Entity information:

• Entity registrant name: QUORUM HEALTH CORPORATION
• CIK: 0001650445
• SEC filing page: http://www.sec.gov/Archives/edgar/data/1650445/000156459018005823/0001564590-18-005823-index.htm
• XBRL Instance: http://www.sec.gov/Archives/edgar/data/1650445/000156459018005823/qhc-20171231.xml
• XBRL Cloud Viewer: https://edgardashboard.xbrlcloud.com/flex/viewer/XBRLViewer.html#instance=http://www.sec.gov/Archives/edgar/data/1650445/000156459018005823/qhc-20171231.xml
• EDGAR Dashboard: https://edgardashboard.xbrlcloud.com/edgar-dashboard/?cik=0001650445
• Generator: Donnelley Financial Solutions
• Total assets: 1,828,841,000
• Income tax expense (benefit): -21,865,000
• Found reconcilation from statutory to effective rates: True
• Found income tax policy: Coming soon!

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NOTE 12 — INCOME TAXES

The Company and its subsidiaries are subject to U.S. federal income tax and income taxes of multiple state and local jurisdictions. The Company provides for income taxes based on enacted tax laws and tax rates in jurisdictions in which it conducts its operations. Prior to the Spin-off, the Company was included in the consolidated federal, state and local income tax returns filed by CHS and calculated income taxes for the purpose of carve-out financial statements using the “separate return method.” The Company deemed the amounts that it would have paid to or received from the U.S. Internal Revenue Service and other jurisdictions, had QHC not been a member of CHS’ consolidated tax group, to be immediately settled with CHS through Due to Parent, net in the consolidated balance sheets. Since the Spin-off, the Company has been filing its own consolidated federal, state and local income tax returns.

The following table provides a summary of the components of the provision for (benefit from) income taxes (in thousands):

On December 22, 2017, the Tax Cuts and Jobs Act (the “Tax Act”) was signed into law. The Tax Act includes a number of changes to existing U.S. tax laws that impact the Company, most notably a reduction of the U.S. corporate tax rate from 35% to 21% for tax years after December 31, 2017. As a direct result of changes in tax law due to the passage of the Tax Act, the Company recorded a total tax benefit of $24.0 million during 2017 which is composed of two amounts: a tax benefit of $10.9 million in deferred income tax expense for the net change in its deferred tax liabilities at the new 21% tax rate, and a $13.1 million tax benefit in deferred income tax expense for the reduction in valuation allowance attributable to the change in net realizability of deferred tax assets. The Tax Act also provides for acceleration of depreciation for certain assets placed into service after September 27, 2017, as well as prospective changes beginning in 2018. These prospective changes include an increased limitation on the deductibility of executive compensation, a limitation on the deductibility of interest expense, new rules surrounding meals and entertainment expense and fines and penalties. Also, while net operating losses generated in the future may by carried forward indefinitely under the new law, there is a limitation on the amount that may be used in any given year. The Tax Act may also have an impact on projected future taxable income that could further affect valuation allowance considerations. In addition to the federal law, the Company awaits guidance from the states in which it files on how components of the Tax Act may be treated in these jurisdictions.

The $24.0 million tax benefit represents what the Company believes is the impact of the Tax Act, the key components being the re-measurement of deferred tax balances to the new corporate rate and reduction in valuation allowance as a result of anticipated realizability of deferred tax assets due to the change in tax law. As the benefit is based on currently available information and interpretations, which are continuing to evolve, the benefit should be considered provisional. The Company will continue to analyze additional information and guidance related to the Tax Act as supplemental legislation, regulatory federal or state guidance, or evolving technical interpretations become available. The final impacts may differ from the recorded amounts as of December 31, 2017, and the Company will continue to refine such amounts within the measurement period provided by Staff Accounting Bulletin No. 118. The Company expects to complete the analysis by the end of 2018.

The following table reconciles the provision for (benefit from) income taxes utilizing the statutory federal income tax rate to the Company’s effective income tax rate (dollars in thousands):

Deferred income taxes are determined based on the estimated future tax effects of differences between the financial statement carrying values and tax bases of the Company’s assets and liabilities under the provisions of the enacted tax laws.

The following table provides a summary of the components of deferred income tax assets and liabilities (in thousands):

As of December 31, 2017, the Company had federal net operating loss carryforwards of approximately $125 million, which will begin expiring in 2035. The Company also had state net operating loss carryforwards of approximately $668 million, which expire from 2018 to 2037. In addition, the Company has $0.5 million of refundable alternative minimum tax credit carryforwards and $0.4 million of Texas credit carryforwards which expire in 2027. The Company has concluded that it is not more likely than not that it will realize the benefit of its deferred tax assets, and as a result, has recognized a valuation allowance of $116.8 million. With respect to the deferred tax liabilities pertaining to goodwill and intangible assets, as included in the table above, goodwill purchased in connection with certain business acquisitions is amortizable for income tax reporting purposes. However, for financial reporting purposes, there is no corresponding amortization allowed with respect to such purchased goodwill. As the Company does not expect to realize its state deferred tax assets, it has not recognized the corresponding federal tax benefit, and as such, the amounts presented above for the years ended December 31, 2017 and 2016 do not include the federal tax benefit.

The Company’s valuation allowance increased $2.6 million during the year ended December 31, 2017 from $114.2 million to $116.8 million. This net increase was comprised of several factors. Prior to any consideration for any changes resulting from the effects of the Tax Act, the Company recorded an increase in its valuation allowance of $53.4 million through deferred tax expense to offset additional deferred tax assets generated during the year resulting from the Company’s 2017 net operating loss. The Company recorded this valuation allowance because it has concluded that it is not more likely than not that it will realize the benefits of its deferred tax assets. In addition, the Company recorded a deferred tax benefit for a decrease of $37.7 million in its valuation allowance to offset a decrease in its deferred tax assets for the same amount to account for the Tax Act’s reduction in the federal tax rate from 35% to 21%. The Company also recorded an income tax benefit through a reduction in its valuation allowance of $13.1 million to account for the change in net realizability of deferred tax assets since the Tax Act has made the net operating loss carryforward period indefinite and has limited the amount of net operating loss usage to 80% of taxable income starting in 2018.

In the ordinary course of business, there is inherent uncertainty in quantifying the Company’s income tax positions. The Company assesses its income tax positions and records tax benefits for all tax years subject to examination based on management’s evaluation of the facts, circumstances, and information available at the reporting date. The Company is not aware of any unrecognized tax benefits; and therefore has not recorded any such amounts for the years ended December 31, 2017, 2016 and 2015. The Company classified interest and penalties, if any, related to its tax positions as a component of the provision for (benefit from) income taxes in the consolidated and combined statements of income.