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Income Tax
3 Months Ended
Mar. 31, 2015
Income Tax Disclosure [Abstract]  
Income Tax

6. Income Tax

The Company calculates its interim tax provision in accordance with the provisions of ASC 740-270 “Income Taxes – Interim Reporting.” For each interim period the Company estimates its annual effective income tax rate and applies the estimated rate to its year-to-date income or loss before income taxes. The Company also computes the tax provision or benefit related to items separately reported, such as discontinued operations, and recognizes the items net of their related tax effect in the interim periods in which they occur. The Company also recognizes the effect of changes in enacted tax laws or rates in the interim periods in which the changes occur.

For the three months ended March 31, 2015 and March 31, 2014, the estimated income tax rate from continuing operations was 35%, respectively.

During the three months ended March 31, 2015 and March 31, 2014, the Company recorded additional benefits from state research and development tax credits of $47,000 and $61,000, respectively.

As of March 31, 2015, the Company’s gross research and development tax credit carryforwards totaled approximately $1,654,000. Of these credits, approximately $672,000 can be carried forward for 15 years and will expire between 2015 and 2030, and approximately $982,000 of state credits can be carried forward indefinitely.

The Company has recorded gross unrecognized tax benefits, excluding interest and penalties, as of March 31, 2015 and December 31, 2014 of $865,000. Tax benefits are recorded pursuant to the provisions of ASC 740 “Income Taxes.” If such unrecognized tax benefits are ultimately recorded in any period, the Company’s effective tax rate would be reduced accordingly for such period.

The Company adopted FASB Accounting Standard 2013-11 effective during the first quarter of 2014. The pronouncement requires the Company to offset its uncertain tax positions against certain deferred tax assets in the same jurisdiction. During the first quarter of 2015, the Company reclassified $397,000 of its uncertain tax positions against its related deferred tax assets.

 

The Company has been examined by the Internal Revenue Service (the “IRS”) through the calendar year 2010. The federal and state income tax statutes are generally open for periods back to and including the calendar years 2011 and 2010, respectively. During the first quarter of 2015 the Company was contacted by the IRS to examine the calendar year 2013. The examination is expected to begin during the second quarter of 2015.

It is reasonably possible that the Company’s gross unrecognized tax benefits, including interest, may change within the next twelve months due to the expiration of the statutes of limitation of the federal government and various state governments by a range of zero to $247,000. The Company records such unrecognized tax benefits upon the expiration of the applicable statute of limitations or the settlement with tax authorities. As of March 31, 2015, the Company has a liability for unrecognized benefits of $265,000, $203,000, and $397,000 for federal, international, and state taxes, respectively. Such benefits relate primarily to expenses incurred in those jurisdictions.

The Company classifies interest and penalties related to unrecognized tax benefits as income tax expense. At March 31, 2015, and December 31, 2014, the Company has accrued approximately $90,000 and $81,000 for the payment of interest and penalties, respectively.