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Income Taxes | 9 Months Ended
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Sep. 30, 2020
Income Tax Disclosure [Abstract] |
Income Taxes | Note 12. Income Taxes Historically, APi Group has elected to be taxed under the provisions of Subchapter S of the Internal Revenue Code for federal tax purposes. As a result, APi Group’s income was not subject to U.S. federal income taxes or state income taxes in those states where the “S” Corporation status is recognized. In Predecessor periods, no provision or liability for federal or state income tax has been provided in its consolidated financial statements except for those taxing jurisdictions where the “S” Corporation status is not recognized. In connection with the APi Acquisition, APi Group’s “S” Corporation status was terminated and APG is now treated as a “C” Corporation under Subchapter C of the Internal Revenue Code and is part of the consolidated tax group of the Company. The termination of the “S” Corporation election has had a material impact on the Company’s results of operations, financial condition, and cash flows as reflected in the September 30, 2020 condensed consolidated financial statements. The effective tax rate has increased, and net income has decreased as compared to the Company’s “S” Corporation tax years, since the Company is now subject to U.S. federal and state corporate income taxes in addition to foreign corporate income taxes on its earnings. The Company’s quarterly income tax provision is measured using an estimate of its consolidated annual effective tax rate, adjusted in the current period for discrete income tax items, within the periods presented. The comparison of the Company’s income tax provision between periods may be impacted by the level and mix of earnings and losses by tax jurisdiction, foreign income tax rate differentials and discrete items. The Company’s effective tax rate was 50.1% and 15.7% for the three months ended September 30, 2020 and 2019, respectively and 21.2% and 7.5% for the nine months ended September 30, 2020 and 2019, respectively. The most significant item contributing to the change in the effective tax rate relate to the Company’s change in “S” Corporation to “C” Corporation status. The difference between the effective tax rate and the statutory U.S. Federal income tax rate of 21.0% for the nine months ended September 30, 2020 is due to an asset impairment charge benefit offsetting state taxes and taxes on foreign earnings in jurisdictions that have higher tax rates. As of September 30, 2020, the Company’s deferred tax assets included a valuation allowance of $3 primarily related to certain deferred tax assets of the Company’s foreign subsidiaries. The factors used to assess the likelihood of realization were the past performance of the related entities, forecasts of future taxable income, future reversals of existing taxable temporary differences, and available tax planning strategies that could be implemented to realize the deferred tax assets. The ability or failure to achieve the forecasted taxable income in these entities could affect the ultimate realization of deferred tax assets. As of September 30, 2020, the Company had gross federal, state and foreign net operating loss carryforwards of approximately $228, $0 and $5, respectively. The federal net operating losses have carryback periods of five years that can offset 100% of taxable income for periods in which the Company was a “C” Corporation and can be carried forward indefinitely. The carryforwards will be able to offset 80% of future taxable income for years beginning after 2020. The foreign net operating losses have carryback periods of three years, carryforward periods of twenty years and begin to expire in 2034. The Company’s liability for unrecognized tax benefits is recorded within other non-current liabilities in the consolidated balance sheets and recognizes interest and penalties accrued related to unrecognized tax benefits in the provision for income taxes in the income statement. As of September 30, 2020 and December 31, 2019, the total gross unrecognized tax benefits were $2 and $4, respectively. The Company had accrued gross interest and penalties as of September 30, 2020 and December 31, 2019 of $1 and $1, respectively. During the three and nine months ended September 30, 2020 (Successor) and 2019 (Predecessor), the Company recognized net interest expense of $0 for all periods. If all of the Company’s unrecognized tax benefits as of September 30, 2020 were recognized, the entire balance would impact the Company’s effective tax rate. The Company expects $1 of unrecognized tax benefits to expire in the next twelve months due to lapses in the statute of limitations. The Company files income tax returns in the U.S. federal jurisdiction, various state, local and foreign jurisdictions. For periods ended September 30, 2019 (Predecessor) and prior, the Company, including its domestic subsidiaries, filed state income tax returns for those states that do not recognize Subchapter S corporations. As of September 30, 2020, with few exceptions, neither the Company nor its subsidiaries are subject to examination prior to tax year 2014. The U.S. federal jurisdiction is under exam for the period ended December 31, 2017. No adjustments have been proposed and the Company does not expect the results of the audit to have a material impact on the consolidated financial statements. On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law making several changes to the Internal Revenue Code. The CARES Act, among other things, permits Net Operating Loss (“NOL“) carryovers to offset 100% of taxable income for tax years beginning before 2021. In addition, the CARES Act allows NOLs incurred in 2018, 2019, and 2020 to be carried back to each of the five preceding tax years to generate a refund of previously paid income taxes. The CARES Act contains modifications on the limitation of business interest for tax years beginning in 2019 and 2020. The modifications to Section 163(j) increase the allowable business interest deduction from 30% of adjusted taxable income to 50% of adjusted taxable income. The CARES Act also accelerates the refund of AMT credits that were previously accumulated. The tax law changes in the CARES Act did not have a material impact on the Company’s income tax provision.

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