XML 38 R14.htm IDEA: XBRL DOCUMENT v3.20.4
Income Taxes
 12 Months Ended
Dec. 31, 2020
Income Tax Disclosure [Abstract]  
Income Taxes INCOME TAXES:
Income tax (benefit) expense provided on earnings consisted of:
For the Years Ended December 31,
202020192018
Current:
U.S. Federal
$(55,799)$(51,243)$(130,003)
U.S. State
12 (113)— 
(55,787)(51,356)(130,003)
Deferred:
U.S. Federal
(83,080)47,717 319,813 
U.S. State
(35,220)31,375 25,747 
(118,300)79,092 345,560 
Total Income Tax (Benefit) Expense$(174,087)$27,736 $215,557 
The components of the net deferred taxes are as follows:
December 31,
20202019
Deferred Tax Assets:
Net Operating Loss- Federal
$215,936 $202,913 
Net Operating Loss - State
129,641 130,430 
Foreign Tax Credit43,194 43,194 
Operating Lease Right-of-Use Assets28,085 47,849 
Gas Well Closing24,251 17,888 
Salary Retirement11,478 9,236 
Equity Compensation6,639 9,308 
Alternative Minimum Tax— 51,241 
Interest Limitation— 25,734 
Other
9,416 10,030 
Total Deferred Tax Assets
468,640 547,823 
Valuation Allowance
(123,098)(125,054)
Net Deferred Tax Assets
345,542 422,769 
Deferred Tax Liabilities:
Property, Plant and Equipment
(649,917)(593,401)
Investment in Partnership
(85,882)(145,424)
Gas Derivatives
(26,882)(105,721)
   Operating Lease Liabilities (28,287)(46,640)
   Discount on Convertible Notes(18,097)— 
Advance Gas Royalties
(2,519)(3,337)
Other
(211)(4,354)
Total Deferred Tax Liabilities
(811,795)(898,877)
Net Deferred Tax Liability
$(466,253)$(476,108)

Deferred taxes are recorded for certain tax benefits, including net operating losses and tax credit carry-forwards, if management assesses the utilization of those assets to be more likely than not. A valuation allowance is required when it is not more likely than not that all or a portion of a deferred tax asset will be realized. All available evidence, both positive and negative, must be considered in determining the need for a valuation allowance. Positive evidence considered included financial earnings generated over the past three years for certain subsidiaries, reversals of financial to tax temporary differences and the implementation of and/or ability to employ various tax planning strategies. Negative evidence includes financial and tax losses generated in prior periods and the inability to achieve forecasted results for those periods.

As of December 31, 2020, the Company has a deferred tax asset related to federal net operating losses of $215,936, which expire at various times between 2034 and 2039. However, because of the Tax Cuts and Jobs Act (the "TCJA Act") enacted on December 22, 2017 and the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act") enacted on March 27, 2020, the anticipated federal net operating losses generated in 2018 - 2020 do not expire but may only offset 80% of taxable income in any tax years beginning after 2020.

The CARES Act, which, among other things; increased the adjusted taxable income limitation for the disallowance of interest expense from 30% to 50% and provided for refunds of any remaining alternative minimum tax (AMT) credits in 2020. The impact of other tax implications of the Act on the financial statements and related disclosures are immaterial.

The TCJA Act repealed the corporate AMT for tax years beginning January 1, 2018 and provides that AMT credits can be utilized to offset current federal taxes owed in tax years 2018 through 2020. In addition, 50% of any unused AMT credits are refundable during these years with any remaining AMT credit carryforward being fully refunded in 2021, which was revised under the CARES Act to 2020. The Company has no deferred tax asset relating to federal AMT credits as of December 31,
2020 compared to $51,241 as of December 31, 2019, a decrease of $51,241 from the prior year that resulted from the refunds received of all remaining outstanding AMT credits.

A valuation allowance on foreign tax credits of $43,194 has also been recorded at December 31, 2020 and 2019. The foreign tax credits expire at various times between 2021 and 2023.

CNX has, on an after federal tax basis, a deferred tax asset related to state operating losses of $129,641 with a related valuation allowance of $79,197 at December 31, 2020. The deferred tax asset related to state operating losses, on an after-tax adjusted basis, was $130,430 with a related valuation allowance of $81,202 at December 31, 2019. A review of positive and negative evidence regarding these state tax benefits concluded that the valuation allowances for various CNX subsidiaries was warranted. These net operating losses (NOLs) expire at various times between 2021 and 2040.

Management will continue to assess the potential for realized deferred tax assets based upon income forecast data and the feasibility of future tax planning strategies and may record adjustments to valuation allowances against deferred tax assets in future periods, as appropriate, that could materially impact net income.

The following is a reconciliation, stated as a percentage of pretax income, of the United States statutory federal income tax rate to CNX's effective tax rate:
 For the Years Ended December 31,
 202020192018
 AmountPercentAmountPercentAmountPercent
Statutory U.S. Federal Income Tax Rate$(126,595)21.0 %$12,534 21.0 %$230,721 21.0 %
Net Effect of State Income Taxes(32,336)5.5 1,333 2.2 60,814 5.6 
Non-Controlling Interest(11,556)1.9 (23,662)(39.6)(18,181)(1.7)
Uncertain Tax Positions375 (0.1)— — (4,265)(0.4)
Accrual to Tax Return Reconciliation
13 — 603 1.0 3,028 0.3 
Effect of Equity Compensation4,311 (0.7)8,771 14.7 — — 
Effect of Change in State Valuation Allowance(2,004)0.3 33,238 55.6 (22,684)(2.1)
Effect of Change in Federal Valuation Allowance48 — (2,640)(4.4)(18,110)(1.7)
Other Deferred Adjustments1,166 (0.2)(1,691)(2.8)5,957 0.6 
Effect of Federal and State Rate Reductions(1,450)0.2 (3,842)(6.4)(27,429)(2.5)
Effect of Federal Tax Credits(6,284)1.0 2,881 4.8 1,208 0.1 
Other225 — 211 0.4 4,498 0.4 
Income Tax (Benefit) Expense / Effective Rate$(174,087)28.9 %$27,736 46.5 %$215,557 19.6 %

The effective tax rate for the year ended December 31, 2020 was higher than the U.S. federal statutory rate primarily due to state taxes, equity compensation, and the decrease in certain state valuation allowances as a result of the Merger transaction with CNXM partially offset by the benefit from non-controlling interest.

The effective tax rate for the year ended December 31, 2019 was higher than the U.S. federal statutory rate primarily due to state taxes, equity compensation, and the increase in certain state valuation allowances as a result of the higher than projected net operating loss generated in 2018 partially offset by the benefit from non-controlling interest.

As a result of the Midstream Acquisition on January 3, 2018 as discussed in Note 4 - Acquisitions and Dispositions, the Company obtained a controlling interest in CNX Gathering LLC and, through CNX Gathering's ownership of the general partner, control over CNXM. The financial results for 2018 through 2020 reflect full consolidation of CNXM’s assets and liabilities. The effective tax rates for the years ended December 31, 2019 and 2018 reflect a $23,662 and $18,181 reduction in income tax expense, respectively, due to the non-controlling interest in CNXM’s earnings.

The effective tax rate for the year ended December 31, 2018 was lower than the U.S. federal statutory rate primarily due to the effect of the filing of a Federal NOL carryback for 2017 and 2016 resulting in a financial statement benefit of $23,483 through the realization of the Federal NOLs at a 35% tax rate as a carryback versus the current 21% tax rate as a carryforward, the reversal of the AMT credit sequestration valuation allowance, and the release of certain state valuation allowances as a result of a corporate reorganization during the year. The federal NOL carryback claims for 2016 and 2017 were subject to a review by the IRS and the Joint Committee on Taxation which has since been completed.
The TCJA Act, which, among other things, lowered the U.S. Federal corporate income tax rate from 35% to 21%, repealed the corporate AMT for tax years beginning January 1, 2018, and provided for a refund of previously accrued AMT credits. The Company's effective tax rate for 2018 reflects the release of previously recorded valuation allowances against AMT credit carry-forwards of $12,413, as those credits were able to be monetized under the TCJA Act.

In December 2019, the FASB issued ASU 2019-12 - Income Taxes - Simplifying the Accounting for Income Taxes (Topic 740), which simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. This ASU removes the following exceptions: (1) exception to the incremental approach for intraperiod tax allocation when there is a loss from continuing operations and income or a gain from other items; (2) exception to the requirement to recognize a deferred tax liability for equity method investments when a foreign subsidiary becomes an equity method investment; (3) exception to the ability not to recognize a deferred tax liability for a foreign subsidiary when a foreign equity method investment becomes a subsidiary; and (4) exception to the general methodology for calculating income taxes in an interim period when a year-to-date loss exceeds the anticipated loss for the year. The amendments in this ASU also improve consistency and simplify other areas of Topic 740 by clarifying and amending existing guidance. The amendments in this ASU were applied using different approaches depending on what the specific amendment relates to and, for public entities, are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. The Company early adopted ASU 2019-12 as of January 1, 2020.

A reconciliation of the beginning and ending gross amounts of unrecognized tax benefits is as follows:
For the Years Ended
December 31,
20202019
Balance at Beginning of Period$31,516 $31,516 
Increase in Unrecognized Tax Benefits Resulting from Tax Positions Taken During Prior Periods
1,726 — 
Reduction in Unrecognized Tax Benefits Because of the Lapse of the Applicable Statute of Limitations(1,351)— 
Balance at End of Period$31,891 $31,516 

If these unrecognized tax benefits were recognized, $31,891 and $31,516 would affect CNX's effective income tax rate for 2020 and 2019, respectively.

In 2020, CNX recognized an increase in unrecognized tax benefits of $1,726 for tax benefits resulting from a tax position taken on our 2019 federal tax return for additional tax credits. CNX recognized a reduction to unrecognized tax benefits of $1,351 due to the expiration of the statute of limitations from a position taken on a previously filed federal income tax return.

CNX recognizes accrued interest related to unrecognized tax benefits in its interest expense. As of December 31, 2020 and 2019, the Company reported no accrued liability relating to uncertain tax positions in Other Liabilities in the Consolidated Balance Sheets. During the years ended December 31, 2020 and 2019, CNX paid no interest related to income tax deficiencies.

CNX recognizes penalties accrued related to uncertain tax positions in its income tax expense. CNX had no accrued liabilities for tax penalties as of December 31, 2020 and 2019.
CNX and its subsidiaries file federal income tax returns with the United States and income tax returns within various states. With few exceptions, the Company is no longer subject to United States federal, state, local or non-U.S. income tax examinations by tax authorities for the years before 2018.