Entity information:
Income Taxes
The domestic and foreign components of income (loss) before income taxes consist of the following (in millions):
 
 
Year Ended December 31,
 
 
2017
 
2016
 
2015
Domestic
 
$
(33.9
)
 
$
292.4

 
$
(139.1
)
Foreign
 
6.6

 
5.8

 
3.3

Total income (loss) before income taxes
 
$
(27.3
)
 
$
298.2

 
$
(135.8
)

For the years ended December 31, 2017, 2016 and 2015, the Company’s current and deferred income tax expense (benefit) attributable to income (loss) from operations are as follows (in millions):
 
 
Current
 
Deferred
 
Total
Year Ended December 31, 2015
 
 
 
 
 
 
U.S. Federal
 
$
0.1

 
$
(43.2
)
 
$
(43.1
)
State & Local
 
(0.2
)
 
(8.5
)
 
(8.7
)
Foreign
 
0.5

 
(0.3
)
 
0.2

 
 
$
0.4

 
$
(52.0
)
 
$
(51.6
)
Year Ended December 31, 2016
 
 
 
 
 
 
U.S. Federal
 
$
(0.2
)
 
$
95.6

 
$
95.4

State & Local
 
—

 
25.0

 
25.0

Foreign
 
1.1

 
(0.4
)
 
0.7

 
 
$
0.9

 
$
120.2

 
$
121.1

Year Ended December 31, 2017
 
 
 
 
 
 
U.S. Federal
 
$
0.1

 
$
32.4

 
$
32.5

State & Local
 
0.2

 
(2.3
)
 
(2.1
)
Foreign
 
1.5

 
(0.4
)
 
1.1

 
 
$
1.8

 
$
29.7

 
$
31.5


Reconciliation of the difference between the actual tax rate and the statutory U.S. federal income tax rate is as follows:
 
 
Year Ended December 31,
 
 
2017
 
2016
 
2015
Federal statutory tax rate
 
35
 %
 
35
%
 
35
 %
Increase in income tax rate resulting from:
 
 
 
 
 
 
State and local income taxes, net of federal tax benefits
 
5
 %
 
5
%
 
4
 %
U.S. Tax Reform
 
(140
)%
 
—
%
 
—
 %
Stock-based Compensation
 
(17
)%
 
—
%
 
—
 %
Other
 
2
 %
 
1
%
 
(1
)%
Actual tax rate
 
(115
)%
 
41
%
 
38
 %

    








    
The following table sets forth the Company’s net deferred tax assets as of December 31, 2017 and 2016 (in millions):
 
 
As of December 31,
 
 
2017
 
2016
Deferred Tax assets:
 
 
 
 
Deferred customer billings
 
$
—

 
67.5

Net operating loss carryforwards
 
47.9

 
71.0

Share-based compensation
 
13.0

 
22.9

Accrued bonus
 
4.0

 
4.8

Advanced billing revenue
 
4.0

 
0.4

Other reserves
 
0.4

 
0.7

Alternative minimum tax
 
2.4

 
1.9

Other
 
3.3

 
2.1

Deferred Rent
 
2.9

 
2.9

R&D credit
 
0.3

 
0.3

Charitable contributions
 
0.4

 
0.5

Stock warrants
 
—

 
0.1

Total gross deferred tax assets
 
78.6

 
175.1

Fixed assets
 
(1.7
)
 
(2.1
)
Contract implementation costs
 
(3.3
)
 
(1.8
)
Less valuation allowance
 
(3.1
)
 
(1.3
)
Net deferred tax asset
 
$
70.5

 
$
169.9


At December 31, 2017, the Company had cumulative U.S. federal and state net operating loss carryforwards of approximately $182.5 million and $190.8 million, respectively, which are available to offset U.S. federal and state taxable income in future periods through 2037.

Enacted on December 22, 2017, the Tax Act reduces the U.S. federal corporate tax rate from 35% to 21%, requires companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred and creates new taxes on certain foreign sourced earnings. At December 31, 2017, the Company has not completed the accounting for the tax effects of enactment of the Tax Act. However, as described below, the Company has made a reasonable estimate of the effects on the existing deferred tax balances and the one-time transition tax. For these items, a net provisional tax cost of approximately $38.2 million is recognized and is included as a component of provision for income taxes from continuing operations.

The Company remeasured certain U.S. deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future, which is generally 21%. However, the Company is still analyzing certain aspects of the Tax Act and refining the calculations, which could potentially affect the measurement of these balances or potentially give rise to new deferred tax amounts. A provisional amount was recorded related to the remeasurement of the deferred tax balance, resulting in a provision for income taxes benefit of approximately $35.2 million.
    
The one-time transition tax is based on the total post-1986 earnings and profits ("E&P") for which the Company had previously deferred from U.S. income taxes. A provisional amount was recorded for the one-time transition tax liability, resulting in a provision for income taxes cost of approximately $3.0 million. The Company has not yet completed the calculation of the total post-1986 foreign E&P. Further, the transition tax is based in part on the amount of those earnings held in cash and other specified assets. This amount may change when the calculation of post-1986 foreign E&P and the amounts held in cash or other specified assets are finalized.
A valuation allowance is required to be established when, based on currently available information, it is more likely than not that all or a portion of a deferred tax asset will not be realized. The guidance on accounting for income taxes provides important factors in determining whether a deferred tax asset will be realized, including whether there has been sufficient taxable income in recent years and whether sufficient income can reasonably be expected in future years in order to utilize the deferred tax asset. Consideration is given to the weight of all available evidence, both positive and negative. The Company estimates its already contracted business growth associated with the Ascension A&R MPSA will be profitable and allow the Company to utilize its NOL carryforwards and other deferred tax assets. Accordingly, the Company believes that it is more likely than not that the remaining deferred tax assets will be realized. Should the Company not operationally execute as expected, and the growth in the Ascension business not be as profitable as expected, such realizability assessment may change.
The Company has recorded valuation allowances at December 31, 2017 and 2016 of $1.3 million and $1.3 million, respectively, based on our assessment that it is more likely than not that a portion of the Company’s separate state income tax net operating loss will not be realized because the Company no longer has business activities in that state, or where the activity level has decreased to such a level where we believe the NOL will not be realized. In addition, the Company has recorded a provisional valuation allowance of approximately $1.8 million for foreign taxes as a result of credits generated from the one-time transition that the Company believes will not be realized.

Immediately prior to enactment of the Tax Act on December 22, 2017, we had $20.5 million of undistributed foreign earnings. Upon passage of the Tax Act, all $20.5 million of undistributed foreign earnings became subject to U.S. federal tax. Under the Tax Act, future unremitted foreign earnings will no longer be subject to tax when repatriated to its U.S. parent, but may be subject to withholding taxes or distribution taxes of the payor affiliate country. The Company has the ability and intent to maintain our investments in India. The Company has not provided for any additional outside basis difference inherent in its foreign subsidiaries, as these amounts continue to be indefinitely reinvested in foreign operations.
The 2017, 2016 and 2015 current tax provision includes $1.4 million, $1.2 million and $0.5 million, respectively, for income taxes arising from the pre-tax income of the Company’s India subsidiaries. The tax provisions are net of the impact of a tax holiday in India. The Company’s benefits from this tax holiday were $1.0 million, $0.9 million and $0.7 million for the year ended for the year ended December 31, 2017, 2016 and 2015, respectively. The Company expanded its operations in India during the year and was awarded new tax holiday agreements. The tax holidays are set to expire between March 31, 2019 and March 31, 2027.
The Company recognizes the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained upon examination by taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements are measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement. The Company’s unrecognized tax benefits as of December 31, 2017, 2016 and 2015 totaled $0.3 million, $0.3 million and $1.2 million, respectively.
The following table summarizes the activity related to the unrecognized tax benefits (in thousands):
 
 
 
Tax Benefit
Unrecognized tax benefits at December 31, 2014
$
1.1

Increases in positions taken in a current period
0.1

Increases in positions taken in prior period
0.6

Decreases in positions taken in a prior period
—

Decreases due to lapse of statute of limitations
(0.6
)
Decreases due to settlement
—

Unrecognized tax benefits at December 31, 2015
$
1.2

Increases in positions taken in a current period
—

Increases in positions taken in prior period
5.0

Decreases in positions taken in a prior period
(5.0
)
Decreases due to lapse of statute of limitations
—

Decreases due to settlement
(0.9
)
Unrecognized tax benefits at December 31, 2016
$
0.3

Increases in positions taken in prior period
0.1

Increases in positions taken in a current period
—

Decreases in position taken in prior period
(0.1
)
Decreases due to lapse of statute of limitations
—

Decreases due to settlement
—

Unrecognized tax benefits at December 31, 2017
$
0.3


As of December 31, 2017, approximately $0.3 million of the total gross unrecognized tax benefits represented the amount that, if recognized, would result in an adjustment to the effective income tax rate in future periods. The Company recognizes interest and penalties related to income tax matters as part of income tax expense. The Company recorded adjustments to interest and potential penalties related to these unrecognized tax benefits during 2017, and in total, as of December 31, 2017, the Company has recorded a liability for interest and potential penalties of $0.0 million. The Company anticipates changes to the reserves within the next 12 months to be primarily related to interest. The Company believes it has sufficient accruals for contingent tax liabilities.
In connection with tax return examinations, contingencies can arise that generally result from different interpretations of tax laws and regulations as they pertain to the amount, timing or inclusion of revenues and expenses in taxable income, or the ability to utilize tax credits to reduce income taxes payable. While it is probable, based on the potential outcome of the Company’s federal and state tax examinations or the expiration of the statute of limitations for specific jurisdictions, that the liability for unrecognized tax benefits may increase or decrease within the next 12 months, the Company does not expect any such change would have a material effect on our financial condition, results of operations or cash flow.
The Company and its subsidiaries are subject to U.S. federal income tax as well as income tax of multiple state and foreign jurisdictions. U.S. federal income tax returns since 2014 are currently open for examination. State jurisdictions vary for open tax years. The statute of limitations for most states ranges from three to six years. The Company’s subsidiaries India income tax returns since fiscal year 2009 are currently open for final determination.