Income Taxes |
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Income Tax Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Income Taxes | Income Taxes Income tax expense for the nine months ended September 30, 2020 and 2019 differs from the amount computed by applying the statutory federal income tax rate to income before income taxes. The sources and tax effects of the differences are as follows:
The effective tax rate for the nine months ended September 30, 2020 and 2019 differs from the statutory federal income tax rate of 21%, primarily due to state income taxes, net of federal tax benefits, general business credits, employee stock-based compensation, and the Internal Revenue Code (IRC) 162(m) limitation on the deductibility of Note 10—Income Taxes (continued) certain executive compensation. The increase in the effective tax rate for the nine months ended September 30, 2020 as compared to the nine months ended September 30, 2019 is primarily due to an increase of $0.5 million in taxable income resulting from the IRC 162(m) limitation on the deductibility of certain executive compensation and a $3.9 million decline in excess tax benefits from stock-based compensation. We recognized an excess tax benefit on stock compensation of $0.5 million for the nine months ended September 30, 2020, compared to a $4.4 million excess tax benefit for the prior year comparable period. These increases were partially offset by the impact of general business credits. On March 27, 2020, the CARES Act was signed into law, which, among other things, includes certain income tax provisions for individuals and corporations; however, these benefits do not impact our current tax provision. We have made a policy election to account for Global Intangible Low-Taxed Income ("GILTI") in the year the GILTI tax is incurred. For the nine months ended September 30, 2020, the provision for GILTI tax expense was not material to our financial statements. We establish a valuation allowance when we consider it more-likely-than-not that some portion or all of the deferred tax assets will not be realized. During the second quarter June 30, 2020, we released our valuation allowance against our capital loss carryforwards, as we recognized capital gains on the sale of certain investment securities during that period sufficient to offset our capital loss carryforward amount. As of September 30, 2020 and December 31, 2019, we did not have a valuation allowance on any of our deferred tax assets as we believed it was more-likely-than-not that we would realize the benefits of our deferred tax assets. We are subject to examination by the Internal Revenue Service, or IRS, and various state tax authorities. We remain subject to examination of our federal income tax return for the years ended December 31, 2016 through 2019. We generally remain subject to examination of our various state income tax returns for a period of four to five years from the respective dates the returns were filed. The IRS initiated an examination of our 2017 U.S. federal tax return during the second quarter June 30, 2020 and the examination remains ongoing. We do not expect that this examination will have a material impact on our consolidated financial statements. As of September 30, 2020, we have federal net operating loss carryforwards of approximately $31.9 million and state net operating loss carryforwards of approximately $57.9 million which will be available to offset future income. If not used, the federal net operating losses will expire between 2021 and 2035. Of our total state net operating loss carryforwards, approximately $31.7 million will expire between 2021 and 2039, while the remaining balance of approximately $26.2 million does not expire and carries forward indefinitely. The net operating losses are subject to an annual IRC Section 382 limitation, which restricts their utilization against taxable income in future periods. In addition, we have state business tax credits of approximately $16.3 million that can be carried forward indefinitely and other state business tax credits of approximately $1.1 million that will expire between 2023 and 2027. As of September 30, 2020 and December 31, 2019, we had a liability of $9.8 million and $8.4 million, respectively, for unrecognized tax benefits related to various federal and state income tax matters excluding interest, penalties and related tax benefits. The reconciliation of the beginning unrecognized tax benefits balance to the ending balance is as follows:
As of September 30, 2020 and 2019, we recognized accrued interest and penalties related to unrecognized tax benefits of approximately $0.8 million and $0.4 million, respectively.
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