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Income Taxes
12 Months Ended
Dec. 31, 2019
Income Taxes  
Income Taxes

Note 19—Income Taxes

Income before provision for income taxes consists of the following (in thousands):

    

Year Ended December 31, 

 

2019

    

2018

    

2017

United States

$

107,639

$

111,002

$

105,555

Foreign

 

10,270

 

2,356

 

(272)

Total

117,909

113,358

105,283

The components of the provision for income taxes are as follows (in thousands):

    

Year Ended December 31, 

 

2019

    

2018

    

2017

Current provision (benefit)

Federal

$

12,513

$

3,405

$

21,509

State

 

4,398

 

4,536

 

3,371

Foreign

 

2,954

 

674

 

(188)

19,865

8,615

24,692

Deferred provision (benefit)

Federal

 

12,283

 

14,535

 

1,958

State

 

1,940

 

2,120

 

1,219

Foreign

 

(276)

 

(139)

 

(36)

 

13,947

 

16,516

 

3,141

Change in valuation allowance

634

600

Total

$

33,812

$

25,765

$

28,433

A reconciliation of income tax expense compared to the amount of income tax expense that would result by applying the U.S. federal statutory income tax rate to pre-tax income is as follows:

    

Year Ended December 31, 

 

2019

    

2018

    

2017

U.S. federal statutory income tax rate

 

21.0

%

21.0

%

35.0

%

Impact of U.S tax reform

1.1

(9.3)

State taxes, net of federal income tax impact

 

4.4

5.1

2.9

Tax credits

 

(1.7)

(5.3)

Income taxed at rates greater than U.S.

 

1.1

0.4

(0.2)

Domestic production activities deduction

 

(2.3)

Nondeductible meals & entertainment

 

3.0

2.9

2.8

Nondeductible compensation

0.7

0.2

0.1

Other items

 

0.6

(0.4)

(0.8)

Effective tax rate excluding income attributable to noncontrolling interests

 

29.1

25.0

28.2

Impact of income from noncontrolling interests on effective tax rate

 

(0.4)

(2.3)

(1.2)

Effective tax rate

 

28.7

%

22.7

%

27.0

%

The provision for income taxes has been determined based upon the tax laws and rates in the countries in which we operate. Our operations in the United States are subject to federal income tax rates of 21.0% and varying state income tax rates. Our principal international operations are in Canada. Our subsidiaries in Canada are subject to a corporate income tax rate of 26.5%. We did not have any non-taxable foreign earnings from tax holidays for taxable years 2017 through 2019.

Deferred taxes are recognized for temporary differences between the financial reporting bases and tax bases of assets and liabilities based on enacted tax rates expected to be in effect when such amounts are realized or settled. However, deferred tax assets are recognized only to the extent that it is more likely than not that they will be realized based upon consideration of available evidence, including future reversals of existing taxable temporary differences, future projected taxable income, the length of the tax asset carryforward periods, and tax planning strategies.

The tax effect of temporary differences that give rise to deferred income taxes are as follows (in thousands):

    

December 31, 

 

2019

    

2018

Deferred tax assets:

Accrued compensation

$

3,705

$

4,999

Accrued workers compensation

9,939

10,309

Net operating losses

40,919

34,615

Disallowed interest

533

1,908

Capital loss carryforward

10,126

10,796

Deferred rent

126

1,552

Lease liabilities

62,023

Insurance reserves

 

3,146

 

3,737

Loss reserves

 

2,276

 

2,064

Tax credit

 

825

 

1,505

State income taxes

 

1,193

 

1,045

Other

 

3,436

 

2,146

Total deferred tax assets

 

138,247

 

74,676

Deferred tax liabilities

Depreciation and amortization

 

(63,824)

 

(56,670)

Prepaid expenses and other

 

(1,839)

 

(777)

Lease assets

(61,417)

Total deferred tax liabilities

 

(127,080)

 

(57,447)

Valuation allowance

(27,886)

(23,938)

Net deferred tax liabilities

$

(16,719)

$

(6,709)

As of December 31, 2019, we have remaining U.S. federal and state net operating loss carryforwards of $21.3 million and $15.9 million, respectively. In addition, we have net operating loss carryforwards for Australia and Canada of $2.6 million and $1.1 million, respectively. Our U.S. federal net operating losses expire beginning in 2031, and our state net operating losses generally expire 20 years after the period in which the net operating loss was incurred.

As of December 31, 2019, our U.S. capital loss and tax credit carryforwards totaled $10.1 million and $0.8 million, respectively. The U.S. capital losses expire in 2023. The unused tax credits are primarily comprised of $0.6 million of foreign tax credits. The foreign tax credit carryforwards begin expiring in 2020.

We claimed $0.6 million of solar investment tax credits (“ITC”) in 2019. We made an accounting policy election to use the flow through income statement method under which we recognized the benefit of the ITC and the related detriment of tax basis reductions in 2018.

Valuation allowances on U.S. capital losses, on U.S. state net operating losses, and on Australian net operating losses acquired from Willbros were $27.9 million as of December 31, 2019.

A reconciliation of the beginning and ending and aggregate changes in the gross balances of unrecognized tax benefits is as follows (in thousands):

    

December 31, 

 

2019

    

2018

    

2017

Beginning balance

$

1,330

$

592

$

Increases in balances for tax positions taken during the current year

 

298

 

146

 

592

Increases in balances for tax positions taken during prior years

 

19

 

2,666

 

Settlements and effective settlements with tax authorities

(649)

(1,979)

Lapse of statute of limitations

 

(151)

 

(95)

 

Total

$

847

$

1,330

$

592

We recognize accrued interest and penalties related to uncertain tax positions in income tax expense, which were not material for the three years presented. The $0.6 million decrease during 2019 in unrecognized tax benefits is due to the effective settlements with tax authorities related to our acquisition of Willbros and did not impact net income for the year ended December 31, 2019.

We believe it is reasonably possible that decreases up to $0.2 million of unrecognized tax benefits could occur in the next twelve months due to the expiration of statutes of limitation.

Our federal income tax returns are generally no longer subject to examination for tax years before 2016. The statutes of limitation of state and foreign jurisdictions generally vary between 3 to 5 years.  Accordingly, our state and foreign income tax returns are generally no longer subject to examination for tax years before 2014.