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Income Taxes | 12 Months Ended
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Dec. 31, 2016
Income Tax Disclosure [Abstract] |
Income Taxes | Income Taxes The provision for income taxes consists of the following:
|  | Years Ended December 31,
(in thousands, except for rate) |  | 2016 |  | 2015 |  | 2014
Current portion of income tax expense (benefit): |  |  |  |  |  |
Federal |  | $ | — |  |  | $ | — |  |  | $ | — |
State |  | 458 |  |  | 20 |  |  | 296 |
|  | 458 |  |  | 20 |  |  | 296 |
Deferred portion of income tax (benefit) expense: |  |  |  |  |  |
Federal |  | (61,396 | ) |  | — |  |  | — |
State |  | — |  |  | — |  |  | — |
|  | (61,396 | ) |  | — |  |  | — |
Total income tax (benefit) expense |  | $ | (60,938 | ) |  | $ | 20 |  |  | $ | 296 |
Effective tax rate |  | (166 | )% |  | — | % |  | 18 | %
A reconciliation of expected federal income taxes on income from operations at statutory rates with the expense (benefit) for income taxes is as follows:
|  | Years Ended December 31,
(in thousands) |  | 2016 |  | 2015 |  | 2014
Federal statutory rate |  | $ | 12,859 |  |  | $ | (10,542 | ) |  | $ | 589 |
State income taxes, net of federal benefit |  | 987 |  |  | (781 | ) |  | 31 |
Disallowed compensation |  | — |  |  | — |  |  | 721 |
Permanent differences |  | 84 |  |  | 35 |  |  | 52 |
Tax credits |  | (2,419 | ) |  | (38,998 | ) |  | (25,607 | )
Valuation allowances |  | (72,359 | ) |  | 50,066 |  |  | 23,794 |
Changes in state effective rates |  | (125 | ) |  | (243 | ) |  | 716 |
Stock-based compensation |  | 36 |  |  | 487 |  |  | — |
Other |  | (1 | ) |  | (4 | ) |  | — |
(Benefit) expense for the provision for income taxes |  | $ | (60,938 | ) |  | $ | 20 |  |  | $ | 296 |
Deferred income taxes are provided for the effects of temporary differences between the tax basis of an asset or liability and its reported amount in the accompanying Consolidated Balance Sheets. These temporary differences result in taxable or deductible amounts in future years. Details of the Company’s deferred tax assets and liabilities are summarized as follows:
|  | As of December 31,
(in thousands) |  | 2016 |  | 2015
Deferred tax assets |  |  |  |
Settlement and Royalty Indemnification |  | $ | 4,264 |  |  | $ | 7,807 |
Deferred revenues and loss contract provisions |  | 268 |  |  | 2,899 |
Employee related liabilities |  | 3,796 |  |  | 4,598 |
Intangible assets |  | 1,518 |  |  | 1,733 |
Equity method investments |  | 12,326 |  |  | 7,500 |
Net operating loss carryforward |  | 13,341 |  |  | 23,193 |
Tax credits |  | 99,903 |  |  | 97,484 |
Deposits on contracts |  | — |  |  | 1,146 |
Other |  | 2,109 |  |  | 2,118 |
Total deferred tax assets |  | 137,525 |  |  | 148,478 |
Less valuation allowance |  | (75,910 | ) |  | (148,269 | )
Deferred tax assets |  | 61,615 |  |  | 209 |
Less: Deferred tax liabilities |  |  |  |
Property and equipment and other |  | (219 | ) |  | (209 | )
Total deferred tax liabilities |  | (219 | ) |  | (209 | )
Net deferred tax assets |  | $ | 61,396 |  |  | $ | — |
For 2016, the Company recorded an income tax benefit of $60.9 million compared to an income tax expense of zero for 2015. The income tax benefit for 2016 was primarily due to the $61.4 million reversal of the valuation allowance of the Company’s net deferred tax assets. Accounting for income taxes requires that companies assess whether a valuation allowance should be recorded against their deferred tax asset based on an assessment of the amount of the deferred tax asset that is “more likely than not” to be realized. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount that is more likely than not to be realized. The Company assesses the valuation allowance recorded against deferred tax assets at each reporting date. The determination of whether a valuation allowance for deferred tax assets is appropriate requires the evaluation of positive and negative evidence that can be objectively verified. Consideration must be given to all sources of taxable income available to realize the deferred tax asset, including, as applicable, the future reversal of existing temporary differences, future taxable income forecasts exclusive of the reversal of temporary differences and carryforwards, taxable income in carryback years and tax planning strategies. In estimating taxes, the Company assesses the relative merits and risks of the appropriate tax treatment of transactions taking into account statutory, judicial, and regulatory guidance. The Company has historically recorded a valuation allowance for all of its deferred tax assets, primarily due to its historical three-year cumulative loss position. However, the Company concluded that, as of December 31, 2016, it is more likely than not the Company will generate sufficient taxable income within the applicable NOL and tax credit carry-forward periods to realize $61.4 million of its net deferred tax assets and, therefore, reversed $61.4 million of the valuation allowance after utilizing $11.0 million during the current year. This conclusion was reached after weighing all of the evidence and determining that the positive evidence outweighed the negative evidence. The positive evidence considered by management in arriving at its conclusion to partially reverse the valuation allowance includes factors such as: (1) emergence from the previous three-year cumulative loss position during the fourth quarter of 2016, (2) completion of four consecutive quarters of profitability and (3) forecasts of continued future profitability. These forecasts are based under several potential scenarios materially derived from currently contracted business within the RC segment that support the partial utilization of deferred tax assets attributable to temporary differences that do not expire and federal NOLs and tax credits prior to their expiration between 2031 through 2036. As a result of the partial reversal, the Company’s net deferred tax assets were $61.4 million as of December 31, 2016, net of a valuation allowance of $75.9 million. As of December 31, 2015, the Company had recorded a valuation allowance against the net deferred tax assets of $148.3 million to reflect the estimated amount of deferred tax assets that may not be realized. During 2016, the Company’s valuation allowance decreased by $72.4 million primarily due to the partial release of the previously recorded full valuation allowance. The following table presents the approximate amount of federal and state net operating loss carryforwards and federal tax credit carryforwards available to reduce future taxable income, along with the respective range of years that the net operating loss and tax credit carryforwards would expire if not utilized:
|  | As of December 31,
(in thousands) |  | 2016 |  | Beginning expiration year |  | Ending expiration year
Federal net operating loss carryforwards |  | $ | 31,699 |  |  | 2031 |  | 2036
State net operating loss carryforwards |  | $ | 57,600 |  |  | 2021 |  | 2036
Federal tax credit carryforwards |  | $ | 99,879 |  |  | 2031 |  | 2036
The following table sets forth a reconciliation of the beginning and ending unrecognized tax benefits on a gross basis for the years ended December 31, 2016, 2015 and 2014:
|  | Years Ended December 31,
(in thousands) |  | 2016 |  | 2015 |  | 2014
Balance as of January 1 |  | $ | — |  |  | $ | — |  |  | $ | — |
Increases for tax positions of current year |  | 54 |  |  | — |  |  | — |
Balance as of December 31 |  | 54 |  |  | — |  |  | — |
The Company did not record any adjustments or recognize interest expense for uncertain tax positions for the years ended December 31, 2016, 2015 and 2014. Interest and penalties related to uncertain tax positions are accrued and included in the Interest expense line item in the Consolidated Statements of Operations. Additionally, the Company recognizes interest expense related to tax treatment of RC facilities at Tinuum Group in the Interest expense line item in the Consolidated Statements of Operations. Additional information related to these interest amounts is included in Note 11. The Company files income tax returns in the U.S. and in various states. The Company is no longer subject to U.S. federal examinations by tax authorities for years before 2013. The Company is generally no longer subject to State and local examinations by tax authorities for years before 2012.

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- Definition 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. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08.(h)) -URI http://asc.fasb.org/extlink&oid=26873400&loc=d3e23780-122690 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=65882285&loc=d3e32559-109319 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 15 -URI http://asc.fasb.org/extlink&oid=65882285&loc=d3e32718-109319 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 9 -URI http://asc.fasb.org/extlink&oid=65882285&loc=d3e32639-109319 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=65882285&loc=d3e32537-109319 + Details
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