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Income Taxes | 12 Months Ended
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Nov. 30, 2020
Income Tax Disclosure [Abstract] |
Income Taxes | Income Taxes Income Tax Expense. The components of the income tax expense in our consolidated statements of operations are as follows (in thousands):
| Federal |  | State |  | Total
2020 |  |  |  |  |
Current | $ | (12,100) |  |  | $ | (3,500) |  |  | $ | (15,600) |
Deferred | (36,200) |  |  | (16,000) |  |  | (52,200) |
Income tax expense | $ | (48,300) |  |  | $ | (19,500) |  |  | $ | (67,800) |
2019 |  |  |  |  |
Current | $ | (200) |  |  | $ | (3,700) |  |  | $ | (3,900) |
Deferred | (53,800) |  |  | (21,700) |  |  | (75,500) |
Income tax expense | $ | (54,000) |  |  | $ | (25,400) |  |  | $ | (79,400) |
2018 |  |  |  |  |
Current | $ | (3,600) |  |  | $ | (4,800) |  |  | $ | (8,400) |
Deferred | (170,700) |  |  | (18,500) |  |  | (189,200) |
Income tax expense | $ | (174,300) |  |  | $ | (23,300) |  |  | $ | (197,600) |
Our effective tax rates were 18.6% for 2020, 22.8% for 2019 and 53.7% for 2018. In 2020, our income tax expense and effective tax rate reflected the favorable impacts of $18.7 million of federal energy tax credits we earned from building energy-efficient homes, $12.0 million of excess tax benefits related to stock-based compensation, partly offset by $5.7 million of non-deductible executive compensation expense under Internal Revenue Code Section 162(m). In 2019, our income tax expense and effective tax rate reflected the favorable impacts of $5.3 million of excess tax benefits related to stock-based compensation, a $4.4 million deferred tax asset valuation allowance reversal related to refundable alternative minimum tax (“AMT”) and $4.3 million of federal energy tax credits we earned from building energy-efficient homes, partly offset by $5.3 million of non-deductible executive compensation expense and a $1.9 million non-cash charge due to the re-measurement of deferred tax assets based on a reduction in certain state income tax rates. Our income tax expense and effective tax rate for 2018 included a charge of $112.5 million for TCJA-related impacts, as described below; the favorable effect of the reduction in the federal corporate income tax rate under the TCJA; the favorable net impact of federal energy tax credits of $10.7 million we earned from building energy-efficient homes; a $2.1 million net tax benefit from a reduction in our deferred tax asset valuation allowance; and excess tax benefits of $1.0 million related to stock-based compensation. The TCJA required us to use a blended federal tax rate for our 2018 fiscal year by applying a prorated percentage of days before and after the January 1, 2018 effective date. As a result, our 2018 annual federal statutory tax rate was reduced to approximately 22%. The federal energy tax credits for the year ended November 30, 2020 resulted from legislation enacted in December 2019 that, among other things, extended the availability of a business tax credit for building new energy-efficient homes through December 31, 2020. The federal energy tax credits for the years ended November 30, 2019 and 2018 resulted from legislation enacted on February 9, 2018 that, among other things, extended the availability of a business tax credit for building new energy-efficient homes through December 31, 2017. Prior to this legislation, the tax credit expired on December 31, 2016. On March 27, 2020, the CARES Act was enacted to provide economic and other relief from the COVID-19 pandemic. Among other things, the CARES Act provides various income and payroll tax provisions that we do not expect to have a material impact on our income tax expense or effective tax rate for 2020. The CARES Act also accelerated the timetable for AMT credit refunds. As a result, in the 2020 second quarter, we filed a superseding 2019 federal income tax return claiming an additional refund of $39.3 million of AMT credits and reclassified this amount from deferred tax assets to receivables. In the fourth quarter, an amended 2019 federal income tax return was filed to expedite our additional refund and to recognize federal energy tax credits we earned from building energy-efficient homes in 2019. These credits were in addition to the $43.3 million of AMT tax credits that we reclassified from deferred tax assets to receivables in the 2020 first quarter when we filed a preliminary 2019 federal income tax return. We received the $43.3 million AMT credit refund in the 2020 third quarter. Our accounting policy regarding the balance sheet presentation of AMT credits is to maintain the balance in deferred tax assets until a tax return is filed claiming a refund of a portion of the credit, at which time such amount will be presented in receivables. In June 2020, California enacted tax legislation that approved the suspension of California NOL deductions for tax years 2020, 2021 and 2022. The suspension of California NOL deductions did not have an impact on our income tax expense for the year ended November 30, 2020. TCJA. The TCJA, enacted in December 2017, among other things: (a) reduced the federal corporate income tax rate from 35% to 21%, effective January 1, 2018; (b) eliminated the federal corporate AMT and changed how existing AMT credits can be realized; and (c) eliminated several business deductions and credits, including deductions for certain executive compensation in excess of $1 million. In 2018, based on our analysis of the TCJA’s income tax effects, we recorded a total non-cash charge of $112.5 million to income tax expense, comprised of a provisional estimate of $111.2 million recorded in the 2018 first quarter and an additional $1.3 million charge in the 2018 fourth quarter. The following TCJA-related impacts were reflected in our consolidated financial statements for the year ended November 30, 2018: •We recorded a non-cash charge of $106.7 million in income tax expense due to the accounting re-measurement of our deferred tax assets based on the lower federal corporate income tax rate under the TCJA. •We established a federal deferred tax valuation allowance of $3.3 million for 2018 to reflect a sequestration reduction rate of approximately 6.6% on our then-estimated refundable AMT credit carryforwards of approximately $50.0 million. •We recorded a non-cash charge of $2.5 million in income tax expense for disallowed executive compensation due to the TCJA’s eliminating the deductibility of certain performance-based compensation. Deferred Tax Assets, Net. Deferred income taxes result from temporary differences in the financial and tax basis of assets and liabilities. Significant components of our deferred tax liabilities and assets are as follows (in thousands):
| November 30,
| 2020 |  | 2019
Deferred tax liabilities: |  |  |
Capitalized expenses | $ | 43,439 |  |  | $ | 43,818 |
State taxes | 22,562 |  |  | 26,290 |
Depreciation and amortization | 2,714 |  |  | — |
Other | 2,884 |  |  | 4,132 |
Total | 71,599 |  |  | 74,240 |
| November 30,
| 2020 |  | 2019
Deferred tax assets: |  |  |
NOLs from 2006 through 2020 | $ | 79,987 |  |  | $ | 95,562 |
Tax credits | 75,108 |  |  | 180,737 |
Employee benefits | 52,713 |  |  | 53,294 |
Warranty, legal and other accruals | 41,319 |  |  | 40,954 |
Inventory impairment and land option contract abandonment charges | 40,998 |  |  | 48,862 |
Capitalized expenses | 19,903 |  |  | 25,116 |
Partnerships and joint ventures | 8,733 |  |  | 9,990 |
Depreciation and amortization | — |  |  | 479 |
Other | 1,905 |  |  | 2,939 |
Total | 320,666 |  |  | 457,933 |
Valuation allowance | (18,000) |  |  | (19,200) |
Total | 302,666 |  |  | 438,733 |
Deferred tax assets, net | $ | 231,067 |  |  | $ | 364,493 |
Reconciliation of Expected Income Tax Expense. The income tax expense computed at the statutory U.S. federal income tax rate and the income tax expense provided in our consolidated statements of operations differ as follows (dollars in thousands):
| Years Ended November 30,
| 2020 |  | 2019 |  | 2018
| $ |  | % |  | $ |  | % |  | $ |  | %
Income tax expense computed at statutory rate | $ | (76,449) |  |  | (21.0) | % |  | $ | (73,117) |  |  | (21.0) | % |  | $ | (81,689) |  |  | (22.2) | %
Tax credits | 18,734 |  |  | 5.1 |  |  | 6,595 |  |  | 1.9 |  |  | 14,177 |  |  | 3.9 |
Depreciation and amortization | 9,910 |  |  | 2.7 |  |  | 4,276 |  |  | 1.2 |  |  | 1,223 |  |  | .3 |
Valuation allowance for deferred tax assets | 1,200 |  |  | .3 |  |  | 4,400 |  |  | 1.3 |  |  | 2,000 |  |  | .5 |
Non-deductible compensation | (4,812) |  |  | (1.3) |  |  | (4,653) |  |  | (1.3) |  |  | — |  |  | — |
State taxes, net of federal income tax benefit | (16,395) |  |  | (4.4) |  |  | (20,927) |  |  | (6.0) |  |  | (20,155) |  |  | (5.5) |
NOL reconciliation | — |  |  | — |  |  | 3,111 |  |  | .9 |  |  | — |  |  | — |
TCJA adjustment | — |  |  | — |  |  | — |  |  | — |  |  | (112,458) |  |  | (30.5) |
Other, net | 12 |  |  | — |  |  | 915 |  |  | .2 |  |  | (698) |  |  | (.2) |
Income tax expense | $ | (67,800) |  |  | (18.6) | % |  | $ | (79,400) |  |  | (22.8) | % |  | $ | (197,600) |  |  | (53.7) | %
Deferred Tax Asset Valuation Allowance. We evaluate our deferred tax assets quarterly to determine if adjustments to our valuation allowance are required based on the consideration of all available positive and negative evidence using a “more likely than not” standard with respect to whether deferred tax assets will be realized. Our evaluation considers, among other factors, our historical operating results, our expectation of future profitability, the duration of the applicable statutory carryforward periods, and conditions in the housing market and the broader economy. In our evaluation, we give more significant weight to evidence that is objective in nature as compared to subjective evidence. Also, more significant weight is given to evidence that directly relates to our then-current financial performance as compared to indirect or less current evidence. The ultimate realization of our deferred tax assets depends primarily on our ability to generate future taxable income during the periods in which the related deferred tax assets become deductible. The value of our deferred tax assets depends on applicable income tax rates. Our deferred tax assets of $249.1 million at November 30, 2020 and $383.7 million at November 30, 2019 were partially offset in each year by valuation allowances of $18.0 million and $19.2 million, respectively. Our deferred tax assets as of November 30, 2020 reflected the above-mentioned AMT credit reclassifications totaling $82.6 million from deferred tax assets to receivables in 2020. The deferred tax asset valuation allowances at November 30, 2020 and 2019 were primarily related to certain state NOLs that had not met the “more likely than not” realization standard at those dates. As of November 30, 2020, we would need to generate approximately $900 million of pretax income in future periods before 2040 to realize our deferred tax assets. As a result of an expiration and the remeasurement of certain state NOLs, we decreased both our deferred tax assets and the related deferred tax asset valuation allowance for these NOLs by $1.2 million in 2020. Based on the evaluation of our deferred tax assets as of November 30, 2020, we determined that most of our deferred tax assets would be realized. The decrease in the valuation allowance during 2019 primarily reflected our reversal of the above-mentioned $4.4 million deferred tax asset valuation allowance, partly due to the Internal Revenue Service’s announcement in January 2019 that refundable AMT credits will not be subject to sequestration for taxable years beginning after December 31, 2017. As noted above, in 2018, we established a federal deferred tax asset valuation allowance of $3.3 million due to the sequestration of refundable AMT credits, which was offset by a reduction of $3.3 million in our state deferred tax asset valuation allowance primarily to account for state NOLs that met the “more likely than not” standard or had expired. In 2018, the net tax benefit related to the reduction in the state deferred tax asset valuation allowance was $2.1 million. We will continue to evaluate both the positive and negative evidence on a quarterly basis in determining the need for a valuation allowance with respect to our deferred tax assets. The accounting for deferred tax assets is based upon estimates of future results. Changes in positive and negative evidence, including differences between estimated and actual results, could result in changes in the valuation of our deferred tax assets that could have a material impact on our consolidated financial statements. Changes in existing federal and state tax laws and corporate income tax rates could also affect actual tax results and the realization of deferred tax assets over time. The majority of the tax benefits associated with our NOLs can be carried forward for 20 years and applied to offset future taxable income. Depending on their applicable statutory period, the state NOL carryforwards of $80.0 million, if not utilized, will begin to expire between 2021 and 2040. State NOL carryforwards of $.4 million and $1.2 million expired in 2020 and 2018, respectively. In addition, $70.8 million of our tax credits, if not utilized, will begin to expire in 2034 through 2040. Unrecognized Tax Benefits. Gross unrecognized tax benefits are the differences between a tax position taken or expected to be taken in a tax return, and the benefit recognized for accounting purposes. A reconciliation of the beginning and ending balances of gross unrecognized tax benefits, excluding interest and penalties, is as follows (in thousands):
| Years Ended November 30,
| 2020 |  | 2019 |  | 2018
Balance at beginning of year | $ | — |  |  | $ | — |  |  | $ | 56 |
Reductions due to lapse of statute of limitations | — |  |  | — |  |  | (56) |
Balance at end of year | $ | — |  |  | $ | — |  |  | $ | — |
We recognize accrued interest and penalties related to unrecognized tax benefits in our consolidated financial statements as a component of the provision for income taxes. As of November 30, 2020, 2019 and 2018, we had no gross unrecognized tax benefits. As of November 30, 2020 and 2019, there were no tax positions for which the ultimate deductibility is highly certain but the timing of such deductibility is uncertain. Our total accrued interest and penalties related to unrecognized income tax benefits was zero at both November 30, 2020 and 2019. Because of the impact of deferred tax accounting, other than interest and penalties, the disallowance of the shorter deductibility period would not affect our annual effective tax rate, but would accelerate the payment of cash to a tax authority to an earlier period. The fiscal years ending 2017 and later remain open to federal examinations, while 2016 and later remain open to state examinations. The benefits of our deferred tax assets, including our NOLs, built-in losses and tax credits would be reduced or potentially eliminated if we experienced an “ownership change” under Section 382. Based on our analysis performed as of November 30, 2020, we do not believe that we have experienced an ownership change as defined by Section 382, and, therefore, the NOLs, built-in losses and tax credits we have generated should not be subject to a Section 382 limitation as of this reporting date.

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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/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 21 -URI http://asc.fasb.org/extlink&oid=84230637&loc=d3e32857-109319 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section S99 -Paragraph 2 -Subparagraph (SAB Topic 11.C) -URI http://asc.fasb.org/extlink&oid=116825942&loc=d3e330215-122817 Reference 3: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 17 -Subparagraph (b) -URI http://asc.fasb.org/extlink&oid=84230637&loc=d3e32809-109319 Reference 4: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SAB TOPIC 6.I.5.Q1) -URI http://asc.fasb.org/extlink&oid=116825942&loc=d3e330036-122817 Reference 5: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 14 -URI http://asc.fasb.org/extlink&oid=84230637&loc=d3e32705-109319 Reference 6: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 270 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6424409&loc=d3e44925-109338 Reference 7: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 Reference 8: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 30 -Section 50 -Paragraph 2 -Subparagraph (a) -URI http://asc.fasb.org/extlink&oid=6424122&loc=d3e41874-109331 + Details
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