Note 7. Income Taxes

The provision for income taxes consists of the following:

 

Differences between the provision for income taxes and income taxes at the statutory federal income tax rate are as follows:

 

On December 22, 2017, the U.S. Tax Cuts and Jobs Act (the “Tax Reform Act”) was signed into law.  The Tax Reform Act significantly revised the U.S. corporate income tax law by, among other things, lowering the U.S. corporate tax rate from 35% to 21%, effective January 1, 2018, repealing the Alternative Minimum Tax (“AMT”), changes to tax depreciation, limitations on interest expense deductions, and limitations on utilization of net operating losses. Accounting Standards Codification (“ASC”) 740 requires that the impact of tax legislation be recognized in the period in which the law was enacted.  As a result of the Tax Reform Act, the Company recorded an estimated tax benefit of $354.1 million due to the remeasurement of deferred tax assets and liabilities in the year ended December 31, 2017.

On December 22, 2017, Staff Accounting Bulletin No. 118 (“SAB 118”) was issued to address the application of US GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Tax Reform Act. In accordance with SAB 118, the Company has determined that the $354.1 million benefit resulting from the remeasurement of certain deferred tax assets and liabilities is a provisional amount and a reasonable estimate of the impact of the Tax Reform Act on the Consolidated Financial Statements as of December 31, 2017. The estimated adjustment of $354.1 million is based upon the current interpretation of the Tax Reform Act. We expect additional clarification and interpretation guidance that may refine our estimate of the expected reversal of deferred tax balances or could potentially give rise to new deferred tax accounts. Once the Company finalizes certain tax positions when it files its 2017 U.S. Federal Income Tax Return, it will be able to conclude whether any further adjustments are required to its net deferred tax liability as of December 31, 2017. Any subsequent adjustments to the $354.1 million benefit will be recorded as a component of tax expense or benefit in the reporting period in which any adjustments are determined, which will be no later than the fourth quarter of 2018. We expect to complete our analysis within the measurement period in accordance with SAB 118.

The Company recorded a $10.9 million benefit related to foreign taxes expensed in the current year, as well as prior years, that may now be claimed as a Foreign Tax Credit (“FTC”).  The Company has determined there will be sufficient foreign source income projected to utilize these credits.

In the first quarter of 2017, the Company adopted ASU 2016-09, Improvements to Employee Share-Based Payment Accounting, which requires all excess tax benefits and tax deficiencies to be recognized in the income statement when the awards vest or are settled.  Upon adoption of ASU 2016-09, the Company recognized $0.5 million of previously unrecognized windfall tax benefits in retained earnings.

Prior to the adoption of ASU 2016-09, the tax effect of deductions in excess compensation cost (“windfalls”) related to the exercise of nonqualified stock options and vesting of restricted stock unit awards were recorded in equity and any tax deficiencies (“shortfalls”) were recorded in equity to the extent of previously recognized windfalls.  The exercise of nonqualified stock options and vesting of restricted stock unit awards resulted in an increase to additional paid-in capital in the amount of $8.5 million through December 31, 2016.

As of December 31, 2017 and 2016, the Company’s net deferred tax assets (liabilities) are as follows:

 

The Company has net operating loss carry forwards (“NOLs”) for federal and state income tax purposes of $54.1 million and $150.9 million as of December 31, 2017 and 2016, respectively, which are available to offset future taxable income in future periods.  The Company has FTCs for federal income tax purposes of $14.6 million as of December 31, 2017, which are available to offset future taxable income in future periods. The Company generated $75.6 million of NOLs for federal income tax purposes for the year ended December 31, 2016. There were no NOLs generated for the year ended December 31, 2017. The Company's loss and tax credit carryforwards expire in the following periods:

 

The Company has not recorded a deferred tax valuation allowance as of December 31, 2017 and 2016 as realization of the deferred tax asset is considered more likely than not. In assessing the realizability of the deferred tax assets, management considered whether future taxable income will be sufficient during the periods in which those temporary differences are deductible before NOLs and FTCs expire. Management considers the scheduled reversal of deferred tax liabilities, projected taxable income, and tax planning strategies in making this assessment. Management anticipates the timing differences on aircraft depreciation will reverse and be available for offsetting the reversal of deferred tax assets. As of December 31, 2017 and 2016 the Company has not recorded any liability for unrecognized tax benefits.

The Company files income tax returns in the U.S. and various state and foreign jurisdictions. The Company is subject to examinations by the major tax jurisdictions for the 2013 tax year and forward.