Annual report pursuant to Section 13 and 15(d)

Income Taxes

v3.22.4
Income Taxes
 12 Months Ended
Dec. 31, 2022
Income Tax Disclosure [Abstract]  
Income Taxes Income TaxesThe components of income tax provision (benefit) attributable to the Company for the year ended December 31, 2022, 2021 and 2020, respectively, are as follows (in thousands):
Year Ended December 31,
2022 2021 2020
U.S. current income tax expense (benefit) $ 61  $ 290  $ (6,931)
U.S. deferred income tax benefit (207) (23,740) (12,330)
Foreign current income tax expense 5,846  8,852  6,948 
Foreign deferred income tax expense (benefit) 7,907  (8,265) 144 
Total $ 13,607  $ (22,863) $ (12,169)
A reconciliation of the statutory federal income tax amount to the recorded expense is as follows (in thousands):
Year Ended December 31,
2022 2021 2020
Income (loss) before income taxes $ 12,988  $ (124,293) $ (119,776)
Statutory income tax rate 21  % 21  % 21  %
Expected income tax expense (benefit) 2,727  (26,102) (25,153)
Change in tax rate —  —  (161)
Interest and penalties 1,677  1,043  — 
Foreign income tax rate differential 4,311  (282) 2,556 
Foreign earnings (loss) not in reported income 1,565  (336) 3,252 
Foreign tax credits (3,646) (7,749) (7,133)
Withholding taxes 1,677  (49) 1,019 
Goodwill impairment —  52  11,544 
Other permanent differences 322  426  1,290 
State tax benefit (1,129) (2,449) (1,664)
CARES act —  —  (2,378)
Return to provision (116) 390  894 
Change in valuation allowance 6,219  12,193  3,765 
Total $ 13,607  $ (22,863) $ (12,169)

The Company’s effective tax rate was 104.8% for the year ended December 31, 2022 compared to 18.4% for the year ended December 31, 2021 and 10.2% for the year ended December 31, 2020.

The effective tax rate for the years ended December 31, 2022 and 2021 differed from the statutory rate of 21% primarily due to the mix of earnings between the United States and Puerto Rico as well as changes in the valuation allowance. Additionally, the Company recorded interest and penalties expense of $1.7 million and $1.0 million during the years ended December 31, 2022 and 2021, respectively, related to the 2020 and 2021 tax year returns in Puerto Rico.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (CARES) Act was enacted and signed into U.S. law in response to the COVID-19 pandemic, and among other things, permits the carryback of certain net operating losses. As a result of the enacted legislation, the Company recognized a $2.4 million net tax benefit during the year ended December 31, 2020, which consisted of a $7.0 million current tax benefit and a $4.6 million deferred tax expense. This impact, along with the rate impact from non-deductible goodwill impairment and the change in valuation allowance, was the primary driver for the difference between the statutory rate of 21% and the effective tax rate for the years ended December 31, 2020.
Deferred tax liabilities attributable to the Company consisted of the following (in thousands):
Year Ended December 31,
2022 2021
Deferred tax assets:
Allowance for doubtful accounts $ 598  $ 1,241 
Lease asset 4,287  4,432 
Intangible assets 952  1,070 
Accrued liabilities 926  12,833 
Net operating loss carryover 9,674  13,447 
Foreign tax credits 86,311  83,780 
Other 1,396  1,652 
Valuation allowance (78,298) (71,612)
Deferred tax assets 25,846  46,843 
Deferred tax liabilities:
Property and equipment $ (18,989) $ (28,126)
Lease liability (4,057) (4,392)
Other (3,271) (7,096)
Deferred tax liabilities (26,317) (39,614)
Net deferred tax (liability) asset $ (471) $ 7,229 
Reflected in accompanying balance sheet as:
Deferred income tax asset $ —  $ 8,094 
Deferred income tax liability (471) (865)
Total $ (471) $ 7,229 

During the years ended December 31, 2022 and 2021, the Company recorded changes in its valuation allowance of $6.2 million and $12.2 million, respectively, related to excess foreign tax credits that are not expected to be utilized. The Company has foreign tax credits carryforwards of $86.3 million as of December 31, 2022. These credits have a 10 year carryforward period and begin to expire in 2028.

The Company maintains a partial valuation allowance related to U.S. foreign tax credit carryforwards, as it cannot objectively assert that these deferred tax assets are more likely than not to be realized. All available positive and negative evidence was weighed to determine whether a valuation allowance was necessary. The more significant evidential matter is the higher foreign tax rate applied to foreign source income in comparison to the U.S. Federal tax rate of 21%. As a result, the Company’s has foreign tax credits in excess of the corresponding U.S. income tax liability for which the foreign tax credits are allowed as an offset and, therefore, are not likely to be realized.

At December 31, 2022, the Company had undistributed earnings in its Puerto Rico foreign branch. The distribution of these undistributed earnings is subject to a withholding tax in Puerto Rico and since the Company intends to make these distributions in the future, the withholding tax has been accrued.

The Company has recorded interest and penalties payable of $2.7 million and $1.0 million at December 31, 2022 and 2021, respectively, related to the 2021 and 2020 tax year returns in Puerto Rico. It is the Company’s policy to recognize interest and applicable penalties in income tax expense.

The Company did not have any uncertain tax positions for the years ended December 31, 2022 and 2021.

The Company’s U.S. federal tax returns for tax years 2017 through 2022 remain subject to examination by the tax authorities. The Company’s state and local income tax returns for tax years 2016 through 2022 remain subject to examination, with few exceptions, by the respective tax authorities. Puerto Rico tax returns for tax years 2017 through
2022 and Canada tax returns for the tax years 2015 through 2022 remain open to examination by the respective tax authorities.