Income Taxes

3 Months Ended

Mar. 31, 2021

Income Taxes [Abstract]

Income Taxes

(13) Income Taxes:

The following is a reconciliation of the provision for income taxes computed at the federal statutory rate to income taxes computed at the effective rate:

	For the three months ended
	March 31,
	2021		2020
Consolidated tax provision at federal statutory rate	21.0	%	21.0	%
State income tax provisions, net of federal income
tax expense (benefit)	8.7		(1.2)
Changes in certain deferred tax balances	60.9		0.6
Interest expense deduction	(36.7)		-
Restructuring cost	5.1		(3.4)
Loss on disposal of Northwest Operations	-		(2.4)
Tax reserve adjustment	-		(2.5)
Shared-based payments	-		(0.7)
Federal research and development tax credit	-		0.6
All other, net	0.2		(0.9)
Effective tax rate	59.2	%	11.1	%

Under ASC 740 – 270, income tax expense for interim periods is based on an annual effective tax rate for the full year with the exclusion of the discrete items. However, in a period when the Company is expecting marginal ordinary income (or loss) and relatively significant permanent differences, the actual effective tax rate for the year-to-date period may be used as an exception. The actual year-to date effective tax rate method was used by the Company in the first quarter of 2021.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was enacted in response to the COVID-19 pandemic. As part of the CARES Act, employers were allowed to defer payment of the employer’s share of the Social Security tax that they otherwise were responsible for paying on wages. The deferral applied to affected taxes that were normally required to be paid from March 27, 2020, through December 31, 2020. These deferred taxes must be paid in equal amounts in 2021 and 2022. As of March 31, 2021, Frontier has deferred the payments of approximately $60 million in such taxes.

As of March 31, 2021, and December 31, 2020, amounts pertaining to expected income tax refunds of $13 million are included in “Income taxes and other current assets” in the consolidated balance sheets, respectively.

Frontier considered positive and negative evidence in regard to evaluating certain deferred tax assets during the first quarter of 2021, including the development of recent years of pre-tax book losses. On the basis of this evaluation, a valuation allowance of $138 million ($125 million net of federal benefit) has been recorded for the three months ended March 31, 2021, related to these deferred tax assets and reflected in “Changes in certain deferred tax balances.”

As described more fully in Note 1 and Note 3, the Company expects to emerge from bankruptcy on April 30, 2021, at which time it will consummate a taxable disposition of substantially all of the assets and/or subsidiary stock of the Company and utilize substantially all of the Company’s NOLs.