XML 28 R17.htm IDEA: XBRL DOCUMENT v3.10.0.1
Income Taxes
6 Months Ended
Jun. 30, 2018
Income Tax Disclosure [Abstract]  
Income Taxes
Income Taxes

The Company’s tax provision for interim periods is determined using an estimate of the Company’s annual effective tax rate adjusted for discrete interim period tax impacts. Each quarter the Company updates its estimated annual effective tax rate and, if the estimate changes, makes a cumulative adjustment. The Company’s effective tax rate was 18.3% and 22.8% for the three months ended June 30, 2018 and 2017, respectively, and 21.8% and 24.6% for the six months ended June 30, 2018 and 2017, respectively. Income before income taxes included income from domestic operations of $0.2 million and $9.2 million for the six months ended June 30, 2018 and 2017, respectively, and income from foreign operations of $64.1 million and $66.7 million for the six months ended June 30, 2018 and 2017, respectively.

The 2017 Tax Act was enacted on December 22, 2017. The 2017 Tax Act includes a number of changes to the Internal Revenue Code including a one-time transition tax on the mandatory deemed repatriation of cumulative undistributed foreign earnings and a permanent reduction in the U.S. federal statutory income tax rate from 35% to 21%, effective on January 1, 2018.  The 2017 Tax Act also created a new requirement that certain income (i.e., Global Intangible Low Taxed Income (“GILTI”)) earned by foreign subsidiaries must be included currently in the gross income of the U.S. shareholder. Consistent with guidance issued by SAB 118, the Company recorded provisional estimates for the income tax effects of the 2017 Tax Act in December 31, 2017. In addition, SAB 118 provides for a measurement period of one year from the enactment date to finalize the accounting for effects of the 2017 Tax Act. The Company continues to analyze the impacts of the 2017 Tax Act and refine calculations.
The Company is required to record deferred tax assets and liabilities based on the enacted tax rates at which they are expected to reverse in the future. Therefore, any U.S. related deferred taxes were re-measured from 35% down to 21% based on the recorded balances as of December 31, 2017. The analysis included a preliminary assessment on the deductibility of certain amounts for which deferred tax assets may have been recorded. As of December 31, 2017, the Company recorded an estimated tax benefit of approximately $33.3 million. As of June 30, 2018, the Company has not adjusted its provisional estimate related to re-measurement of its deferred tax balances.
The Company was required to calculate a one-time transition tax based on its total post-1986 foreign earnings and profits (“E&P”) that it previously deferred from U.S. income taxes. During the year ended December 31, 2017, the Company recorded a provisional estimate of the transition tax of $49.2 million payable over an eight year period. As of June 30, 2018, the Company has not adjusted its provisional estimate of the transition tax.
The Company was unable to determine a reasonable estimate of the remaining tax liability, if any, under the 2017 Tax Act for its remaining outside basis differences or evaluate how the 2017 Tax Act will affect the Company’s existing accounting position to indefinitely reinvest unremitted foreign earnings. Therefore, the Company did not include a provisional amount for this item in its financial statements for fiscal 2017. As of June 30, 2018, the Company continues to review the amount of tax due, if any, on differences in tax basis and the accounting position related to indefinite reinvestment of foreign earnings.
The Company is subject to a territorial tax system under the 2017 Tax Act, in which it is required to provide for tax on GILTI earned by certain foreign subsidiaries. Additionally, the Company is required to make an accounting policy election to either recognize deferred taxes for temporary basis differences expected to reverse as GILTI in future years or provide for the tax expense related to GILTI in the year the tax is incurred as a period expense. As of June 30, 2018, the Company is still evaluating the effects of the GILTI provisions as guidance and interpretations continue to emerge. Therefore, the Company has not determined its accounting policy on the GILTI provisions. However, the standard requires that the Company reflect the impact of the GILTI provisions as a period expense until the accounting policy is finalized. Therefore, the Company has included the provisional estimate of GILTI related to current-year operations in its estimated annual effective tax rate only and will be updating the impact and accounting policy as the analysis related to the GILTI provisions is completed.
As of June 30, 2018 and December 31, 2017, the Company had $54.5 million and $52.2 million, respectively, in liabilities for uncertain income tax positions. Accrued interest and penalties related to unrecognized tax benefits are recognized in income tax expense on the Company’s consolidated statement of income.

Cash paid for income taxes net of refunds received was $16.6 million and $26.5 million for the six months ended June 30, 2018 and 2017, respectively.

Certain taxes are prepaid during the year and, where appropriate, included within prepaid expenses and other current assets on the consolidated balance sheet. The Company’s prepaid taxes were $8.8 million and $6.0 million at June 30, 2018 and December 31, 2017, respectively.

Income Tax Audits:

The Company is in various stages of audit by the U.S. Internal Revenue Service (“IRS”) for its 2012 through 2016 tax years.

j2 Global is under income tax audit by the California Franchise Tax Board (the “FTB”) for its tax years 2012 and 2013. The FTB, however, has agreed to suspend its audit for 2012 and 2013 pending the outcome of the IRS audit for such tax years.

The Company is under income tax audit by the New York State Department of Taxation and Finance (“NYS”) for tax years 2011 through 2014.

The Massachusetts Department of Revenue notified the Company that it will commence an audit of income tax for tax years 2014 and 2015.

The Company was under audit by the Georgia Department of Revenue (“Georgia DOR”) for tax years 2014 through 2016. In June 2018, the Georgia DOR concluded its audit of tax years 2014 through 2016. The Company was assessed an insignificant amount of income tax and interest, which was paid.

The Company is currently under audit by the French tax authorities for tax years 2011 to 2016. The audit is in the preliminary fact gathering stage.
 
It is reasonably possible that these audits may conclude in the next 12 months and that the uncertain tax positions the Company has recorded in relation to these tax years may change compared to the liabilities recorded for these periods. If the recorded uncertain tax positions are inadequate to cover the associated tax liabilities, the Company would be required to record additional tax expense in the relevant period, which could be material. If the recorded uncertain tax positions are adequate to cover the associated tax liabilities, the Company would be required to record any excess as a reduction in tax expense in the relevant period, which could be material. However, it is not currently possible to estimate the amount, if any, of such change.