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Income Taxes
 12 Months Ended
Dec. 31, 2020
Income Tax Disclosure [Abstract]  
Income Taxes
23. Income Taxes
 
For financial reporting purposes, Loss before income taxes from continuing operations includes the following components:
Eight Months Ended August 31, Year Ended December 31,
(in thousands)202020192018
United States$(60,820)$(61,446)$(39,518)
Foreign— — — 
Total$(60,820)$(61,446)$(39,518)
The provision for income taxes from continuing operations for the eight months ended August 31, 2020 and the years ended December 31, 2019 and 2018 consisted of the following:
Eight Months Ended August 31,Year Ended December 31,
(in thousands)202020192018
Current income tax (benefit) expense
Federal$(14,316)$3,750 $(271)
State1,051 2,046 1,033 
Foreign— — — 
Total current(13,265)5,796 762 
Deferred income tax (benefit) expense
Federal(4,340)(10,978)(7,932)
State(175)830 (615)
Foreign— — 1,032 
Total deferred(4,515)(10,148)(7,515)
Total provision$(17,780)$(4,352)$(6,753)

A reconciliation of the income tax benefit from continuing operations computed using the U.S. statutory federal income tax rate compared to the income tax benefit for income from continuing operations included in the Consolidated Statements of Operations is as follows:
Eight Months Ended August 31,Year Ended December 31,
(in thousands)202020192018
Tax at U.S. statutory rate on loss before income taxes$(12,772)$(12,904)$(8,299)
Change in valuation allowance(3,762)3,613 875 
State taxes656 2,446 (397)
Change in uncertain tax positions— 1,513 809 
True-ups— 249 (27)
CARES Act refund(5,406)— — 
Other3,504 731 286 
Total$(17,780)$(4,352)$(6,753)

Deferred tax assets and liabilities are determined based on the differences between financial reporting and income tax bases of assets and liabilities, as well as net operating loss carryforwards and are measured using the enacted tax rates and laws in effect
when the differences are expected to reverse. The significant components of the Company’s net deferred tax assets and liabilities from continuing operations are as follows:
(in thousands)December 31, 2020December 31, 2019
(Liquidation Basis)(Going Concern Basis)
Deferred tax assets:
Net operating loss carryforwards$3,345 $3,602 
Research and other tax credits1,448 1,448 
ASC 740-10 Reserve6,455 8,419 
Stock-based compensation2,513 1,758 
Accruals84 1,388 
Debt modifications6,030 7,189 
Capital loss carryforward2,947 1,213 
Other51 1,145 
Total deferred tax assets22,873 26,162 
Valuation allowance(21,105)(7,465)
Total deferred tax assets, net of valuation allowance1,768 18,697 
Deferred tax liabilities:
Debt modifications— (308)
Intangible assets(21,673)(19,649)
Other(16)(311)
Total deferred tax liabilities(21,689)(20,268)
Net deferred tax liabilities$(19,921)$(1,571)

The CARES Act, among other provisions, permits Net Operating Loss (“NOL”) carryovers and carrybacks to offset 100% of taxable income for taxable years beginning before 2021. In addition, the CARES Act allows NOLs incurred in 2018, 2019, and 2020 to be carried back to each of the five preceding taxable years to generate a refund of previously paid income taxes at the 35% corporate tax rate then in effect. The Company was a significant taxpayer in the earlier eligible carryback years and expects that the NOL carryback provision of the CARES Act will result in a material cash benefit as a result of the 2020 ordinary tax losses generated and, to a lesser degree, for the 2019 tax year. The expected cash benefit to be received for ordinary losses incurred in 2020 totals $91.8 million. The Company received a refund of $2.1 million associated with 2019 ordinary losses that were carried back to an eligible carryback year.

As of December 31, 2020 and 2019, the Company had federal NOL carryforwards of $103.3 million and $108.6 million, respectively. As of December 31, 2020 and 2019, the Company also had state NOL carryforwards of $63.7 million and $63.9 million, respectively, excluding $215.5 million of California NOLs available to offset assessments, if any, resulting from the current audit by the California Franchise Tax Board (the “CA FTB”). The federal and state NOL carryforwards will begin expiring in the year 2023, if not utilized. As of December 31, 2020 and 2019, the Company had $2.2 million of federal tax credits that will begin expiring in the year 2025, if not utilized. As of December 31, 2020 and 2019, the Company had $19.3 million of state tax credit carryforwards that do not expire.

Utilization of the federal and state NOL and tax credit carryforwards may be subject to a substantial annual limitation due to the “change in ownership” provisions of the Internal Revenue Code of 1986. The annual limitation may result in the expiration of NOLs and credits before utilization. Of the Company’s $103.3 million of federal NOL carryforwards as of December 31, 2020, $26.9 million are subject to an annual limitation of $1.8 million for each of the years ending December 31, 2021 to 2022, and $1.3 million for the year ending December 31, 2023. As of December 31, 2020, the Company estimates that at least $22.0 million of federal NOL carryforwards will expire unutilized and none of the state NOLs will expire unutilized. Tax attributes acquired from LENSAR may be subject to separate return limitations that may limit the corporation’s ability to use the acquired NOLs and credits. Furthermore, under the Tax Cuts and Job Act of 2017 (the ‘2017 Tax Act’), although the treatment of tax losses generated in taxable years ending before December 31, 2017 has not changed, tax losses generated in taxable years beginning after December 31, 2017 may only be utilized to offset 80% of taxable income annually. This change may require the Company to pay additional federal income taxes in future years if additional losses are generated post 2017.
 
As of December 31, 2020, the Company determined that it was more likely than not that certain deferred tax assets from continuing operations would not be realized in the near future and had a $21.1 million valuation allowance against deferred tax assets. The net change in total valuation allowance for each of the years ending December 31, 2020 and 2019, was an increase of $13.6 million and $5.8 million, respectively. $2.9 million of the valuation allowance at December 31, 2020, is related to capital losses that have limited carryforward utilization. The Company does not have an expectation of future capital gains against which such losses could be utilized and as such determined that it was more likely than not that such deferred tax assets would not be realized. $18.2 million of the valuation allowance at December 31, 2020 is related to federal and state deferred tax assets that the Company determined it was more likely than not would be realized.

The 2017 Tax Act significantly changed the existing U.S. corporate income tax laws by, among other things, lowering the corporate tax rate (from a top rate of 35% to a flat rate of 21%), implementing elements of a territorial tax system, and imposing a one-time deemed repatriation transition tax on cumulative undistributed foreign earnings, for which the Company had not previously paid U.S. taxes.
A reconciliation of the Company’s unrecognized tax benefits, excluding accrued interest and penalties, for 2020, 2019 and 2018 is as follows:
 December 31,
(in thousands)202020192018
Balance at the beginning of the year$84,213 $80,783 $79,179 
Increases related to tax positions from prior fiscal years— 3,927 1,604 
Increases related to tax positions taken during current fiscal year8,412 — — 
Decreases related to tax positions from prior fiscal years(6,867)(497)— 
Balance at the end of the year$85,758 $84,213 $80,783 

The future impact of the unrecognized tax benefit of $85.8 million, if recognized, is as follows: $32.6 million would affect the effective tax rate and $53.2 million would result in adjustments to deferred tax assets and valuation allowances. The Company periodically evaluates its exposures associated with our tax filing positions. The Company is currently under audit by the CA FTB. The timing of the audit resolution and the amount to be ultimately paid (if any) is uncertain. The outcome of the audit could result in the payment of tax amounts that differ from the amounts the Company has reserved for uncertain tax positions for the periods under audit resulting in incremental expense or a reversal of the Company’s reserves in a future period. At this time, the Company does not anticipate a material change in the unrecognized tax benefits related to the California FTB audit that would affect the effective tax rate, deferred tax assets or valuation allowances over the next 12 months.

Estimated interest and penalties associated with unrecognized tax benefits increased our income tax expense in the Consolidated Statements of Operations by $1.0 million during the eight months ended August 31, 2020, $1.6 million during the year ended December 31, 2019 and $1.0 million during the year ended December 31, 2018. Interest and penalties associated with unrecognized tax benefits accrued on the statement of net assets and balance sheet were $11.2 million, $9.7 million, and $8.0 million as of December 31, 2020, 2019 and 2018, respectively.

The Company’s U.S. federal income tax returns are subject to examination for the tax years 2017 forward, In general, the Company’s state and local income tax returns are subject to examination by tax authorities for tax years 2000 forward. The Company is currently under income tax examination by the CA FTB for the tax years 2009 through 2018.