Income Taxes

12 Months Ended

Dec. 31, 2020

Income Tax Disclosure [Abstract]

Income Taxes

INCOME TAXES

Overview

The provision (benefit) for income taxes on continuing operations for the years ended December 31, 2020 and 2019 is summarized as follows:

	Year Ended December 31,
	2020		2019
Current provision (benefit) :
Federal	$	719	$	197
State	(23)		76
	696		273
Deferred provision (benefit):
Federal	(1,227)		12,439
State	—		2,982
	(1,227)		15,421
Provision (benefit) for income taxes of continuing operations	$	(531)	$	15,694

A reconciliation of taxes computed at statutory income tax rates on income (loss) from continuing operations is as follows:

	Year Ended December 31,
	2020		2019
Provision (benefit) for federal income taxes at statutory rates	$	1,260	$	(2,469)
Provision (benefit) for state income taxes, net of federal benefit	478		(106)
Valuation allowance changes affecting the provision for income taxes	(2,922)		19,002
Employment tax credits	(355)		(210)
Nondeductible expenses	251		122
Stock based compensation expense	98		80
WOTC Credit and Other	931		(1,349)
Other	(272)		624
Provision (benefit) for income taxes of continuing operations	$	(531)	$	15,694

Deferred Taxes

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Deferred tax assets are reduced by a valuation allowance if, based upon the weight of available evidence, it is more likely than not that we will realize only some portion of the deferred tax assets. The net deferred tax assets and liabilities, at the respective income tax rates, are as follows:

	December 31,
	2020		2019
Deferred tax assets (liabilities):
Net operating loss and other carryforwards	$	67	$	859
Credit carryforwards	1,777		3,118
Accounts receivable	4,652		4,852
Prepaid expenses	(938)		(1,015)
Interest rate limitation	—		971
Right-of-use lease liability	78,674		82,194
Right-of-use lease asset	(75,443)		(79,843)
Depreciation	1,731		1,863
Tax goodwill and intangibles	(1,098)		(1,066)
Stock-based compensation	164		183
Accrued liabilities	124		504
Accrued rent	340		380
Impairment of long-lived assets	177		176
Interest rate swap	—		(4)
Hedge Ineffectiveness	—		(155)
Noncurrent self-insurance liabilities	6,350		6,363
Restitution	2,329		2,445
Other	28		30
	18,934		21,855
Less valuation allowance	(18,934)		(21,855)
	$	—	$	—

Deferred Tax Valuation Allowance

The assessment of the amount of value assigned to our deferred tax assets under the applicable accounting standards is highly judgmental. We are required to consider all available positive and negative evidence in evaluating the likelihood that we will be able to realize the benefit of our deferred tax assets in the future. Such evidence includes scheduled reversals of deferred tax assets and liabilities, projected future taxable income, tax-planning strategies, and the results of recent operations. Since this evaluation requires consideration of historical and future events, there is significant judgment involved, and our conclusion could be materially different should certain of our expectations not transpire.

When assessing all available evidence, we consider the weight of the evidence, both positive and negative, based on the objectivity of the underlying evidence and the extent to which it can be verified. For the three-year period ended December 31, 2020, the Company had a cumulative pre-tax loss from continuing operations of $18,526. Additionally, the Company recognized governmental and regulatory changes have put downward revenue pressure on the long-term care industry as a piece of negative evidence in the analysis. In 2019 and 2018 combined, the Company recognized a total expense of $9,500 related to the CID settlement. Because of these items and other financial results, the Company entered a cumulative loss for the 36 preceding months ended June 30, 2019 and performed a thorough assessment of the available positive and negative evidence in order to ascertain whether it is more likely than not that in future periods the Company will generate sufficient pre-tax income to utilize all of its federal deferred tax assets and its net operating loss and other carryforwards and credits.

The Company also identified several pieces of positive evidence that were considered and weighed in the analysis performed regarding the valuation of deferred tax assets. The evidence included the termination of operations for 10 nursing facilities in Kentucky completed in the third quarter of 2019, the related corporate and regional restructuring and other cost saving initiatives already in process. The evidence also included consideration of participation in revenue incentive programs that are expected to generate additional revenue, the long-term expiration dates of a majority of the net operating losses and credits, and the Company’s history of not having carryforwards or credits expire unutilized.

In performing the analysis, the Company contemplated utilization of the recorded deferred tax assets under multiple scenarios. After consideration of these factors, the Company determined that a full valuation allowance was necessary. As of December 31, 2020, the Company has a valuation allowance in the amount of $18,934.  The Company will continue to periodically assess the realizability of its future deferred tax assets.

On March 27, 2020, the CARES Act was enacted and signed into law. Certain provisions of the CARES Act impacted the 2019 income tax provision computations of the Company and were reflected in the first quarter of 2020, or the period of enactment. The CARES Act contains modifications on the depreciation of qualified improvement property, as well as the limitation of business interest for tax years beginning in 2019 and 2020. The new life classification of the qualified improvement property, allowing for bonus depreciation to be taken, along with the modification to Section 163(j) to increase the allowable business interest deduction from 30% of adjusted taxable income to 50% of adjusted taxable income significantly increased the allowable deductions of the Company and result in additional taxable losses for the year-ended 2019, resulting in greater net operating losses (“NOL”) to be carried back. The NOL carryback resulted in a tax refund of $1,227 and a decrease to the Work Opportunity Tax Credit (“WOTC”) deferred tax asset, which is offset by a full valuation allowance. These changes pursuant to the CARES Act did not have a significant impact during the twelve-month period ended December 31, 2020, other than the tax refund and net adjustments to the WOTC credit and NOL deferred tax assets, which are offset by a valuation allowance.

At December 31, 2020, the Company had $5,576 of federal net operating losses, which expire at various dates beginning in 2021. The use of a portion of these loss carryforwards is limited by change in ownership provisions of the Federal tax code to a maximum of approximately $257. The Company has reduced the deferred tax asset and the corresponding valuation allowances for net operating loss deductions permanently lost as a result of the change in ownership provisions.

Under the Work WOTC program, the Company recorded $355 and $210 in Work Opportunity Tax Credits during 2020 and 2019, respectively.

The Company is not currently under examination by any major income tax jurisdiction. During 2020, the statutes of limitations lapsed on the Company's 2016 Federal tax year and certain 2015 and 2016 state tax years. The Company does not believe the Federal or state statute lapses or any other event will significantly impact the balance of unrecognized tax benefits in the next twelve months.