TAXES
As described in Note 5, INSW has been classified as discontinued operations and as a result the income tax impacts of INSW are not included in the below disclosures.
The benefit for income taxes on the income/(loss) from continuing operations before income taxes consists of the following:
|
| | | | | | | | | | | | |
| | Years Ended December 31, |
| | 2017 | | 2016 | | 2015 |
Current | | $ | (1,420 | ) | | $ | (2,296 | ) | | $ | 31,468 |
|
Deferred | | 59,047 |
| | 67,394 |
| | 69,564 |
|
Total | | $ | 57,627 |
|
| $ | 65,098 |
|
| $ | 101,032 |
|
The current income tax expense is primarily attributable to U.S. federal alternative minimum tax and state income taxes and the deferred income tax benefit is primarily attributable to the remeasurement of the net deferred tax liabilities from 35.0% to 21.0%.
The reconciliations between the U.S. Federal statutory income tax rate and the effective tax rate follows:
|
| | | | | | | | | |
| | Years Ended December 31, |
| | 2017 | | 2016 | | 2015 |
U.S. federal statutory income tax rate | | 35.0 | % | | 35.0 | % | | 35.0 | % |
| | | | | | |
Adjustments due to: | | | | | | |
State taxes, net of federal benefit | | 76.5 | % | | (1.5 | )% | | (1.3 | )% |
Interest on unrecognized tax benefits | | (5.9 | )% | | 1.8 | % | | (0.5 | )% |
Nondeductible reorganization costs | | — | % | | (9.0 | )% | | (30.8 | )% |
Unremitted earnings of foreign subsidiaries | | — | % | | 73.5 | % | | (237.5 | )% |
Change in valuation allowance | | (11.5 | )% | | — | % | | — | % |
Deferred compensation | | (10.7 | )% | | (1.7 | )% | | — | % |
Payments as guarantor | | — | % | | — | % | | 726.0 | % |
Remeasurement of deferred tax liabilities | | 3,292.9 | % | | — | % | | — | % |
U.S. income subject to tonnage tax | | 123.7 | % | | 1.4 | % | | 3.0 | % |
Other | | (7.1 | )% | | (1.1 | )% | | (0.2 | )% |
Effective tax rate | | 3,492.9 | % | | 98.4 | % | | 493.7 | % |
On December 22, 2017, the TCJA was signed into law. Under U.S. GAAP, deferred taxes must be adjusted for enacted changes in tax laws or rates during the period in which new tax legislation is enacted. As the TCJA was effective in the fourth quarter of 2017, the Company prepared an estimate of the accounting for the impacts of the TCJA as of December 31, 2017. The Company recognized a non-cash tax benefit of approximately $54,300 based on our preliminary assessment of the TCJA. We will continue to analyze additional information and guidance related to the TCJA as supplemental legislation, regulatory guidance, or evolving technical interpretations become available. Consequently, reasonable estimates of the impact of the TCJA on the Company’s deferred tax balances have been reported as provisional, as defined in SEC Staff Accounting Bulletin No. 118. We expect to complete our analysis no later than the fourth quarter of 2018.
The significant components of the Company’s deferred tax liabilities and assets follow:
|
| | | | | | | | |
| | December 31, |
| | 2017 | | 2016 |
Deferred tax liabilities: | | |
| | |
|
Vessels and other property | | $ | 133,347 |
| | $ | 227,846 |
|
Prepaid expenditures | | 7,236 |
| | 13,553 |
|
Other—net | | 6 |
| | 885 |
|
Total deferred tax liabilities | | 140,589 |
| | 242,284 |
|
Deferred tax assets: | | | | |
Loss carryforwards | | 53,006 |
| | 88,370 |
|
Employee compensation and benefit plans | | 5,507 |
| | 12,232 |
|
Financing and professional fees | | 268 |
| | 977 |
|
Accrued expenses and other | | 5,762 |
| | 5,873 |
|
Total deferred tax assets | | 64,543 |
| | 107,452 |
|
Valuation allowance | | 7,625 |
| | 6,625 |
|
Net deferred tax assets | | 56,918 |
| | 100,827 |
|
Net deferred tax liabilities | | $ | 83,671 |
| | $ | 141,457 |
|
As of December 31, 2017, the Company had U.S. federal net operating loss carryforwards of $281,942 which are available to reduce future taxes, if any. The federal net operating loss carryforwards begin to expire in 2034. Additionally, as of December 31, 2017 and December 31, 2016, the Company had U.S. state net operating loss carryforwards of $244,026 and $292,233, respectively. We also have U.S. state net operating loss carryforwards in additional jurisdictions for which we have not recorded a deferred tax asset or corresponding valuation allowance because we no longer conduct business in those states as of the year ended December 31, 2017 and December 31, 2016.
These U.S. state net operating loss carryforwards expire in various years ending from December 31, 2017 through December 31, 2036. The amount of net operating loss carryforwards reflected in this paragraph are presented on a tax return basis and differ from the amounts in the deferred tax table above, which reflect the future tax benefit of the losses and are reflected net of unrecognized tax benefits.
In connection with the emergence from bankruptcy in 2014, under applicable tax regulations, the Company underwent an ownership change. As a result, there is an annual limitation on the use of pre-ownership change net operating losses, tax credits and certain other tax attributes to offset taxable income earned after the ownership change. The annual limitation is equal to the product of the applicable long-term tax exempt rate and the value of the Company’s stock immediately before the ownership change. This annual limitation may be adjusted to reflect any unused annual limitation for prior years and certain recognized built-in gains and losses for the year. The Company does not believe that the limitations imposed will impact its ability to utilize any pre-ownership change net operating losses before the carryforward period expires but could cause the timing of utilization to be impacted.
The Company assessed all available positive and negative evidence to determine whether sufficient future taxable income will be generated to permit use of existing deferred tax assets. For U.S. federal deferred tax assets, the Company concluded that sufficient positive evidence existed, primarily the result of reversing deferred tax liabilities during the carryover period. However, for certain state deferred tax assets, the negative evidence in the form of cumulative losses incurred over the preceding three-year period and lack of positive evidence of reversing deferred tax liabilities during the carryover period resulted in the Company establishing a valuation allowance of $7,625 and $6,625 as of December 31, 2017 and 2016, respectively, to recognize only the portion of the deferred tax asset that is more likely than not to be realized. The valuation allowance increased by $1,000 during 2017 largely due to the Company's assessment of its ability to utilize state losses in the applicable carryforward periods.
The following is a tabular reconciliation of the total amounts of unrecognized tax benefits (excluding interest and penalties):
|
| | | | | | | | | | | | |
| | Years Ended December 31, |
| | 2017 | | 2016 | | 2015 |
Balance of unrecognized tax benefits as of January 1, | | $ | 36,671 |
| | $ | 36,535 |
| | $ | 215,328 |
|
Increases for positions taken in prior years | | 569 |
| | 136 |
| | 358 |
|
Decreases for positions taken in prior years | | | | | | (179,151 | ) |
Balance of unrecognized tax benefits as of December 31, | | $ | 37,240 |
| | $ | 36,671 |
| | $ | 36,535 |
|
Included in the balances of unrecognized tax benefits as of December 31, 2017 and 2016 are $36,884 and $36,077, respectively, of tax benefits that, if recognized, would affect the effective tax rate.
The Company records interest and penalties on unrecognized tax benefits in its provision for income taxes. Accrued interest and penalties are included within the related liability for unrecognized tax benefit line in the consolidated balance sheet. As of the years ended December 31, 2017, 2016 and 2015, we accrued interest of $76, $58 and $168, respectively, and recorded liabilities for interest and penalties of $911, $835 and $777.
After taking into consideration tax attributes, such as net operating loss carryforwards and interest, the Company’s unrecognized tax benefits represent a noncurrent reserve for uncertain tax positions of $3,205 and $3,129 as of December 31, 2017 and 2016, respectively.
The Company is currently undergoing an examination by the IRS of its 2012 through 2015 tax returns. Although the timing of the resolution or closure of audits is highly uncertain, at this time it is reasonably possible that between zero and $37,240 of uncertain tax positions could be recognized within the next twelve months. The future utilization of state net operating losses could potentially subject the Company to state examinations prior to the otherwise applicable statute of limitation. States vary in carryforward periods but can extend up to 20 years.