• Filing Date: 2018-08-20
  • Form Type: 10-Q
  • Description: Quarterly report
v3.10.0.1
Income Taxes
6 Months Ended
Jun. 30, 2018
Income Tax Disclosure [Abstract]  
Income Taxes
Income Taxes

The Company’s provision for income taxes from continuing operations is estimated to result in an annual effective tax rate of 29.77% and a total tax expense of approximately $3.1 million for the six months ended June 30, 2018. The analysis for the current period took into consideration various provisions within the Tax Cuts & Jobs Act enacted on December 22, 2017 ("TCJA") that are expected to impact the Company, including the Company’s accounting policy election to treat the tax effect of income generated from the Company’s Ireland subsidiary as a period cost. The Company’s quarterly effective income tax rates are based upon the Company’s annual estimated tax rate. The Company’s annual estimated tax rate varies based upon the Company’s expected annual federal taxable earnings, as well as on a mix of taxable earnings in the various state and foreign jurisdictions. The Company’s estimated annual effective rate is principally due to expected income inclusions under the GILTI tax regime, limitations imposed on the use of historical NOLs, and interest expense limitations under IRC Sec. 264(a)(4) that are expected to apply when determining tested income for the GILTI inclusion. The Company is evaluating a number of tax planning strategies to help mitigate the impact of the GILTI provisions including its intent and ability to restructure its operations. Evaluation of possible tax planning strategies is a priority and will be monitored closely for the potential impact to the annualized effective tax rate. During this quarter the Company engaged the services of legal counsel to evaluate the potential to restructure out of GILTI in addition to exploring other tax efficiencies planning.

Based on the Company's evaluation, a deferred tax valuation allowance was established against its net deferred tax assets. In its evaluation, management considers taxable loss carryback availability, expectations of sufficient future taxable income, trends in earnings, existence of taxable income in recent years, the future reversal of temporary differences, and available tax planning strategies that could be implemented, if required. Valuation allowances are established based on the consideration of all available evidence using a more likely than not standard. This valuation allowance was determined to be necessary as an offset to the full amount of the federal and state deferred tax asset. During the three month period ended June 30, 2018, the Company does not expect that position to change and therefore is not recording any income tax benefit.

Due to the complexities inherent in the tax law changes, the SEC released Staff Accounting Bulletin (SAB) No. 118 on December 22, 2017, to address the application of ASC 740 where a company does not have the requisite information available, prepared or analyzed in reasonable detail to properly account for items under the TCJA. The SAB has provided that where a company can make a reasonable estimate, it should record that estimate and make appropriate disclosures with updates during a measurement period of no more than a year from enactment. The Company made its best estimate with respect to the estimated Transition Tax charge as of December 31, 2017 and as of June 30, 2018 based on guidance available as of the date of the filing. Upon gathering all necessary data, interpreting any additional guidance from tax authorities, and completing the analysis, our provisional amount may be adjusted in the measurement period allowable in accordance with SAB No. 118 and such adjustment could be material.

In October 2016, the FASB issued ASU No. 2016-16 Income Taxes (Topic 740): Intra-entity transfers of assets other than inventory ("ASU 2016-16"). Current GAAP prohibits the recognition of current and deferred income taxes for an intra-entity asset transfer until the asset has been sold to an outside party. This prohibition on recognition is an exception to the principle of comprehensive recognition of current and deferred income taxes in GAAP. The Board decided that an entity should recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. Consequently, the amendments in this update eliminate the exception for an intra-entity transfer of an asset other than inventory. For public business entities, the amendments in this update are effective for annual reporting periods beginning after December 15, 2017. The Company adopted this standard in the March 31, 2018 reporting period which resulted in the elimination of a deferred income tax charge of $17.6 million, gross related to prior year sales of life settlement policies to its Ireland subsidiaries. The adoption resulted in a reduction of the valuation allowance and had no impact on earnings.

The Company and its subsidiary companies are subject to U.S. federal income tax, as well as to income tax in Florida and other states and foreign jurisdictions in which it operates.