|12 Months Ended|
Dec. 31, 2014
|Income Tax Disclosure [Abstract]|
The domestic and foreign components of (loss) income before provision for income taxes were as follows:
Our (benefit) provision for income taxes consisted of the following components:
The reconciliation of our income tax (benefit) expense computed at the U.S. federal statutory tax rate to the actual income tax (benefit) expense is as follows:
Deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of the 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:
Our management periodically evaluates the realizability of the deferred tax assets and, if it is determined that it is more likely than not that the deferred tax assets are realizable, adjusts the valuation allowance accordingly. During 2013, we were able to conclude that given our performance, the realization of our deferred tax assets was more likely than not and accordingly reversed valuation allowances of approximately $9.2 million and recorded the reduction in valuation allowances as a tax benefit for the period. The determination of the level of valuation allowance at December 31, 2014 is based on an estimated forecast of future taxable income which 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. resulted in an additional net deferred tax liability of $0.5 million. This net liability includes a deferred tax liability of $1.4 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 carryforwards.
The acquisition of the stock of RentSentinel resulted in an additional net deferred tax asset of $0.2 million. This net asset includes a deferred tax liability of $1.8 million related to intangibles that are not subject to amortization for tax purposes, a deferred tax asset of $2.1 million related to net operating loss carryforwards and other miscellaneous deferred tax liabilities of $0.1 million.
The acquisition of the stock of My Building resulted in an additional net deferred tax liability of $0.8 million. This net liability includes a deferred tax liability of $1.2 million related to intangibles that are not subject to amortization for tax purposes, a deferred tax asset of $0.3 million related to net operating loss carryforwards and other miscellaneous deferred tax assets of $0.1 million.
We have not recognized deferred tax assets of $129.0 million for excess tax benefits that arose directly from tax deductions related to equity compensation greater than amounts recognized for financial reporting. These excess stock compensation benefits 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 2014, we recognized excess stock compensation benefits of $2.2 million and was recorded as additional paid-in capital and offset a portion our current tax liability.
Our largest deferred tax assets are our federal and state net operating loss carryforwards of $183.8 million and $7.3 million respectively. The federal net operating losses will begin to expire in 2020 and the state net operating losses will begin to expire in 2015. Of the total net operating loss carryforwards, approximately $129.2 million is attributable to deductions originating from the exercise of non-qualified employee stock options, the benefit of which will be credited to paid-in capital and the related deferred tax asset when realized.
Net operating losses generated by us are not currently subject to the carryforward limitation in Section 382 of the Internal Revenue Code (“Section 382 limitation”); however, $23.9 million of net operating losses generated by subsidiaries prior to their acquisition by us 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 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 upon commencement of business operations in 2008 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 benefits from a tax holiday under the Special Economic Zone program. This benefit applies to a portion of our operations in this location. The expiration of this tax holiday will increase our effective income tax rate.
Our subsidiary in Manila, Philippines currently benefits 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 expires in 2015. The expiration of this tax holiday will increase our effective income tax rate.
No provision has been made for U.S federal and state income taxes on the undistributed earnings of approximately $3.5 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. It is not practicable to estimate the additional income taxes related to permanently reinvested earnings in the subsidiaries.
Uncertain Tax Positions
At December 31, 2014 and 2013, 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, 2014 and 2013, 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 2011 and are no longer subject to state and local income tax examinations by tax authorities for years before 2010. 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 audit for federal, state or any foreign jurisdictions.
The Company plans to file amended 2013 and 2012 tax returns for selected states to correct certain items that were improperly deducted as detected by the Company subsequent to the initial filings. The primary effect of the amended returns will not result in a current tax liability and will reduce the Company’s NOL deferred tax asset by approximately $1.0 million. The Company’s deferred tax balances presented above have been adjusted for the effects of the planned amended returns.
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