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Income Taxes
12 Months Ended
Dec. 31, 2018
Income Tax Disclosure [Abstract]  
Income Taxes INCOME TAXES:
U.S. federal and state and foreign income tax laws and regulations are voluminous and are often ambiguous. As such, Quanta is required to make many subjective assumptions and judgments regarding its tax positions that could materially affect amounts recognized in its future consolidated balance sheets, consolidated statements of operations and consolidated statements of comprehensive income. For example, the Tax Act significantly revised the U.S. corporate tax regime, which, among other things, resulted in a reduction of Quanta’s future effective tax rate and a remeasurement of its deferred tax assets and liabilities. Quanta completed its analysis of the Tax Act within the prescribed one-year measurement period, and adjustments during the measurement period were included within “Net income” as an adjustment to “Provision for income taxes” on Quanta’s consolidated statement of operations. The measurement period adjustments are described in further detail below.
The Tax Act lowered the U.S. federal corporate income tax rate from 35% to 21% effective January 1, 2018, required companies to pay a one-time transition tax on earnings of certain foreign subsidiaries, limited and eliminated certain tax deductions and created new taxes on certain foreign-sourced earnings. Consequently, for the year ended December 31, 2017, Quanta recorded one-time net tax benefits of $70.1 million, including $85.3 million of tax benefits associated with the remeasurement of U.S. federal deferred tax assets and liabilities based on expected future rates (generally 21%), partially offset by an estimated $15.2 million transition tax on post-1986 earnings and profits of certain foreign subsidiaries. This net tax benefit was Quanta’s provisional estimate, utilizing the information that was available at the time. As permitted by and in accordance with the guidance issued by the SEC and codified by the FASB, during the year ended December 31, 2018, Quanta recorded $6.3 million of additional benefit related to the remeasurement of U.S. federal deferred tax assets and liabilities, as the estimate of such amount was revised in connection with the preparation and filing of Quanta’s 2017 income tax returns. Additionally, as a result of the tax reform regulations issued during 2018, Quanta recorded a valuation allowance of $43.5 million against foreign tax credits. As of December 31, 2018, Quanta has completed its accounting for the tax effects of the enactment of the Tax Act; however, we continue to expect additional regulations that could have a material impact on Quanta’s effective tax rate in future periods. Further, to the extent there are settlements of certain foreign unrecognized tax benefits in future periods, changes to the estimates associated with the transition tax may be required.
The Tax Act also imposed a tax on global intangible low-taxed income (GILTI). Quanta analyzed the impacts of GILTI and made an accounting policy election in the fourth quarter of 2018 whereby it determined that such income will be recognized in the period earned and will not recognize deferred taxes for basis differences that may reverse as GILTI in future years.
For the year ended December 31, 2017, an additional one-time tax benefit of $26.7 million was recorded in connection with entity restructuring and recapitalization transactions completed by Quanta, which was partially offset by an $8.5 million decrease in
the production activity-related tax benefit that resulted from acceleration of certain deductions into 2017. During the year ended December 31, 2018, the estimated benefit associated with entity restructuring and recapitalization transactions was decreased by $1.8 million based on actual 2017 earnings and profit balances.
The components of income (loss) from continuing operations before income taxes were as follows (in thousands):
 
Year Ended December 31,
 
2018
 
2017
 
2016
Income (loss) from continuing operations before income taxes:
 
 
 
 
 
Domestic
$
318,635

 
$
291,031

 
$
349,959

Foreign
139,031

 
62,726

 
(42,273
)
Total
$
457,666

 
$
353,757

 
$
307,686


The components of the provision for income taxes for continuing operations were as follows (in thousands):
 
Year Ended December 31,
 
2018
 
2017
 
2016
Current:
 

 
 

 
 

Federal
$
50,306

 
$
44,695

 
$
106,316

State
26,170

 
301

 
11,549

Foreign
23,209

 
22,666

 
5,076

Total current tax provision
99,685

 
67,662

 
122,941

 
 
 
 
 
 
Deferred:
 
 
 
 
 
Federal
62,482

 
(36,915
)
 
(264
)
State
(4,152
)
 
14,951

 
(923
)
Foreign
3,644

 
(10,166
)
 
(14,508
)
Total deferred tax provision (benefit)
61,974

 
(32,130
)
 
(15,695
)
Total provision for income taxes from continuing operations
$
161,659

 
$
35,532

 
$
107,246


The actual income tax provision differed from the income tax provision computed by applying the U.S. federal statutory corporate rate to income from continuing operations before provision for income taxes as follows (in thousands):
 
Year Ended December 31,
 
2018
 
2017
 
2016
Provision at the statutory rate
$
96,110

 
$
123,815

 
$
107,690

Increases (decreases) resulting from —
 
 
 
 
 
Tax Cuts and Jobs Act
(6,295
)
 
(70,129
)
 

State taxes
18,504

 
17,920

 
6,479

Foreign taxes
2,734

 
(16,958
)
 
1,860

Contingency reserves, net
(2,619
)
 
3,651

 
(13,540
)
Production activity deduction

 
(1,504
)
 
(8,586
)
Employee per diems, meals and entertainment
11,949

 
13,605

 
8,764

Taxes on unincorporated joint ventures
(578
)
 
(1,354
)
 
(656
)
Asset impairments

 

 
1,909

Entity restructuring and recapitalization efforts
(4,424
)
 
(26,668
)
 

Equity compensation
(1,449
)
 
(5,095
)
 

Valuation allowance - Foreign Tax Credits
43,507

 

 

Other
4,220

 
(1,751
)
 
3,326

Total provision for income taxes from continuing operations
$
161,659

 
$
35,532

 
$
107,246


Deferred income taxes result from temporary differences in the recognition of income and expenses for financial reporting purposes and tax purposes. The tax effects of these temporary differences, representing deferred tax assets and liabilities, result principally from the following (in thousands):
 
December 31,
 
2018
 
2017
Deferred income tax liabilities:
 
 
 
Property and equipment
$
(178,090
)
 
$
(161,491
)
Goodwill
(60,305
)
 
(49,407
)
Other intangibles
(21,034
)
 
(26,676
)
Customer holdbacks
(44,173
)
 
(36,218
)
Other book/tax accounting method differences
(7,247
)
 
(17,967
)
Total deferred income tax liabilities
(310,849
)
 
(291,759
)
 
 
 
 
Deferred income tax assets:
 

 
 

Accruals and reserves
28,594

 
21,419

Stock and incentive compensation
20,627

 
17,676

Net operating loss carryforwards
52,406

 
62,925

Tax credits
43,572

 
48,516

Deferred profit on investment in unconsolidated affiliates
16,021

 
2,813

Other
15,054

 
4,747

Subtotal
176,274

 
158,096

Valuation allowance
(67,601
)
 
(19,328
)
Total deferred income tax assets
108,673

 
138,768

Total net deferred income tax liabilities
$
(202,176
)
 
$
(152,991
)

The net deferred income tax assets and liabilities were comprised of the following in the accompanying consolidated balance sheets (in thousands):
 
December 31,
 
2018
 
2017
Deferred income taxes:
 

 
 

Assets
$
16,939

 
$
26,390

Liabilities
(219,115
)
 
(179,381
)
Total net deferred income tax liabilities
$
(202,176
)
 
$
(152,991
)

The valuation allowance for deferred income tax assets at December 31, 2018, 2017 and 2016 was $67.6 million, $19.3 million and $15.0 million, respectively. These valuation allowances relate to state and foreign net operating loss carryforwards and foreign tax credits. The net change in the total valuation allowance for each of the years ended December 31, 2018, 2017 and 2016 was an increase of $48.3 million, an increase of $4.3 million and a decrease of $1.1 million, respectively. The valuation allowance was established primarily as a result of uncertainty in Quanta’s outlook as to the amount and character of future taxable income in particular tax jurisdictions. Quanta believes it is more likely than not that it will realize the benefit of its deferred tax assets net of existing valuation allowances.
At December 31, 2018, Quanta had state and foreign net operating loss carryforwards, the tax effect of which was $57.1 million. These carryforwards will expire as follows: 2019, $0.2 million; 2020, $1.7 million; 2021, $0.5 million; 2022, $0.2 million; 2023, $1.3 million and $53.2 million thereafter. A valuation allowance of $21.9 million has been recorded against certain foreign and state net operating loss carryforwards.
Quanta generally does not provide for taxes related to undistributed earnings of its foreign subsidiaries because such earnings either would not be taxable when remitted or they are considered to be indefinitely reinvested. Quanta could also be subject to additional foreign withholding taxes if it were to repatriate cash that is indefinitely reinvested outside the United States, but it does not expect such amount to be material.
A reconciliation of unrecognized tax benefit balances is as follows (in thousands):
 
December 31,
 
2018
 
2017
 
2016
Balance at beginning of year
$
36,229

 
$
35,240

 
$
54,541

Additions based on tax positions related to the current year
6,231

 
7,040

 
4,227

Additions for tax positions of prior years
9,377

 
3,372

 
2,048

Reductions for tax positions of prior years
(2,870
)
 
(1,171
)
 
(1,948
)
Reductions for audit settlements

 

 
(180
)
Reductions resulting from a lapse of the applicable statute
of limitations periods
(7,857
)
 
(8,252
)
 
(23,448
)
Balance at end of year
$
41,110

 
$
36,229

 
$
35,240



For the year ended December 31, 2018, the $7.9 million reduction was primarily due to the expiration of certain federal and state statute of limitations periods for the 2014 tax year. For the year ended December 31, 2017, the $8.3 million reduction was primarily due to the expiration of certain federal and state statute of limitations periods for the 2010 through 2012 tax years. For the year ended December 31, 2016, the $23.4 million reduction was primarily due to the expiration of certain federal and state statute of limitations periods for the 2004 tax year.
The balances of unrecognized tax benefits, the amount of related interest and penalties and what Quanta believes to be the range of reasonably possible changes in the next 12 months are as follows (in thousands):
 
December 31,
 
2018

2017

2016
Unrecognized tax benefits
$
41,110


$
36,229


$
35,240

Portion that, if recognized, would reduce tax expense and
effective tax rate
40,977


35,561


33,128

Accrued interest on unrecognized tax benefits
5,459


5,368


5,539

Accrued penalties on unrecognized tax benefits
631


631


650

Reasonably possible reduction to the balance of unrecognized
tax benefits in succeeding 12 months
$0 to $9,541


$0 to $13,655


$0 to $12,332

Portion that, if recognized, would reduce tax expense and
effective tax rate
$0 to $8,224


$0 to $12,483


$0 to $10,983



Quanta classifies interest and penalties within the provision for income taxes. Quanta recognized interest expense of $0.1 million, interest income of $0.2 million and interest income of $3.2 million in the provision for income taxes for the years ended December 31, 2018, 2017 and 2016, respectively.
Quanta and certain subsidiaries remain under examination by various U.S. state and Canadian and other foreign tax authorities for multiple periods. Quanta does not consider any state in which it does business to be a major tax jurisdiction.