Income Taxes

12 Months Ended

Sep. 30, 2014

9. INCOME TAXES

Federal and state income tax provisions for continuing operations are as follows:

		Years Ended September 30,
		2014		2013		2012
Federal:
	Current	$	183	$	-	$	-
	Deferred		182		-		-
State:
	Current		554		363		253
	Deferred		(171)		(37)		(215)
		$	748	$	326	$	38

Actual income tax expense differs from income tax expense computed by applying the U.S. federal statutory corporate rate of 35 percent to income (loss) before income taxes is as follows:

		Years Ended September 30,
		2014		2013		2012
Provision (benefit) at the statutory rate		$	2,195	$	(648)	$	(918)
Increase resulting from:
	Non-deductible expenses		563		1,269		490
	State income taxes, net of federal deduction		544		377		106
	Change in valuation allowance		-		-		581
	Other		-		29		-
Decrease resulting from:
	Change in valuation allowance		(2,547)		(651)		-
	Contingent tax liabilities		(1)		(50)		(206)
	Other		(6)		-		(15)
		$	748	$	326	$	38

Deferred income tax provisions result from temporary differences in the recognition of income and expenses for financial reporting purposes and for income tax purposes. The income tax effects of these temporary differences, representing deferred income tax assets and liabilities, result principally from the following:

		Years Ended September 30,
		2014		2013
Deferred income tax assets:
	Allowance for doubtful accounts	$	295	$	370
	Accrued expenses		8,171		7,023
	Net operating loss carryforward		107,072		110,259
	Various reserves		1,363		1,022
	Equity losses in affiliate		200		235
	Share-based compensation		419		2,732
	Capital loss carryforward		3,976		4,100
	Intangible assets		1,071		683
	Other		1,268		1,651
Subtotal			123,835		128,075
Less valuation allowance			121,878		126,500
Total deferred income tax assets		$	1,957	$	1,575
Deferred income tax liabilities:
	Property and equipment	$	608	$	570
	Intangible assets		827		-
	Other		219		123
Total deferred income tax liabilities			1,654		693
Net deferred income tax assets		$	303	$	882

In 2002, we adopted a tax accounting method change that allowed us to deduct goodwill for income tax purposes that had previously been classified as non-deductible. The accounting method change resulted in additional amortizable tax basis in goodwill. We believe the realization of the additional tax basis in goodwill is not more likely than not and have not recorded a deferred tax asset. Although a deferred tax asset has not been recorded through September 30, 2014, we have derived a cumulative cash tax reduction of $11,485 from the change in tax accounting method and the subsequent amortization of the additional tax goodwill. In addition, the amortization of the additional tax goodwill has resulted in additional federal net operating loss carry forwards of $142,014 and state net operating loss carry forwards of $15,058. We believe the realization of the additional net operating loss carry forwards is not more likely than not and have not recorded a deferred tax asset. We have $38 of tax basis in the additional tax goodwill that will be amortized during the year ended September 30, 2015.

As of September 30, 2014, we had available approximately $459,426 of federal net tax operating loss carry forward for federal income tax purposes, including $142,014 resulting from the additional amortization of tax goodwill. This carry forward, which may provide future tax benefits, will begin to expire in 2022. On May 12, 2006, we had a change in ownership as defined in Internal Revenue Code Section 382. As such, our utilization after the change date of our net operating loss in existence as of the change of control date was subject to Section 382 limitations for federal income taxes and some state income taxes. The annual limitation under Section 382 on the utilization of federal net operating losses was approximately $20,000 for the first five tax years subsequent to the change in ownership and $16,000 thereafter. Approximately $295,318 of federal net operating losses will not be subject to this limitation. Also, after applying the Section 382 limitation to available state net operating loss carry forwards, we had available approximately $153,375 state net tax operating loss carry forwards, including $15,058 resulting from the additional amortization of tax goodwill which begins to expire as of September 30, 2015 . We have provided valuation allowances on all net operating losses where it is determined it is more likely than not that they will expire without being utilized.

In assessing the realizability of deferred tax assets at September 30, 2014, we considered whether it was more likely than not that some portion or all of the deferred tax assets will not be realized. Our realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which these temporary differences become deductible. However, GAAP guidelines place considerably more weight on historical results and less weight on future projections when there is negative evidence such as cumulative pretax losses in recent years. We incurred a cumulative pretax loss for the three years ended September 30, 2014. In the absence of specific favorable evidence of sufficient weight to offset the negative evidence of the cumulative pretax loss, we have provided valuation allowances of $117,059 for all federal deferred tax assets and $4,819 for certain state deferred tax assets. We believe that $859 and $114 of federal and state deferred tax assets, respectively, will be realized by offsetting reversing deferred tax liabilities. In addition, we have $955 of net state deferred tax assets that we expect will be realized, and therefore valuation allowances were not provided for these assets. We also have certain deferred tax liabilities that may not be offset by deferred tax assets, and for which we have recorded a deferred tax liability of $652. As a result, we have recorded a net deferred tax asset of $303 on our consolidated balance sheets. We will evaluate the appropriateness of our remaining deferred tax assets and valuation allowances on a quarterly basis.

As a result of the reorganization and related adjustment to the book basis in goodwill, we have tax basis in excess of book basis in amortizable goodwill of approximately $24,190. The tax basis in amortizable goodwill in excess of book basis is not reflected as a deferred tax asset. To the extent the amortization of the excess tax basis results in a cash tax benefit, the benefit will first go to reduce goodwill, then other long-term intangible assets, and then tax expense.

GAAP requires financial statement reporting of the expected future tax consequences of uncertain tax return reporting positions on the presumption that all relevant tax authorities possess full knowledge of those tax reporting positions, as well as all of the pertinent facts and circumstances, but it prohibits discounting of any of the related tax effects for the time value of money. The evaluation of a tax position is a two-step process. The first step is the recognition process to determine if it is more likely than not that a tax position will be sustained upon examination by the appropriate taxing authority, based on the technical merits of the position. The second step is a measurement process whereby a tax position that meets the more likely than not recognition threshold is calculated to determine the amount of benefit/expense to recognize in the financial statements. The tax position is measured at the largest amount of benefit/expense that is more likely than not of being realized upon ultimate settlement.

A reconciliation of the beginning and ending balances of unrecognized tax benefit is as follows:

	Years Ended September 30,
	2014		2013
Balance at October 1,	$	55,612	$	54,920
Additions for position related to current year		468		747
Additions for positions of prior years		2		8
Reduction resulting from the lapse of the applicable statutes of limitations		3		63
Reduction resulting from settlement of positions of prior years		-		-
Balance at September 30,	$	56,079	$	55,612

As of September 30, 2014 and 2013, $56,079 and $55,612, respectively, of unrecognized tax benefits would result in a decrease in the provision for income tax expense, of which $50,759 and $50,311 for each of those years, respectively, relates to net operating loss from additional goodwill resulting from the tax accounting method change discussed above. We believe the realization of the net operating losses resulting from the tax accounting method change is not more likely than not and have not recorded a deferred tax asset. However, if we are partially or fully successful in defending our tax accounting method change we may realize a portion or all of the deferred tax asset related to this net operating loss, offset by an increase in the valuation allowance. We anticipate that approximately $6 of unrecognized tax benefits, including accrued interest, may reverse in the next twelve months. The reversal is predominately due to the expiration of the statutes of limitation for unrecognized tax benefits.

We had approximately $7 and $6 accrued for the payment of interest and penalties at September 30, 2014 and 2013, respectively. We recognize interest and penalties related to unrecognized tax benefits as part of the provision for income taxes.

We are currently not under federal audit by the Internal Revenue Service. The tax years ended September 30, 2011 and forward are subject to federal audit as are tax years prior to September 30, 2011, to the extent of unutilized net operating losses generated in those years. The tax years ended September 30, 2010 and forward are subject to state audits as are tax years prior to September 30, 2010, to the extent of unutilized net operating losses generated in those years.

The net deferred income tax assets and liabilities are comprised of the following:

			Years Ended September 30,
			2014		2013
	Current deferred income taxes:
		Assets	$	201	$	442
		Liabilities		196		286
	Net deferred tax asset, current		$	5	$	156
	Noncurrent deferred income taxes:
		Assets	$	1,961	$	1,631
		Liabilities		1,663		905
	Net deferred tax asset, non-current			298		726
Net deferred income tax assets			$	303	$	882

- Definition

The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.

+ References+ Details