Annual report pursuant to Section 13 and 15(d)

Income Taxes

v3.20.4
Income Taxes
 12 Months Ended
Dec. 31, 2020
Income Tax Disclosure [Abstract]  
Income Taxes Income Taxes
 
The Company's Income tax expense (benefit) is as follows (amounts in thousands):
  Successor Company Predecessor Company
  Year Ended December 31, 2020 Period from September 1, 2019 through December 31, 2019 Period from January 1, 2019 through August 31, 2019 Year Ended December 31, 2018
Current:    
Federal $ —  $ —  $ —  $ — 
State 1,791  604  1,775  2,535 
  $ 1,791  $ 604  $ 1,775  $ 2,535 
Deferred:    
Federal $ —  $ —  $ —  $ (12,892)
State 100  100  —  (1,195)
  $ 100  $ 100  $ —  $ (14,087)
Total Income tax expense (benefit) $ 1,891  $ 704  $ 1,775  $ (11,552)

Total Income tax expense (benefit) differs from the amounts computed by applying the U.S. federal income tax rate of 21% as a result of the following (amounts in thousands):
  Successor Company Predecessor Company
  Year Ended December 31, 2020 Period from September 1, 2019 through December 31, 2019 Period from January 1, 2019 through August 31, 2019 Year Ended December 31, 2018
Computed expected tax expense (benefit) $ (37,772) $ (6,852) $ 126,039  $ (144,963)
Change in valuation allowance affecting income tax expense 37,669  6,958  16,769  52,916 
Cancellation of debt income not taxable —  —  (117,545) — 
Other restructuring and reorganization income not resulting in tax impact —  —  (36,453) — 
Non-deductible bankruptcy costs —  —  8,808  — 
Goodwill impairment not resulting in tax impact —  —  —  78,869 
Other expense (income) not resulting in tax impact 500  42  2,755  568 
Tax amortization of indefinite-lived assets —  —  —  — 
2017 Federal tax reform enactment —  —  —  — 
State and local income taxes, net of federal income taxes 1,494  556  1,402  1,058 
Total Income tax expense (benefit) $ 1,891  $ 704  $ 1,775  $ (11,552)
Components of deferred tax assets and liabilities as of December 31, 2020 and 2019 are as follows (amounts in thousands):
  December 31,
2020		 December 31,
2019
Accounts receivable reserves $ 1,178  $ 1,008 
Accrued liabilities 5,044  4,395 
Earnout Payments liability 26,783  — 
Net operating loss ("NOL") carryforwards 130,461  111,512 
Derivative financial instruments 489  — 
Other deferred tax assets 5,613  7,540 
Valuation allowance (63,881) (24,457)
Total deferred tax assets $ 105,687  $ 99,998 
Intangible assets (101,729) (96,204)
Property, plant and equipment (3,374) (3,110)
Total deferred tax liabilities $ (105,103) $ (99,314)
Net deferred tax assets $ 584  $ 684 

For the year ended December 31, 2020, the valuation allowance increased by $39,424,000.  The change in the valuation allowance is primarily attributable to $37,669,000 of current federal income tax benefit not recognized, which increases the valuation allowance. The remaining variance in the valuation allowance is attributable to state and other deferred tax impacts.
 
At December 31, 2020, the Company has $483,404,000 and $202,995,000 in NOLs for federal and state tax purposes, respectively.  The federal net operating losses recognized through December 31, 2017 of $306,134,000 expire at various times from 2027 through 2037.  The state net operating loss carryforwards will expire through 2040.  Approximately $510,000 of the Company’s net operating losses are subject to Internal Revenue Code Section 382 limitations.  The Company also has $584,000 of state credits that will expire through 2027.
 
As of December 31, 2020, the 2017 to 2020 tax years remain open to examination by the IRS and the 2016 to 2020 tax years remain open to examination by certain state tax authorities.
 
A reconciliation of the beginning and ending amount of uncertain tax positions, which is recorded in other long term liabilities, is as follows (amounts in thousands):
  Successor Company Predecessor Company
  Year Ended December 31, 2020 Period from September 1, 2019 through December 31, 2019 Period from January 1, 2019 through August 31, 2019 Year Ended December 31, 2018
As of the beginning of the year $ 5,629  $ 5,629  $ 205  $ 204 
Increases for tax positions of current years —  —  —  7 
Reductions for tax positions of prior years —  —  —  (6)
Increase from Ascent downstream merger —  —  5,424  — 
As of the end of the year $ 5,629  $ 5,629  $ 5,629  $ 205 
 
When the tax law requires interest to be paid on an underpayment of income taxes, the Company recognizes interest expense from the first period the interest would begin accruing according to the relevant tax law. Any accrual of interest and penalties related to underpayment of income taxes on uncertain tax positions is included in Income tax expense in the accompanying consolidated statements of operations and comprehensive income (loss). As of December 31, 2020, accrued interest and penalties related to uncertain tax positions were approximately $143,000.  The Company does not expect a significant change in uncertain tax positions in the next twelve months.

In the fourth quarter of 2020, based on recent state guidance changes, the Company filed amended state tax returns for tax years 2015-2018 in one jurisdiction, utilizing a different income sourcing methodology than was used when the returns were originally filed. The amended returns are claiming a total cash tax refund of approximately $9,000,000 for state tax previously paid with the original filings. Based on the uncertainty of how the recent state guidance changes will be applied, the position is
not considered to be more likely than not, therefore, any tax benefit would be offset by a corresponding reserve. As such, no benefit or reserve was recognized in the consolidated financial statements for the year ended December 31, 2020.