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INCOME TAXES | 12 Months Ended
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Jan. 31, 2019
INCOME TAXES |
INCOME TAXES | NOTE 13 – INCOME TAXES Research and Development Tax Credits During Fiscal 2019, the Company completed a detailed review of the activities of its engineering staff on major EPC services projects in order to identify and quantify the amounts of research and development credits that may be available to reduce current and prior year income taxes. This study focused on project costs incurred during the three-year period ended January 31, 2018. Based on the results of the study, management identified and estimated significant amounts of income tax benefits that were not previously recognized in the Company’s operating results for any prior year reporting period. Income tax positions must meet a more-likely-than-not threshold to be recognized. Income tax positions that previously failed to meet the more-likely-than-not threshold are recognized in the first subsequent financial reporting period in which that threshold is met. Management considers Fiscal 2019 as the initial reporting period in which it had sufficient data on which to make an evaluation and reach a conclusion on the amount of income tax credit benefits related to prior year project costs that, more likely than not, qualified as research and development costs under the rules and regulations of the Internal Revenue Code of 1986, as amended (the “IRC”), and certain states. The income tax benefits associated with research and development activities conducted in prior years in the total amount of $16.6 million have been recognized in income taxes for Fiscal 2019, and represented a favorable effect on dilutive earnings per share of $1.06 for the year. If the benefits had been recognized in the fiscal years during which the related research and development costs were incurred, the income tax amounts for Fiscal 2018, Fiscal 2017 and the fiscal year ended January 31, 2016 (“Fiscal 2016”) would have been favorably impacted by $5.2 million, $10.9 million and $0.5 million, respectively. The amount of income tax benefits related to qualifying research and development costs incurred during Fiscal 2019 was not significant. The amount of identified but unrecognized income tax benefits related to research and development credits as of January 31, 2019, for which the Company has established a liability for uncertain income tax return positions that is included in accrued expenses, is $5.1 million. If recognized in the years that the related costs were incurred, they would have favorably impacted income taxes for Fiscal 2018, 2017 and 2016 by $2.2 million, $2.6 million and $0.3 million, respectively. As of January 31, 2019, the Company does not believe that it has any other material uncertain income tax positions reflected in its accounts. As described below, during the extended term of a current examination, the Internal Revenue Service (the “IRS”) intends to review the research and development credit that will be included in the amendment of the Company’s consolidated federal income tax return for Fiscal 2016. The Company does not anticipate any significant changes to the income tax benefit amounts identified above within the next twelve months except for the addition of amounts related to research and development credits that may be available in Pennsylvania as it is an application-based state. However, such credit amounts could be material. In the future, if previously recognized tax positions no longer meet the more-likely-than-not threshold, the related benefits will be derecognized in the first subsequent financial reporting period in which that threshold is no longer met. The Tax Cuts and Jobs Act (the “Tax Act”) The Tax Act was signed into law on December 22, 2017 and significantly changed tax law in the US by, among other items, reducing the federal corporate income tax rate from a maximum of 35% to 21% (effective January 1, 2018). The Tax Act embraces a territorial system for the taxation of future foreign earnings and modifies certain business deductions by, among other changes, repealing the domestic production activities deduction, further limiting the deductibility of certain executive compensation and increasing the limitation on the deductibility of certain meals and entertainment expenses. As a result of the net reduction in the corporate income tax rate, the Company revalued its deferred taxes as of December 22, 2017 and recognized an income tax benefit of $0.8 million for the year ended January 31, 2018. The Company did not record a liability as of January 31, 2018 related to the newly established transition tax as it did not have any unremitted foreign earnings. Its foreign operations had incurred a cumulative net operating loss since the acquisition of APC in May 2015. The Global Intangible Low-Taxed Income, or GILTI, provision of the Tax Act did not have a material impact on the Company’s operating results for Fiscal 2019. In the event that any new guidance related to the Tax Act is issued by the IRS or other regulatory or standard-setting bodies, the Company will conduct additional analysis and may make adjustments that could materially impact the Company’s income tax expense for the period in which such adjustments are made. Income Tax Expense Reconciliation The components of the amounts of income tax benefit (expense) for Fiscal 2019, 2018 and 2017 are presented below:
|  | 2019 |  | 2018 |  | 2017
Current: |  |  |  |  |  |  |  |  |
Federal |  | $ | 3,603 |  | $ | (32,490) |  | $ | (29,681)
State |  |  | (1,091) |  |  | (7,853) |  |  | (6,188)
|  |  | 2,512 |  |  | (40,343) |  |  | (35,869)
Deferred: |  |  |  |  |  |  |  |  |
Federal |  |  | 971 |  |  | 2 |  |  | (1,277)
State |  |  | 1,168 |  |  | 62 |  |  | 40
|  |  | 2,139 |  |  | 64 |  |  | (1,237)
Income tax benefit (expense) |  | $ | 4,651 |  | $ | (40,279) |  | $ | (37,106)
Foreign income tax expense amounts for Fiscal 2019, Fiscal 2018 and 2017 were not material. The amounts of interest and penalties related to income taxes that were incurred by the Company during Fiscal 2019, 2018 and 2017 were not material. The Company’s income tax amounts for Fiscal 2019, 2018 and 2017 differed from corresponding amounts computed by applying the federal corporate income tax rates of 21%, 34% and 35%, respectively, to income before income taxes for the periods as shown in the table below.
|  | 2019 |  | 2018 |  | 2017
Computed expected income tax expense |  | $ | (9,916) |  | $ | (38,078) |  | $ | (40,086)
Difference resulting from: |  |  |  |  |  |  |  |  |
Federal research and development tax credits |  |  | 13,866 |  |  | — |  |  | —
State income taxes, net of federal tax effect |  |  | 683 |  |  | (5,042) |  |  | (4,001)
Net operating loss carryforwards |  |  | 1,730 |  |  | — |  |  | —
Stock options |  |  | 32 |  |  | 962 |  |  | 4,969
Domestic production activities deduction |  |  | — |  |  | 3,204 |  |  | 2,906
Other permanent differences, net |  |  | (1,585) |  |  | (1,141) |  |  | 551
Impact of the federal tax rate change on deferred taxes |  |  | — |  |  | 789 |  |  | —
Adjustments and other differences |  |  | (159) |  |  | (973) |  |  | (1,445)
Income tax benefit (expense) |  | $ | 4,651 |  | $ | (40,279) |  | $ | (37,106)
The amount of state income tax benefit for Fiscal 2019 that is presented above reflects recognized research and development state tax credits of $2.8 million, net of federal tax-effect. For Fiscal 2018 and 2017, the income tax expense amounts reflect the unfavorable income tax effects of state income taxes, net of federal income tax benefit. The favorable income tax effects of permanent differences for Fiscal 2018 and 2017 related primarily to the domestic manufacturing deduction, which was eliminated by the Tax Act, and the the recognition of the excess income tax benefits associated with stock options exercised during the corresponding year. As of January 31, 2019, the balance of other current assets in the consolidated balance sheet included income tax refunds and prepaid income taxes in the total amount of approximately $19.5 million. The income tax refunds are amounts expected to be received after the filing of amended tax returns claiming research and development tax credits for prior years. At January 31, 2018, the consolidated balance sheet included prepaid income taxes in the amount of $7.9 million. The tax effects of temporary differences that are reflected in deferred tax assets and liabilities as of January 31, 2019 and 2018 included the following:
|  | 2019 |  | 2018
Assets: |  |  |  |  |  |
Net operating loss carryforwards |  | $ | 3,034 |  | $ | 2,635
Stock awards |  |  | 2,188 |  |  | 2,042
Research and development credit carryforwards |  |  | 631 |  |  | —
Purchased intangibles |  |  | 604 |  |  | 864
Accrued expenses and other |  |  | 758 |  |  | 862
|  |  | 7,215 |  |  | 6,403
Liabilities: |  |  |  |  |  |
Purchased intangibles |  |  | (3,373) |  |  | (3,664)
Construction contracts |  |  | (454) |  |  | (1,896)
Property and equipment and other |  |  | (2,131) |  |  | (1,683)
|  |  | (5,958) |  |  | (7,243)
Net deferred tax assets (liabilities) |  | $ | 1,257 |  | $ | (840)
The Company acquired unused net operating losses (“NOLs”) for federal income tax reporting purposes from TRC that are subject to limitations imposed by Section 382 of the Internal Revenue Code of 1986, as amended. These losses are subject to annual limits that reduce the aggregate amount of NOLs available to the Company in the future to approximately $9.5 million. These NOLs are available to offset future taxable income and, if not utilized, begin expiring during 2032. The Company also has certain NOLs that will be available to the Company for state income tax reporting purposes that are substantially similar to the federal NOLs. Additionally, the Company has NOLs in the total amount of $3.0 million available to offset future taxable income in the Republic of Ireland and the UK, which may be carried forward indefinitely and which have a combined income tax benefit value of $0.4 million. The Company’s ability to realize deferred tax assets, including those related to the NOLs discussed above, depends primarily upon the generation of sufficient future taxable income to allow for the utilization of the Company’s deductible temporary differences and tax planning strategies. If such estimates and assumptions change in the future, the Company may be required to record valuation allowances against some or all of its deferred tax assets resulting in additional income tax expense in the future. At this time, based substantially on the strong earnings performance of the Company’s power industry services reporting segment, management believes that it is more likely than not that the Company will realize the benefit of significantly all of its deferred tax assets. The Company is subject to income taxes in the US, the Republic of Ireland, the UK and various other state and foreign jurisdictions. Tax treatments within each jurisdiction are subject to the interpretation of the related tax laws and regulations which require significant judgment to apply. The Company is no longer subject to income tax examinations by authorities for its fiscal years ended on or before January 31, 2015 except for several notable exceptions including the Republic of Ireland, the UK and several states where the open periods are one year longer. The IRS is conducting an examination of the Company’s federal consolidated tax return for Fiscal 2016. As a result of conclusions reached by the IRS examiner, the Company recorded a $1.7 million federal income tax benefit in Fiscal 2019 related to additional net operating losses of acquired companies that are available for the fiscal years ending January 31, 2016 through January 31, 2021. The IRS has represented to the Company that no other adjustment items were noted during the examination. However, the audit timeline has been extended which will enable the IRS to examine the amendment to the income tax return for Fiscal 2016, reflecting the research and development credit for the year, which the Company filed in January 2019.

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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/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 + Details
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