Income Taxes

3 Months Ended

Mar. 31, 2020

For the three months ended March 31, 2020 the Company recorded a benefit of $5.5 million. For the three months ended March 31, 2019 the Company recorded no income tax benefit (expense). The income tax benefit is show below (in thousands):


	Three Months Ended March 31,
	2020		2019
Current tax benefit	4,473		—
Deferred tax benefit	990		—
Total income tax benefit	$	5,463	$	—

On March 25, 2020, in response to the COVID-19 pandemic, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was signed into law to provide emergency assistance to affected individuals, families, and businesses. The CARES Act provides numerous tax provisions and other stimulus measures, including temporary changes regarding the prior and future utilization of net operating losses. The CARES Act amends the net operating losses ("NOLs") provisions of the Tax Cut and Jobs Act of 2017 (the "Tax Act"), allowing for the carryback of losses arising in tax years beginning before December 31, 2017, specifically to the years ended December 31, 2014 and 2015. An estimated tax benefit of $4.5 million related to pre-tax NOL will be carried back to each of the five taxable years to fully offset taxable income with a full receivable recorded for this amount as of March 31, 2020.

The income tax amount for the three months ended March 31, 2020 differs from the amount that would be expected after applying the statutory U.S. federal income tax rate primarily due to the benefit of $4.5 million recorded as a result of the CARES Act. Additionally, the income tax benefit includes $990,000 for the release of the valuation allowance related to Private Lumos NOLs and a current period benefit for losses the Company anticipates will be offset by future income. The income tax amount for the three months ended March 31, 2019 differs from the amount that would be expected after applying the statutory U.S. federal income tax rate primarily due to the full valuation allowance.

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected taxable income, and tax planning strategies in making this assessment. As a result of the Merger, a deferred tax liability of $9.5 million was recorded for the step up in book basis over tax basis for the net value of the PRV that the Company anticipates it will realize during the year ending December 31, 2020. A net deferred tax liability of $8.5 million is shown on the condensed consolidated balance sheet as of March 31, 2020. As of March 31, 2020, there is not a valuation allowance recorded.

Based on Section 382 ownership change analyses through March 18, 2020, as a result of the Merger, both historical NewLink and Private Lumos experienced Section 382 ownership changes on March 18, 2020.

The Company has a reserve for uncertain tax positions related to state tax matters of $653,000 as of March 31, 2020 recorded within accrued expenses in the condensed consolidated balance sheet, which includes the accrual of interest and penalties. The Company does not expect the amount to change significantly within the next 12 months.