Income Taxes

12 Months Ended

Dec. 31, 2020

Income Taxes

Income Taxes

(5) Income Taxes

The provision for income taxes includes the following components (in thousands):

	Year ended December 31,
	2020		2019		2018
Current tax provision (benefit):
Federal	$	(4,397)	$	(4,395)	$	(21,598)
State		(875)		891		1,465
Foreign		—		—		1,575
		(5,272)		(3,504)		(18,558)
Deferred tax provision (benefit):
Federal		6,659		95,655		92,250
State		(199)		14,055		12,250
		6,460		109,710		104,500
Provision (benefit) for income taxes	$	1,188	$	106,206	$	85,942

The following is a reconciliation between a federal income tax rate of 21% and the effective tax rate which is derived by dividing the provision for income taxes by the income (loss) before the provision for income taxes (in thousands):

	Year ended December 31,
	2020		2019		2018
Computed provision for income taxes at the statutory rate	$	(1,539)	$	93,724	$	76,926
Increase (decrease) in income taxes resulting from:
State income tax provision, net of federal income tax benefit		173		15,645		12,711
Non-deductible expenses		2,539		3,934		1,956
Valuation allowance changes affecting the provision for income taxes		(892)		(517)		(1,187)
Foreign income taxes, net of federal & state benefit		—		—		1,192
Excess tax benefits from share-based compensation		(1,434)		(3,525)		(4,548)
Other, net		2,341		(3,055)		(1,108)
Provision for income taxes	$	1,188	$	106,206	$	85,942

For the year ended December 31, 2020, the Company released $0.9 million of valuation allowance against certain deferred tax assets primarily associated with state net operating losses with a limited carry forward period. For the year ended December 31, 2019, the Company released $0.5 million of valuation allowance against certain deferred tax assets primarily associated with ExpressJet state net operating losses. For the year ended December 31, 2018, the Company released $1.2 million valuation allowance, respectively against certain deferred tax assets primarily associated with ExpressJet state net operating losses with a limited carry forward period and Company capital losses with a limited carry forward period. The decrease in the valuation allowance for 2020 was primarily based on changes in the Company's income tax projections which reduced the amount of deferred tax assets that are anticipated to expire before the deferred tax assets may be utilized.

The Company recorded a $1.4 million, $3.5 million and $4.5 million benefit from share-based compensation in 2020, 2019, and 2018, respectively, relating to ASU 2016-09 which, requires excess tax benefits and deficiencies to be recognized in the income tax provision during the period stock options are exercised and when stock awards vest.

The significant components of the Company’s net deferred tax assets and liabilities as of December 31, 2020 and 2019 are as follows (in thousands):

	As of December 31,
	2020		2019
Deferred tax assets:
Accrued benefits	$	19,668	$	20,848
Net operating loss carryforward		229,815		358,685
AMT credit carryforward		—		4,397
Aircraft credits		12,765		9,114
Deferred revenue		27,076		—
Accrued reserves and other		34,816		17,225
Total deferred tax assets		324,140		410,269
Valuation allowance		—		(892)
Deferred tax liabilities:
Accelerated depreciation		(950,071)		(1,032,957)
Total deferred tax liabilities		(950,071)		(1,032,957)
Net deferred tax liability	$	(625,931)	$	(623,580)

The Company’s deferred tax liabilities were primarily generated through accelerated depreciation, combined with shorter depreciable tax lives, allowed under the IRS tax code for purchased aircraft and support equipment compared to the Company’s depreciation policy under GAAP for such assets using the straight-line method (see note 1 Nature of Operations and Summary of Significant Accounting Policies).

At December 31, 2020 and 2019, the Company had federal net operating losses of approximately $987.0 million and $1,581.1 million and state net operating losses of approximately $653.1 million and $766.4 million, respectively.  The estimated effective tax rate applicable to the federal and state net operating losses at December 31, 2020 was 21.0% and 3.45%, respectively. The Company anticipated that the federal and state net operating losses will start to expire in 2036 and 2021, respectively. As of December 31, 2019, the Company also had an alternative minimum tax credit of approximately $4.4 million, which did not expire. Under the CARES Act of 2020, these credits were realized by claiming a refundable credit during 2020. The Company has no ongoing federal or state examinations.

Under ASC Topic 740, the accounting guidance related to uncertainty in tax positions requires that the impact of a tax position be recognized in the financial statements if that position is more likely than not of being sustained on audit, based on the technical merits of the position. A reconciliation of the beginning and ending amount of unrecognized tax benefits for the year ended December 31, 2020, 2019 and 2018 is as follows (in thousands):

	Year ended December 31,
	2020		2019		2018
Unrecognized tax benefits at the beginning of year	$	14,620	$	14,553	$	2,223
Gross increases - current year tax positions		—		—		13,899
Gross increases - prior year tax positions		360		67		—
Gross decreases - prior year tax positions		—		—		(1,569)
Unrecognized tax benefits at end of year	$	14,980	$	14,620	$	14,553
Interest and penalties in year-end balance	$	427	$	67	$	—

For the years ending December 31, 2020 and 2019, the Company recorded $360,000 and $67,000, respectively, of interest expense related to uncertain tax positions not offset by the Company's tax attributes.