Income Taxes

12 Months Ended

Dec. 31, 2019

Income Taxes:

The significant components of the Provision for income tax expense related to continuing operations are as follows (in millions):



	For the Year Ended December 31,
	2019		2018			2017
Current:
Federal	$	58.1	$	103.8		$	72.2
State and other	17.8		24.2			12.8
Total current expense	75.9		128.0			85.0
Deferred:
Federal	32.0		(13.7		)	58.4
State and other	8.0		4.6			2.4
Total deferred expense (benefit)	40.0		(9.1		)	60.8
Total income tax expense related to continuing operations	$	115.9	$	118.9		$	145.8

A reconciliation of differences between the federal income tax at statutory rates and our actual income tax expense on our income from continuing operations, which include federal, state, and other income taxes, is presented below:



	For the Year Ended December 31,
	2019		2018		2017
Tax expense at statutory rate	21.0	%	21.0	%	35.0	%
Increase (decrease) in tax rate resulting from:
State and other income taxes, net of federal tax benefit	4.3	%	4.5	%	3.5	%
Increase (decrease) in valuation allowance	0.8	%	(0.4	)%	0.4	%
Government, class action, and related settlements	(1.2	)%	2.7	%	—	%
Noncontrolling interests	(3.0	)%	(3.2	)%	(4.6	)%
Share-based windfall tax benefits	(1.0	)%	(0.4	)%	(1.8	)%
Tax Act	—	%	—	%	(2.8	)%
Other, net	(0.3	)%	(0.1	)%	(0.3	)%
Income tax expense	20.6	%	24.1	%	29.4	%

The Provision for income tax expense in 2019 was less than the federal statutory rate primarily due to: (1) the impact of noncontrolling interests, (2) government, class action, and related settlements, and (3) share-based windfall tax benefits offset by (4) state and other income tax expense. See Note 1, Summary of Significant Accounting Policies, “Income Taxes,” for a discussion of the allocation of income or loss related to pass-through entities, which is referred to as the impact of noncontrolling interests in this discussion. The Provision for income tax expense in 2018 was greater than the federal statutory rate primarily due to: (1) state and other income tax expense and (2) government, class action, and related settlements offset by (3) the impact of noncontrolling interests. The Provision for income tax expense in 2017 was less than the federal statutory rate primarily due to: (1) the impact of noncontrolling interests, (2) the impact of the 2017 Tax Cuts and Jobs Act (the “Tax Act”) and (3) share-based windfall tax benefits offset by (4) state and other income tax expense.

On December 22, 2017, the US enacted the Tax Act. The Tax Act, which is commonly referred to as “US tax reform,” significantly changes US corporate income tax laws by, among other things, reducing the US corporate income tax rate from 35% to 21% starting in 2018. As a result, we recorded a net benefit of $13.6 million during the fourth quarter of 2017. This amount, which is included in Provision for income tax expense in the consolidated statement of operations,

consists of three components: (i) a $5.8 million credit resulting from the remeasurement of our net federal deferred tax assets based on the new lower corporate income tax rate, (ii) a $13.8 million credit resulting from the remeasurement of our net state deferred tax assets as a result of the decreased federal benefit implicit in the new lower corporate income tax rate, and (iii) a $5.8 million charge resulting from the remeasurement of our net valuation allowances for state NOLs as a result of the decreased federal benefit implicit in the new lower corporate income tax rate. In addition, we adopted the Tax Act’s provisions allowing for 100% bonus depreciation on qualifying assets placed in service after September 27, 2017, which resulted in additional bonus depreciation deductions of $8.8 million in the fourth quarter of 2017.

Deferred income taxes recognize the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and amounts used for income tax purposes and the impact of available NOLs. The significant components of our deferred tax assets and liabilities are presented in the following table (in millions):



	As of December 31,
	2019			2018
Deferred income tax assets:
Net operating loss	$	61.8		$	66.0
Property, net	33.9			30.8
Insurance reserve	17.0			16.8
Stock-based compensation	38.3			33.0
Revenue reserves	—			6.1
Operating lease liabilities	30.6			—
Other accruals	23.4			22.5
Tax credits	6.8			4.7
Other	0.2			0.6
Total deferred income tax assets	212.0			180.5
Less: Valuation allowance	(38.4		)	(33.7		)
Net deferred income tax assets	173.6			146.8
Deferred income tax liabilities:
Revenue reserves	(11.6		)	—
Intangibles	(94.6		)	(88.5		)
Operating lease right-of-use assets	(30.3		)	—
Carrying value of partnerships	(34.0		)	(15.2		)
Other	(0.2		)	(0.2		)
Total deferred income tax liabilities	(170.7		)	(103.9		)
Net deferred income tax assets	$	2.9		$	42.9

We have state NOLs of $61.8 million that expire in various amounts at varying times through 2031. For the years ended December 31, 2019, 2018, and 2017, the net increase (decrease) in our valuation allowance was $4.7 million, $(2.1) million, and $7.9 million, respectively. The increase in our valuation allowance in 2019 related primarily to our expected inability to realize related net operating losses prior to their expiration. The decrease in our valuation allowance in 2018 related primarily to expirations of state net operating losses.

As of December 31, 2019, we have a remaining valuation allowance of $38.4 million. This valuation allowance remains recorded due to uncertainties regarding our ability to utilize a portion of our state NOLs and other credits before they expire. The amount of the valuation allowance has been determined for each tax jurisdiction based on the weight of all available evidence including management’s estimates of taxable income for each jurisdiction in which we operate over the periods in which the related deferred tax assets will be recoverable. It is possible we may be required to increase or decrease our valuation allowance at some future time if our forecast of future earnings varies from actual results on a consolidated basis or in the

applicable state tax jurisdictions, if the timing of future tax deductions differs from our expectations, or pursuant to changes in state tax laws and rates.

During the third quarter of 2016, we filed a non-automatic tax accounting method change related to billings denied under pre-payment claims reviews conducted by certain of our MACs. In March 2017, the IRS approved our request resulting in establishment of a deferred tax liability and additional cash tax benefits of approximately $51.3 million through December 31, 2017. This amount was reduced to $33.7 million after considering the federal tax rate reduction to 21% provided for in the Tax Act. The Tax Act included revisions to Internal Revenue Code §451 that might have eliminated a portion of this deferral of revenue for tax purposes. Accordingly, we reversed $23.6 million of our revenue reserves and carrying value of partnerships deferred tax liabilities and recorded a current tax payable for the same amount in the first quarter of 2018. In September 2019, a Treasury Regulation was issued that supported the accounting method change we received calling for continued deferral of denied prepayment claims. As a result, we have recorded additional deferred tax liabilities of $22.2 million and a corresponding benefit to our income tax receivable to fully defer taxable income related to pre-payment claim denials as of December 31, 2019. These changes did not have a material impact on our effective tax rate in any period of adjustment and all benefits are expected to reverse as pre-payment claims denials are settled or collected.

As of January 1, 2017, total remaining gross unrecognized tax benefits were $2.8 million, all of which would have affected our effective tax rate if recognized. The amount of unrecognized tax benefits decreased $2.5 million during 2017, primarily related to the favorable settlement of a federal interest claim. Total remaining gross unrecognized tax benefits were $0.3 million as of December 31, 2017, all of which would have affected our effective tax rate if recognized. The amount of unrecognized tax benefits did not change significantly during 2018 or 2019. Total remaining gross unrecognized tax benefits were $0.9 million and $0.4 million as of December 31, 2018 and 2019, respectively, all of which would have affected our effective tax rate if recognized.

A reconciliation of the beginning and ending liability for unrecognized tax benefits is as follows (in millions):



	Gross Unrecognized Income Tax Benefits			Accrued Interest and Penalties
January 1, 2017	$	2.8		$	—
Gross amount of decreases in unrecognized tax benefits related to prior periods	(0.4		)	—
Decreases in unrecognized tax benefits relating to settlements with taxing authorities	(2.1		)	—
December 31, 2017	0.3			—
Gross amount of increases in unrecognized tax benefits related to prior periods	0.8			0.1
Reductions to unrecognized tax benefits as a result of a lapse of the applicable statute of limitations	(0.2		)	—
December 31, 2018	0.9			0.1
Reductions to unrecognized tax benefits as a result of a lapse of the applicable statute of limitations	(0.5		)	—
December 31, 2019	$	0.4		$	0.1

Our continuing practice is to recognize interest and penalties related to income tax matters in income tax expense. Interest recorded as part of our income tax provision during 2019, 2018, and 2017 was not material. Accrued interest income related to income taxes as of December 31, 2019 and 2018 was not material.

In December 2016, we signed an agreement with the IRS to participate in their Compliance Assurance Process (“CAP”) for the 2017 tax year. CAP is a program in which we and the IRS endeavor to agree on the treatment of significant tax positions prior to the filing of our federal income tax returns. We renewed this agreement in January 2018 for the 2018 tax year, in December 2018 for the 2019 tax year, and in February 2020 for the 2020 tax year. As a result of these agreements, the IRS is currently examining the 2018, 2019, and 2020 tax years. In July 2019, the IRS issued a no-change Letter effectively closing our 2017 tax year audit. The statute of limitations has expired or we have settled federal income tax examinations with the IRS for

all tax years through 2017. Our state income tax returns are also periodically examined by various regulatory taxing authorities. We are not currently under audit by any states.

For the tax years that remain open under the applicable statutes of limitations, amounts related to unrecognized tax benefits have been considered by management in its estimate of our potential net recovery of prior years’ income taxes. Based on discussions with taxing authorities, we anticipate $0.3 million of our unrecognized tax benefits will be released within the next 12 months.