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Income Taxes | 12 Months Ended
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Nov. 30, 2023
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
2023 |  |  |  |  |
Current | $ | (123,200) |  |  | $ | (17,200) |  |  | $ | (140,400) |
Deferred | (8,400) |  |  | (32,300) |  |  | (40,700) |
Income tax expense | $ | (131,600) |  |  | $ | (49,500) |  |  | $ | (181,100) |
2022 |  |  |  |  |
Current | $ | (194,400) |  |  | $ | (49,500) |  |  | $ | (243,900) |
Deferred | (2,900) |  |  | (8,600) |  |  | (11,500) |
Income tax expense | $ | (197,300) |  |  | $ | (58,100) |  |  | $ | (255,400) |
2021 |  |  |  |  |
Current | $ | (44,300) |  |  | $ | (33,700) |  |  | $ | (78,000) |
Deferred | (47,200) |  |  | (5,400) |  |  | (52,600) |
Income tax expense | $ | (91,500) |  |  | $ | (39,100) |  |  | $ | (130,600) |
Our effective tax rates were 23.5% for 2023, 23.8% for 2022 and 18.8% for 2021. In 2023, our income tax expense and effective tax rate included the favorable impacts of $25.2 million of Section 45L tax credits we recognized primarily from building energy-efficient homes and $5.5 million of excess tax benefits related to stock-based compensation, partly offset by $12.2 million of non-deductible executive compensation expense. In 2022, our income tax expense and effective tax rate reflected the favorable impacts of $22.6 million of Section 45L tax credits we recognized primarily from building energy-efficient homes and $1.8 million of excess tax benefits related to stock-based compensation, partly offset by $9.7 million of non-deductible executive compensation expense. In 2021, our income tax expense and effective tax rate reflected the favorable impacts of $49.5 million of Section 45L tax credits we recognized 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. On August 16, 2022, the IRA was enacted into law. The IRA contains significant tax law changes, including a CAMT of 15% on adjusted financial statement income for applicable corporations, and a 1% excise tax on stock repurchases after December 31, 2022. If applicable, the CAMT will not be effective for us until our fiscal year ending November 30, 2024. The IRA also extended the Section 45L tax credit for building new energy-efficient homes for homes delivered from January 1, 2022 (retroactively) through December 31, 2032, as well as modified and increased it starting in 2023. Previously, the Section 45L tax credit expired for homes delivered after December 31, 2021. The Section 45L tax credits we recognized in 2023 and 2022 reflected the impact of the extension and modifications, as applicable, under the IRA. We are currently evaluating the other potential effects of the IRA on our consolidated financial statements. The IRA tied Section 45L tax credit qualification for energy-efficient homes built on and after January 1, 2023 to new homes achieving ENERGY STAR certification. In late September 2023, the IRS issued Notice 2023-65, which provided guidance on the Section 45L tax credit qualifications for ENERGY STAR homes built on or after January 1, 2023. This guidance, retroactively effective for the year, resulted in a reduction in our estimated Section 45L tax credits for 2023, primarily due to fewer of the ENERGY STAR homes we built in California meeting the heightened qualifications the IRS selected for homes built in that state relative to other states. Our income tax expense for the 2023 fourth quarter reflected the cumulative impact of the September 2023 guidance. On February 9, 2022, California enacted legislation restoring the California NOL deduction for tax years beginning on or after January 1, 2022, which was effective for our 2023 fiscal year. The California NOL deductions for tax years 2022 and 2021 had been suspended by previous legislation. Although the restoration of California NOL deductions did not have an impact on our income tax expense for the year ended November 30, 2023, it contributed to the year-over-year decrease in the amount of taxes we paid in 2023. 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,
| 2023 |  | 2022
Deferred tax liabilities: |  |  |
Capitalized expenses | $ | 29,395 |  |  | $ | 32,646 |
State taxes | 12,152 |  |  | 18,698 |
Depreciation and amortization | 8,179 |  |  | 8,628 |
Other | 374 |  |  | 416 |
Total | 50,100 |  |  | 60,388 |
Deferred tax assets: |  |  |
Warranty, legal and other accruals | 53,805 |  |  | 63,424 |
Employee benefits | 51,325 |  |  | 55,382 |
NOLs from 2006 through 2023 | 33,827 |  |  | 60,680 |
Capitalized expenses | 22,538 |  |  | 24,665 |
Inventory impairment and land option contract abandonment charges | 15,878 |  |  | 24,871 |
Partnerships and joint ventures | 6,193 |  |  | 7,386 |
Tax credits | 1,857 |  |  | — |
Other | 1,052 |  |  | 1,948 |
Total | 186,475 |  |  | 238,356 |
Valuation allowance | (16,900) |  |  | (17,100) |
Total | 169,575 |  |  | 221,256 |
Deferred tax assets, net | $ | 119,475 |  |  | $ | 160,868 |
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,
| 2023 |  | 2022 |  | 2021
| $ |  | % |  | $ |  | % |  | $ |  | %
Income tax expense computed at statutory rate | $ | (161,982) |  |  | (21.0) | % |  | $ | (225,121) |  |  | (21.0) | % |  | $ | (146,023) |  |  | (21.0) | %
Tax credits | 25,218 |  |  | 3.3 |  |  | 22,565 |  |  | 2.1 |  |  | 49,522 |  |  | 7.1 |
Depreciation and amortization | 4,443 |  |  | .6 |  |  | 1,444 |  |  | .2 |  |  | 5,872 |  |  | .8 |
Valuation allowance for deferred tax assets | 200 |  |  | — |  |  | 300 |  |  | — |  |  | 600 |  |  | .1 |
Non-deductible compensation | (9,975) |  |  | (1.3) |  |  | (7,905) |  |  | (.7) |  |  | (9,241) |  |  | (1.3) |
State taxes, net of federal income tax benefit | (39,307) |  |  | (5.1) |  |  | (46,139) |  |  | (4.3) |  |  | (31,378) |  |  | (4.5) |
Other, net | 303 |  |  | — |  |  | (544) |  |  | (.1) |  |  | 48 |  |  | — |
Income tax expense | $ | (181,100) |  |  | (23.5) | % |  | $ | (255,400) |  |  | (23.8) | % |  | $ | (130,600) |  |  | (18.8) | %
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 $136.4 million at November 30, 2023 and $178.0 million at November 30, 2022 were partially offset in each year by valuation allowances of $16.9 million and $17.1 million, respectively. The deferred tax asset valuation allowances at November 30, 2023 and 2022 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 $.2 million in 2023. As of November 30, 2023, we would need to generate approximately $496.0 million of pretax income in future periods before 2042 to realize our deferred tax assets. Based on the evaluation of our deferred tax assets as of November 30, 2023 and 2022, we determined that most of our deferred tax assets would be realized. 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 $33.8 million, if not utilized, will begin to expire between 2025 and 2043. State NOL carryforwards of $.1 million and $.2 million expired in 2022 and 2021, respectively. No state NOL carryforwards expired in 2023. 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, including interest and penalties, is as follows (in thousands):
| Years Ended November 30,
| 2023 |  | 2022 |  | 2021
Balance at beginning of year | $ | 975 |  |  | $ | 930 |  |  | $ | — |
Increase related to prior years’ tax positions | 1,401 |  |  | 45 |  |  | 930 |
Balance at end of year | $ | 2,376 |  |  | $ | 975 |  |  | $ | 930 |
We had unrecognized tax benefits of $2.4 million as of November 30, 2023, $1.0 million as of November 30, 2022 and $.9 million as of November 30, 2021. Our unrecognized tax benefits are included in accrued expenses and other liabilities in our consolidated balance sheets. 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. 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, if any, will be related to increases due to new tax positions taken and the accrual of interest and penalties. Our total accrued interest and penalties related to unrecognized income tax benefits was approximately $.1 million at November 30, 2023 and less than $.1 million at November 30, 2022. 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 2020 and later remain open to federal examinations, while 2019 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, 2023, 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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