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Income Taxes | 12 Months Ended
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Nov. 30, 2021
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
2021 |  |  |  |  |
Current | $ | (44,300) |  |  | $ | (33,700) |  |  | $ | (78,000) |
Deferred | (47,200) |  |  | (5,400) |  |  | (52,600) |
Income tax expense | $ | (91,500) |  |  | $ | (39,100) |  |  | $ | (130,600) |
| 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) |
Our effective tax rates were 18.8% for 2021, 18.6% for 2020 and 22.8% for 2019. In 2021, our income tax expense and effective tax rate reflected the favorable impacts of $49.5 million of federal tax credits we earned primarily from building energy-efficient homes and $7.1 million of excess tax benefits related to stock-based compensation, partly offset by $11.3 million of non-deductible executive compensation expense under Internal Revenue Code Section 162(m). In 2020, our income tax expense and effective tax rate reflected the favorable impacts of $18.7 million of federal tax credits we earned from building energy-efficient homes and $12.0 million of excess tax benefits related to stock-based compensation, partly offset by $5.7 million of non-deductible executive compensation expense. 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 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. The federal energy tax credits for the year ended November 30, 2021 resulted from legislation enacted in December 2020 and earlier periods. The legislation enacted in December 2020, among other things, extended the availability of a business tax credit for building new energy-efficient homes through December 31, 2021. 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 the tax credit through December 31, 2020. The federal energy tax credits for the year ended November 30, 2019 resulted from legislation enacted on February 9, 2018 that, among other things, extended the availability of the tax credit through December 31, 2017. On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was enacted to provide economic and other relief as a result of the COVID-19 pandemic. Among other things, the CARES Act 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. We received this AMT credit refund in the 2021 first quarter. In the 2020 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. The CARES Act also provided an ERC, which is a refundable payroll tax credit that encouraged businesses to keep employees on the payroll during the COVID-19 pandemic. Eligible employers could qualify for up to $5,000 of credit for each employee based on certain wages paid after March 12, 2020 and before January 1, 2021. Based on our evaluation of this provision and the significant pandemic-related impacts on our operations in 2020, we recognized an ERC of $4.3 million as an offset to payroll tax expenses within selling general and administrative expenses in our consolidated statements of operations upon filing for the refund in the 2021 first quarter. We received the ERC refund in the 2021 fourth quarter. In June 2020, California enacted tax legislation that approved the suspension of California NOL deductions for tax years 2020, 2021 and 2022. Although the suspension of California NOL deductions did not have an impact on our income tax expense for the year ended November 30, 2021 or 2020, it contributed to the year-over-year increase in the amount of taxes we paid in 2021. 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,
| 2021 |  | 2020
Deferred tax liabilities: |  |  |
Capitalized expenses | $ | 36,660 |  |  | $ | 43,439 |
State taxes | 20,558 |  |  | 22,562 |
Depreciation and amortization | 3,926 |  |  | 2,714 |
Other | 1,555 |  |  | 2,884 |
Total | 62,699 |  |  | 71,599 |
Deferred tax assets: |  |  |
NOLs from 2006 through 2021 | 73,662 |  |  | 79,987 |
Employee benefits | 56,384 |  |  | 52,713 |
Warranty, legal and other accruals | 54,826 |  |  | 41,319 |
Inventory impairment and land option contract abandonment charges | 30,767 |  |  | 40,998 |
Capitalized expenses | 26,849 |  |  | 19,903 |
Partnerships and joint ventures | 8,265 |  |  | 8,733 |
Tax credits | 4,634 |  |  | 75,108 |
Other | 2,090 |  |  | 1,905 |
Total | 257,477 |  |  | 320,666 |
Valuation allowance | (17,400) |  |  | (18,000) |
Total | 240,077 |  |  | 302,666 |
Deferred tax assets, net | $ | 177,378 |  |  | $ | 231,067 |
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,
| 2021 |  | 2020 |  | 2019
| $ |  | % |  | $ |  | % |  | $ |  | %
Income tax expense computed at statutory rate | $ | (146,023) |  |  | (21.0) | % |  | $ | (76,449) |  |  | (21.0) | % |  | $ | (73,117) |  |  | (21.0) | %
Tax credits | 49,522 |  |  | 7.1 |  |  | 18,734 |  |  | 5.1 |  |  | 6,595 |  |  | 1.9 |
Depreciation and amortization | 5,872 |  |  | .8 |  |  | 9,910 |  |  | 2.7 |  |  | 4,276 |  |  | 1.2 |
Valuation allowance for deferred tax assets | 600 |  |  | .1 |  |  | 1,200 |  |  | .3 |  |  | 4,400 |  |  | 1.3 |
Non-deductible compensation | (9,241) |  |  | (1.3) |  |  | (4,812) |  |  | (1.3) |  |  | (4,653) |  |  | (1.3) |
State taxes, net of federal income tax benefit | (31,378) |  |  | (4.5) |  |  | (16,395) |  |  | (4.4) |  |  | (20,927) |  |  | (6.0) |
NOL reconciliation | — |  |  | — |  |  | — |  |  | — |  |  | 3,111 |  |  | .9 |
Other, net | 48 |  |  | — |  |  | 12 |  |  | — |  |  | 915 |  |  | .2 |
Income tax expense | $ | (130,600) |  |  | (18.8) | % |  | $ | (67,800) |  |  | (18.6) | % |  | $ | (79,400) |  |  | (22.8) | %
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 $194.8 million at November 30, 2021 and $249.1 million at November 30, 2020 were partially offset in each year by valuation allowances of $17.4 million and $18.0 million, respectively. The deferred tax asset valuation allowances at November 30, 2021 and 2020 were primarily related to certain state NOLs that had not met the “more likely than not” realization standard at those dates. As a result of our utilization of certain state NOLs, we reduced the valuation allowance by $.6 million in 2021. As of November 30, 2021, we would need to generate approximately $670 million of pretax income in future periods before 2041 to realize our deferred tax assets. Based on the evaluation of our deferred tax assets as of November 30, 2021, we determined that most of our deferred tax assets would be realized. In 2020, 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 2019, the decrease in the valuation allowance primarily reflected our reversal of a $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. 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 $73.7 million, if not utilized, will begin to expire between 2022 and 2041. State NOL carryforwards of $.2 million and $.4 million expired in 2021 and 2020, respectively. In addition, $4.6 million of our tax credits, if not utilized, will expire in 2041. 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,
| 2021 |  | 2020 |  | 2019
Balance at beginning of year | $ | — |  |  | $ | — |  |  | $ | — |
Increase as a result of tax position taken in prior years | 930 |  |  | — |  |  | — |
Balance at end of year | $ | 930 |  |  | $ | — |  |  | $ | — |
We had unrecognized tax benefits of $.9 million as of November 30, 2021. Our unrecognized tax benefits are included in accrued expenses and other liabilities in our consolidated financial statements. 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 and 2019, we had no gross unrecognized tax benefits. If these unrecognized tax benefits reverse in the future, they would have a beneficial impact on our effective tax rate at that time. During the next 12 months, it is possible that the amount of unrecognized tax benefits will change, but we are not able to provide a range of such change. The potential change will be related to increases due to new tax positions taken and the accrual of interest and penalties. As of November 30, 2021 and 2020, 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, 2021 and 2020. 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 2018 and later remain open to federal examinations, while 2017 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, 2021, 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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