Entity information:

• Entity registrant name: ALLSCRIPTS HEALTHCARE SOLUTIONS, INC.
• CIK: 0001124804
• SEC filing page: http://www.sec.gov/Archives/edgar/data/1124804/000156459018003105/0001564590-18-003105-index.htm
• XBRL Instance: http://www.sec.gov/Archives/edgar/data/1124804/000156459018003105/mdrx-20171231.xml
• XBRL Cloud Viewer: https://edgardashboard.xbrlcloud.com/flex/viewer/XBRLViewer.html#instance=http://www.sec.gov/Archives/edgar/data/1124804/000156459018003105/mdrx-20171231.xml
• EDGAR Dashboard: https://edgardashboard.xbrlcloud.com/edgar-dashboard/?cik=0001124804
• Generator: Donnelley Financial Solutions
• Total assets: 4,230,150,000
• Income tax expense (benefit): -50,767,000
• Found reconcilation from statutory to effective rates: True
• Found income tax policy: Coming soon!

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7. Income Taxes

The following is a geographic breakdown of income (loss) before income tax benefits:

 

 

 The following is a summary of the components of the provision (benefit) for income taxes:

 

 

Taxes computed at the statutory federal income tax rate of 35% are reconciled to the provision for income taxes as follows:

 

 

 Significant components of our deferred tax assets and liabilities consist of the following:

 

 

The deferred tax assets (liabilities) are classified in the consolidated balance sheets as follows:

 

Allscripts Income Taxes

The United States Tax Cuts and Jobs Act (the “Tax Act”) was enacted on December 22, 2017 and introduced significant changes to the income tax law in the United States. Effective in 2018, the Tax Act reduces the United States statutory tax rate from 35% to 21% and creates new taxes on certain foreign-sourced earnings and certain related-party payments, which are referred to as the global intangible low-taxed income tax and the base erosion tax, respectively. In addition, in 2017 we were subject to a one-time transition tax on accumulated foreign subsidiary earnings not previously subject to income tax in the United States.

Due to the timing of the enactment and the complexity involved in applying the provisions of the Tax Act, we made reasonable estimates of the effects and recorded provisional amounts in our financial statements for the year ended December 31, 2017 in accordance with guidance in Staff Accounting Bulletin No. 118 which provided guidance for companies that had not completed their accounting for the income tax effects of the Tax Act in the period of enactment and allowed for a measurement period of up to one year after the enactment date to finalize the recording of the related tax impacts. As of December 31, 2017, we had not completed our accounting for the tax effects of the enactment of the Tax Act, however, we made a reasonable estimate of the effects on our deferred tax balances and in relation to the transition tax. The remeasurement of our deferred tax balances to reflect the reduced federal rate resulted in tax expense of $10.2 million.  In addition, we have estimated and recorded tax expense of $5.2 million in our tax provision for the year ended December 31, 2017 related to the one-time transition tax on accumulated foreign subsidiary earnings not previously subject to income tax in the United States. The Tax Act creates new global intangible low-taxed income ("GILTI") tax provisions. The GILTI provisions require us to include in our future U.S. taxable income, the earnings of foreign subsidiaries in excess of an allowable return on the foreign subsidiaries' tangible assets. We have elected to account for GILTI tax in the period in which it is incurred, and therefore have not provided any deferred tax impacts of GILTI in our consolidated financial statements for the year ended December 30, 2017.

As of December 31, 2017 and 2016, we had federal net operating loss (“NOL”) carryforwards of $179 million and $192 million, respectively. The federal NOL carryforward includes Israeli NOL carryovers of $61 million that do not expire. As of December 31, 2017 and 2016, we had state NOL carryforwards of $4 million and $5 million, respectively. The NOL carryforwards expire in various amounts starting in 2020 for both federal and state tax purposes. The utilization of the federal NOL carryforwards is subject to limitation under the rules regarding changes in stock ownership as determined by the Internal Revenue Code; however, we are not subject to any material limits at this point in time due to excess limitations in prior years.

For federal purposes, 2013 to 2017 tax years remain subject to income tax examination by federal authorities. For our state tax jurisdictions, 2006 to 2017 tax years remain open to income tax examination by state tax authorities. In Canada, the 2013 to 2017 tax years remain open for examination and in India the 2012 to 2017 tax years remain open.

We have a subsidiary in India that is entitled to a tax holiday that allows for tax-free operations during such tax holiday. The tax holiday for the subsidiary began to partially expire in 2012 and will fully expire in 2017. Tax savings realized from this holiday totaled $0.4 million, $0.7 million and $0.4 million for the years ended December 31, 2017, 2016 and 2015, respectively, which reduced our diluted loss per share by less than $0.01 in each of those years. There is a potential for a partial tax holiday for 5 years beginning on April 1, 2017, which is contingent upon a certain level of capital expenditure spending, among other conditions.  At this time, we do not believe we have met the requirements for this holiday; therefore, no tax savings impact has been recorded for this potential tax holiday for the year ended December 31, 2017.

U.S. GAAP principles prescribe a threshold of more-likely-than-not to be sustained upon examination for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. These principles also provide guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.

Changes in the amounts of unrecognized tax benefits were as follows:

 

 

During the three months ended September 30, 2015, we concluded our Internal Revenue Service (the “IRS”) audit for all open years through December 31, 2012.  The conclusion of this audit provided us with confirmation about the NOL carryforwards actual balance as of December 31, 2012. As a result, we recognized certain unrecognized income tax benefits totaling $4.0 million during the three months ended September 30, 2015. The recognition of these benefits did not impact our effective tax rate due to the valuation allowance. We were not able to obtain confirmation regarding the actual balance of our research and development credit carryforwards because none of these research and development credits have been utilized against any tax liability as of the date of this Form 10-K. Therefore, our analysis of eligible research and development credit carryforwards remains unchanged.

We had gross unrecognized tax benefits of $12.0 million and $11.4 million as of December 31, 2017 and 2016, respectively. If the current gross unrecognized tax benefits were recognized, the result would be an increase in our income tax benefit of $0.1 million and $1.0 million, respectively. These amounts are net of accrued interest and penalties relating to unrecognized tax benefits of $0.7 million and $1.2 million, respectively. We believe that it is reasonably possible that $1.0 million of our currently remaining unrecognized tax benefits may be recognized by the end of 2018, as a result of a lapse of the applicable statute of limitations.

We recognized interest and penalties related to uncertain tax positions in our consolidated statements of operations as follows:

 

The amount of interest and penalties included in our consolidated balance sheets is as follows:

 

 

During the year ended December 31, 2017, we recorded valuation allowance of $42.7 million related to federal capital loss carryforwards not expected to be realized before expiration. In addition, we recorded valuation allowance of $5.3 million related to federal credit carryforwards, and foreign and state NOL carryforwards. During the year ended December 31, 2016, we released valuation allowances of $17.5 million related to federal credit carryforwards, and foreign and state NOL carryforwards to offset current year taxable income. In evaluating our ability to recover our deferred tax assets within the jurisdiction from which they arise, we consider all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, tax-planning strategies, and results of recent operations. In evaluating the objective evidence that historical results provide, we consider three years of cumulative operating income (loss). Using all available evidence, we determined that it was uncertain that we will realize the deferred tax asset for certain of these carryforwards within the carryforward period.

Our effective rate was lower for the year ended December 31, 2017 as compared with the prior year, primarily due to the recording of valuation allowance of $48.0 million in the current year as compared with the release of valuation allowance of $17.5 million in the prior year.

We file income tax returns in the United States federal jurisdiction, numerous states in the United States and multiple countries outside of the United States. We are subject to the continuous examination of our income tax returns by the IRS and other tax authorities. A change in the assessment of the outcomes of such matters could materially impact our consolidated financial statements.

Effective January 1, 2017, we adopted ASU 2016-09.  The guidance in ASU 2016-09, among other things, requires all income tax effects of share-based awards to be recognized in the statement of operations when the awards vest or are settled as a discrete item in the period in which they occur.  During the year ended December 31, 2017, we recorded $2.1 million of tax expense for awards in which the compensation cost recorded was higher than the tax deductions for the awards.  ASU 2016-09 also requires entities to recognize excess tax benefits, regardless of whether the tax deduction reduces taxes payable.  As part of adopting this new standard, we recorded a gross cumulative effect adjustment of $5.6 million to the opening balance of accumulated deficit to create a deferred tax asset to recognize excess tax benefits not previously recorded.  The net decrease to accumulated deficit was $1.8 million due to the recognition of a corresponding valuation allowance of $3.8 million.

We intend to indefinitely reinvest the undistributed earnings of our foreign subsidiaries as a general rule, as most of our foreign subsidiaries have third party customers, as well as formal sales proposals that could require significant resources.  Specifically, our subsidiary in India may repatriate all current 2017 earnings at the discretion of management.  Certain earnings of our Israel subsidiary may also be repatriated depending on resource needs of our growing international business. For this reason, all potential withholding taxes have been recorded for these possible exceptions to our general rule of indefinitely reinvesting. As of December 31, 2016, we had established a Netherlands holding company, which currently holds all of our foreign subsidiaries. Our holding company makes it more efficient for us to share resources between the respective foreign subsidiaries. As we have determined that the earnings of these subsidiaries are not required as a source of funding for our United States operations, such earnings are not planned to be distributed to the United States in the foreseeable future

During 2017, tax reform was enacted that requires a calculation of a “toll charge” for all company’s controlled foreign corporations. As of December 31, 2017, we have estimated and recorded a liability for this tax of $5 million.

Netsmart Income Taxes

The Company has both U.S. federal and state net operating losses which are carried forward 20 years for federal tax purposes and from 5 to 20 years for state tax purposes. Both the federal and state loss carryovers are analyzed each year to determine the likelihood of realization. The United States federal loss carryover at December 31, 2017, was $91.4 million and if not used, would begin to expire in 2034. The state net operating loss was $120.0 million and if not used, would begin to expire in part beginning in 2018 through 2036. In addition, the Company has $10.7 million of federal and state tax credit carryovers consisting of $0.4 million of federal Alternative Minimum Tax credits, $5.5 million of federal and state research and development tax credits which if not used, will begin to expire in 2028 and $4.8 million of Kansas High Performance Incentive Program credits which if not used, will begin to expire in 2027.

Effective in 2018, the Tax Act reduces the United States statutory tax rate from 35% to 21%.  As a result, Netsmart revalued its ending net deferred tax liabilities at December 31, 2017 and recognized a $36.2 million tax benefit in its statement of income for the year ended December 31, 2017.

Netsmart files a U.S. consolidated return. The 2014 through 2017 tax returns of Netsmart, LLC remain subject to examination by the Internal Revenue Service (IRS). The IRS examined the 2014 and 2015 federal income tax returns and closed the exams with no changes.  The Company also files state tax returns with varying statutes of limitations.  The 2013 through 2017 state tax returns remain subject to examination by most state tax authorities.

In assessing the realizability of its deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income. The Company believes that it is more likely than not that its deferred tax assets will be realized, except for certain state tax credits. As a result, the Company recorded a valuation allowance associated with its deferred tax assets of $0.1 million as of both December 31, 2017 and December 31, 2016, respectively.