generated before the ownership change against future taxable income. The Company’s annual limit under IRC section 382 is estimated to be $29.8 million. The Company had a net unrealized built-in gain, based on comparing the fair value and carryover tax basis in assets, at the time of the ownership change, therefore, certain built-in gains recognized within five years after the ownership change will increase the annual IRC section 382 limit for the five year recognition period beginning October 1, 2016 through September 30, 2021. There is uncertainty surrounding which assets with built-in gain will be realized within the five year period following the Company’s emergence from bankruptcy and allow the Company to realize the incremental net operating losses and credit in excess of the base 382 limitation. The Company is reflecting a deferred tax asset for the full amount of the net operating losses and credit carryforwards. If at some point in

time it becomes evident that some portion of the deferred tax assets will not be realizable, the deferred tax asset, and offsetting valuation allowance will be reduced.

The Company is subject to U.S. federal income tax as well as income tax in multiple state jurisdictions. The tax years 2009 through 2020 remain open to examination for U.S. federal income tax matters and 1999 through 2020 remain open to examination for various state income tax matters.

Significant components of the provision for (benefit from) income taxes are as follows:

		Year Ended		Year Ended	Year Ended
		December 31,		December 31,	December 31,
		2020		2019	2018
(In thousands)
Current:
Federal	$	518	$	(36)	$	86
State		(569)		124		136
Total current	$	(51)	$	88	$	222
Deferred:
Federal		44		667		(52,309)
State		—		(507)		(389)
Total deferred	$	44	$	160	$	(52,698)
	$	(7)	$	248	$	(52,476)

A reconciliation of the statutory federal income tax provision (benefit) at the statutory rate to the actual provision for (benefit from) income taxes follows:

	Year Ended		Year Ended		Year Ended
	December 31,		December 31,		December 31,
	2020		2019		2018
Income tax provision at statutory rate	$	(72,371)	$	49,150	$	54,621
Percentage depletion allowance		(7,763)		(17,743)		(17,725)
State taxes, net of effect of federal taxes		(3,298)		(12,769)		4,480
Change in valuation allowance		76,524		(24,206)		(79,961)
Current expense associated with uncertain tax positions
Other, net		6,901		5,816		3,754
Provision for (benefit from) income taxes	$	(7)	$	248	$	(52,476)

Significant components of the Company’s deferred tax assets and liabilities that result from carryforwards and temporary differences between the financial statement basis and tax basis of assets and liabilities are summarized as follows:

	December 31,		December 31,
	2020		2019
(In thousands)
Deferred tax assets:
Tax loss carryforwards	$	352,342	$	294,535
Tax credit carryforwards		3,117		5,297
Investment in partnerships		213,478		190,418
Other		19,377		20,387
Gross deferred tax assets	$	588,314	$	510,637
Valuation allowance		(573,995)		(506,316)
Total deferred tax assets	$	14,319	$	4,321
Deferred tax liabilities:
Plant and equipment		1,219		2,063
Convertible Notes		8,845		—
Other		4,218		2,178
Total deferred tax liabilities	$	14,282	$	4,241
Net deferred tax asset	$	37	$	80

The Company has gross federal NOL carryforwards for regular income tax purposes of $1.3 billion at December 31, 2020. Of these carryforwards, approximately $1.0 billion will expire, if not utilized, in various years through 2038. The future annual usage of these NOLs may be limited under IRC section 382. The remaining carryforwards have no expiration.

During 2018, the Company recorded a benefit from income taxes of $48.8 million related to AMT credits that became refundable between 2019 through 2022 under the Tax Cut and Jobs Act of 2017. As of December 31, 2018, these credits were classified as short and long term receivables based on their expected refund date. A $530.6 million valuation allowance fully offset the net deferred tax assets.

As of December 31, 2019, a $24.2 million benefit was recorded from the release of valuation allowance offsetting federal and state net operating losses used to offset current year taxable income. A $506.3 million valuation allowance fully offset all net deferred tax assets.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was signed into law. CARES Act provided for an acceleration of the refund timing related to remaining AMT credits as initially established under the Tax Cut and Jobs Act of 2017. During 2020, the Company received all outstanding refunds for AMT credits.

For the year ended December 31, 2020, a $76.5 million tax provision was recorded from the addition of valuation allowance offsetting the federal and state net operating losses generated during the year. This was partially offset by an $8.8 million release of valuation allowance through additional paid-in capital (APIC), as a result of the deferred tax liability recorded through APIC related to Convertible Notes. A $574.0 million valuation allowance fully offsets all net deferred tax assets.

A reconciliation of the beginning and ending amounts of gross unrecognized tax benefits follows:

	(In thousands)
Balance at December 31, 2017	$	11,383
Additions based on tax positions related to the current year		28,387
Additions for tax positions of prior years		3,228
Reductions for tax positions of prior years		(634)
Reductions as a result of lapses in the statute of limitations		(3,271)
Balance at December 31, 2018		39,093
Additions based on tax positions to the current year		2,980
Reductions for tax positions of prior years		(1,970)
Reductions as a result of lapses in the statute of limitations		(374)
Balance at December 31, 2019		39,729
Additions for tax positions related to the current year		1,583
Additions for tax positions related to the prior year		7,918
Reductions for tax positions of prior years		(732)
Reductions as a result of lapses in the statute of limitations		(382)
Balance at December 31, 2020	$	48,116

If recognized, the entire amount of the gross unrecognized tax benefits at December 31, 2020 would affect the effective tax rate.

The Company recognizes interest and penalties related to unrecognized tax benefits in income tax expense. The Company had accrued interest and penalties of $2.3 million and $0.8 million at December 31, 2020 and 2019, respectively. In the next 12 months, $0.1 million of gross unrecognized tax benefits are expected to be reduced due to the expiration of the statute of limitations.