NOTE 6 - INCOME TAXES

 

The provision for income taxes consists of the following as of the fiscal year ended:

 

 

A reconciliation of the statutory to the effective rate of the Company is as follows as of the fiscal year ended:

 

 

The Tax Cuts and Jobs Act (Tax Act) was enacted on December 22, 2017 and introduces significant changes to the U.S. income tax law.  Effective in 2018, the Tax Act reduces U.S. statutory tax rates from 35% to 21%.   Accordingly, the Company remeasured its deferred taxes as of December 29, 2017 to reflect the reduced rate that will apply in future periods when these deferred taxes are settled or realized, resulting in a one-time $9.5 million net tax benefit in 2017. 

 

Due to the timing of the enactment and the complexity involved in applying the provisions of the Tax Act, the Company has made reasonable estimates of the effects and recorded provisional amounts in our financial statements as of December 29, 2017.  As the Company collects and prepares necessary data, and interprets the Tax Act and any additional guidance issued by the Internal Revenue Service and other standard-setting bodies, it may make adjustments to the provisional amounts.  Those adjustments may materially impact our provision for income taxes and effective tax rate in the period in which adjustments are made.  The accounting for the tax effects of the Tax Act will be completed in 2018.

 

The favorable impact of Stock-based compensation and merger related includes a favorable $2.1 million impact from the adoption of ASU 2016-09 as discussed in Note 1 which was largely offset by the unfavorable impact of the federal and state tax limits on executive compensation related to the merger.

 

The principal tax carry-forwards and temporary differences were as follows as of the fiscal year ended:

 

 

As of December 29, 2017, the Company has U.S. operating loss carry forwards of $8.1 million that are available to reduce future taxable income.  If not used to offset taxable income, the losses will expire between 2028 and 2034.  Due to U.S. limitations on acquired operating losses, a valuation allowance has been established on $0.8 million of these losses.

 

State operating loss carryforwards totaling $46.3 million at December 29, 2017 are being carried forward in jurisdictions where the Company is permitted to use tax losses from prior periods to reduce future taxable income.  If not used to offset future taxable income, these losses will expire between 2018 and 2037.  Due to uncertainty regarding the Company’s ability to use some of the carryforwards, a valuation allowance has been established on $37.6 million of state net operating loss carryforwards.  Based on the Company’s historical record of producing taxable income and expectations for the future, the Company has concluded that future operating income will be sufficient to give rise to taxable income sufficient to utilize the remaining state net operating loss carryforwards.

 

The Company has provided a valuation allowance against certain net deferred tax assets based upon management’s estimation of realizability of those assets through future taxable income.  This valuation allowance was based in large part on the Company’s history of generating operating income or losses in individual tax locales and expectations for the future.  The Company’s ability to generate the expected amounts of taxable income from future operations to realize its recorded net deferred tax assets is dependent upon general economic conditions, competitive pressures on revenues and margins and legislation and regulation at all levels of government.  There can be no assurances that the Company will meet its expectations of future taxable income.  However, management has considered the above factors in reaching its conclusion that it is more likely than not that future taxable income will be sufficient to realize the deferred tax assets (net of valuation allowance) as of December 29, 2017.  During 2017, the valuation allowance increased by $0.4 million due to a change in expected realizability of deferred tax assets.

 

The Company had book goodwill of $105.1 million at December 29, 2017, which was not deductible for tax purposes.

 

US GAAP prescribes a recognition threshold and measurement attribute for the accounting and financial statement disclosure of tax positions taken or expected to be taken in a tax return.  The evaluation of a tax position is a two-step process.  The first step requires the Company to determine whether it is more likely than not that a tax position will be sustained upon examination based on the technical merits of the position.  The second step requires the Company to recognize in the financial statements each tax position that meets the more likely than not criteria, measured at the amount of benefit that has a greater than 50% likelihood of being realized.  The Company’s unrecognized tax benefits would affect the tax rate, if recognized.  The Company includes the full amount of unrecognized tax benefits in other noncurrent liabilities in the consolidated balance sheets.  The Company anticipates it is reasonably possible an increase or decrease in the amount of unrecognized tax benefits could be made in the next twelve months. However, the Company does not presently anticipate that any increase or decrease in unrecognized tax benefits will be material to the consolidated financial statements.  Changes in unrecognized tax benefits were as follows.

 

 

For federal tax purposes, the Company is currently subject to examinations for tax years after 2013, while for state purposes, tax years after 2010 are subject to examination, depending on the specific state rules and regulations.  The Internal Revenue Service completed an examination of the Company’s December 31, 2011 tax year as well as an examination of Omni Home Health Holdings, Inc.’s federal tax returns for the year ended December 31, 2012 and the period ended December 6, 2013.

 

The Company may from time to time be assessed interest and penalties by major tax jurisdictions, although any such assessments historically have been minimal and immaterial to its financial results.  Assessments for interest and/or penalties are classified in the Consolidated Statement of Income as General and administrative - other.