|12 Months Ended|
Dec. 31, 2015
|Income Tax Disclosure [Abstract]|
The domestic and foreign components of (loss) income before income taxes were as follows:
Our benefit for income taxes consisted of the following components:
The reconciliation of our income tax benefit computed at the U.S. federal statutory tax rate to the actual income tax benefit is as follows:
Deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of our assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of our deferred tax assets and liabilities are as follows:
We periodically evaluate the realizability of our deferred tax assets. If we determine that it is more likely than not that all or a portion of such assets are not realizable, we provide a valuation allowance against the assets. We determined that no valuation allowance was required at December 31, 2015 or 2014. During 2013, we determined that previously recorded valuation allowances of approximately $9.1 million were no longer required; and, accordingly, we reversed such allowances resulting in a tax benefit for that period. The determination of the level of valuation allowance, if any, required at any time is based on a forecast of future taxable income that includes many judgments and assumptions. Accordingly, it is at least reasonably possible that future changes in one or more assumptions may lead to a change in judgment regarding the level of valuation allowance required in future periods.
The acquisition of the stock of Kigo, Inc. in 2014 resulted in an additional net deferred tax liability of $0.5 million. This net liability includes a deferred tax liability of $1.5 million related to intangibles that are not subject to amortization for tax purposes and a deferred tax asset of $1.0 million related to net operating loss ("NOL") carryforwards.
Our tax-effected federal and state NOL carryforwards of $11.2 million and $1.5 million, respectively, and our combined federal and state tax credits of $1.0 million comprise a major component of our deferred tax assets. If not used, the underlying gross federal NOLs totaling $31.9 million will begin to expire in 2022 and the underlying state NOLs totaling $24.0 million will begin to expire in 2016, with less than $1.0 million expiring in the next five years. Approximately $0.1 million of our credits expire in 2026, and the balance have no expiration date.
In addition to the NOLs just described, we also have gross federal and state NOLs of $129.2 million and $43.5 million, respectively, for which we have not recognized benefit for financial reporting purposes. These unrecognized NOLs result from the excess of the equity compensation deductions taken on our tax returns over the expense recognized for financial reporting purposes. The benefit from these excess stock compensation federal and state NOLs of approximately $45.2 million and $2.0 million, respectively, will be credited to additional paid-in capital if realized. We use the "with-and-without" method, as described in ASC 740, for purposes of determining when excess tax benefits have been realized. In 2015 and 2014, we recognized excess stock compensation benefits of $0.4 million and $2.2 million, respectively.
Net operating losses that we have generated are not currently subject to the carryforward limitation in Section 382 of the Internal Revenue Code (“Section 382 limitation”); however, $18.3 million of net operating losses generated by our subsidiaries prior to our acquisition of them are subject to the Section 382 limitation. The limitation on these pre-acquisition net operating loss carryforwards will fully expire in 2031. A cumulative change in ownership among material shareholders, as defined in Section 382 of the Internal Revenue Code, during a three-year period also may limit utilization of the federal net operating loss carryforwards.
Our subsidiary in Hyderabad, India benefited from a tax holiday granted under the Software Technology Parks of India program that began upon commencement of business operations in 2008 and continued through March 31, 2011. During this holiday period we were required to pay a minimum alternative tax which was available to reduce our post-holiday tax liability. Effective July 8, 2013, this subsidiary began to benefit from a tax holiday under the Special Economic Zone program. This benefit was initially granted for a five year period and applies to a portion of our operations in this location. The expiration of this tax holiday will increase our effective income tax rate. As a result of this tax holiday, the Company realized tax savings of $0.4 million, $0.2 million, and $0.1 million for the years ended December 31, 2015, 2014, and 2013, respectively.
Our subsidiary in Manila, Philippines has benefited from income tax holiday incentives in the Philippines pursuant to the registrations with the Philippine Economic Zone Authority, or PEZA. Under such PEZA registrations, the income tax holiday of our PEZA-registered project in the Philippines expired in December 2015. We have filed an application to extend the tax holiday for an additional two years. If the application is not accepted, the expiration of this tax holiday will increase our effective income tax rate beginning in 2016. Tax savings realized under the Philippine tax holiday incentives were $0.3 million, $0.2 million, and $0.1 million for the years ended December 31, 2015, 2014, and 2013, respectively.
We have recognized no provision for U.S federal and state income taxes on the undistributed earnings of approximately $6.2 million relating to our foreign subsidiaries as such earnings are expected to be reinvested and are considered permanent in duration. If these earnings were ultimately distributed to the U.S. in the form of dividends or otherwise, or if the shares of the subsidiaries were sold or transferred, we would likely be subject to additional U.S. income taxes, net of the impact of any available foreign tax credits of up to $2.4 million.
Uncertain Tax Positions
At December 31, 2015 and 2014, we had no unrecognized tax benefits. Our policy is to include interest and penalties related to unrecognized tax benefits in income tax expense, and as of December 31, 2015 and 2014, there were no accrued interest and penalties.
We file consolidated and separate tax returns in the U.S. federal jurisdiction and five foreign jurisdictions. We are no longer subject to U.S. federal income tax examinations for years before 2012 and are no longer subject to state and local income tax examinations by tax authorities for years before 2011; however, net operating losses from all years continue to be subject to examinations and adjustments for at least three years following the year in which the attributes are used. We are not currently under income tax audit in any federal, state or foreign jurisdiction.
In July 2015, the Company filed amended 2012 and 2013 income tax returns for selected states to correct certain items that were improperly deducted, as determined by the Company subsequent to the initial filings. The primary effect of the amended returns was an immaterial increase in our current state income tax liability and a reduction of our state net operating loss deferred tax asset, net of federal benefit, of approximately $0.6 million.
The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.
Reference 1: http://www.xbrl.org/2003/role/presentationRef