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INCOME TAXES | 12 Months Ended
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Jan. 31, 2021
INCOME TAXES |
INCOME TAXES | NOTE 13 – INCOME TAXES Reconciliations of Income Tax (Expense) Benefit The components of the amounts of income tax (expense) benefit for Fiscal 2021, Fiscal 2020 and Fiscal 2019 are presented below: ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ |  | 2021 |  | 2020 |  | 2019
Current: | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Federal | ​ | $ | 6,654 | ​ | $ | 77 | ​ | $ | 3,603
State | ​ |  | (83) | ​ |  | 336 | ​ |  | (1,091)
​ | ​ |  | 6,571 | ​ |  | 413 | ​ |  | 2,512
Deferred: | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Federal | ​ |  | (7,720) | ​ |  | 6,825 | ​ |  | 971
State | ​ |  | 75 | ​ |  | (185) | ​ |  | 1,168
​ | ​ |  | (7,645) | ​ |  | 6,640 | ​ |  | 2,139
Income tax (expense) benefit | ​ | $ | (1,074) | ​ | $ | 7,053 | ​ | $ | 4,651
​ The amounts of interest and penalties related to income taxes that were incurred by the Company during Fiscal 2021, Fiscal 2020 and Fiscal 2019 were not material. Foreign income tax expense amounts for Fiscal 2021, Fiscal 2020 and Fiscal 2019 were not material. The Company’s income tax amounts differed from corresponding amounts computed by applying the federal corporate income tax rate of 21% to the income (loss) before income taxes for Fiscal 2021, Fiscal 2020 and Fiscal 2019 as presented below: ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | 2021 |  | 2020 |  | 2019
Computed expected income tax (expense) benefit | ​ | $ | (5,226) | ​ | $ | 10,030 | ​ | $ | (9,916)
Difference resulting from: | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
State income taxes, net of federal tax effect | ​ |  | (7) | ​ |  | 81 | ​ |  | 683
Net operating loss carryback benefit (see discussion below) | ​ | ​ | 4,392 | ​ | ​ | — | ​ | ​ | —
Excess executive compensation | ​ | ​ | (420) | ​ | ​ | (420) | ​ | ​ | (866)
Net operating loss carryforward adjustments | ​ | ​ | 242 | ​ | ​ | — | ​ | ​ | 1,730
Foreign tax rate differential | ​ | ​ | 173 | ​ | ​ | (722) | ​ | ​ | 86
Bad debt loss | ​ |  | 160 | ​ |  | 6,205 | ​ |  | —
Elimination of net operating loss benefits | ​ | ​ | — | ​ | ​ | (7,239) | ​ | ​ | —
Goodwill impairment losses | ​ | ​ | — | ​ | ​ | (763) | ​ | ​ | (266)
Other permanent differences, net | ​ |  | (468) | ​ |  | 31 | ​ |  | (421)
Federal research and development tax credits (see discussion below) | ​ | ​ | — | ​ | ​ | — | ​ | ​ | 13,866
Adjustments and other differences | ​ | ​ | 80 | ​ | ​ | (150) | ​ | ​ | (245)
Income tax (expense) benefit | ​ | $ | (1,074) | ​ | $ | 7,053 | ​ | $ | 4,651
​ A valuation allowance in the amount of $7.1 million was established against the deferred tax asset amount created by the net operating loss of APC’s subsidiary in the UK for Fiscal 2020. However, this effect was substantially offset by an income tax benefit (federal and state) for Fiscal 2020 in the amount of approximately $6.8 million that was the estimated favorable income tax impact of bad debt loss on certain loans made to APC from Argan, which were determined to be uncollectible during Fiscal 2020. Further, as the subsidiary is reporting income for Fiscal 2021, approximately $0.2 million of tax benefit was recorded for Fiscal 2021 reflecting utilization of a portion of the prior year loss. 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. Net Operating Loss Carryback In an effort to combat the adverse economic impacts of the COVID-19 crisis, the US Congress passed the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) that was signed into law on March 27, 2020. This wide-ranging legislation was an emergency economic stimulus package that includes spending and tax breaks aimed at strengthening the US economy and funding a nationwide effort to curtail the effects of the outbreak of COVID-19. The CARES Act provided opportunities for taxpayers to evaluate their recent year income tax returns in order to identify potential tax refunds. One such area is the utilization of NOLs. The tax changes of the CARES Act temporarily suspended the limitations on the future utilization of certain NOLs and re-established a carryback period for certain losses to five years. The NOLs eligible for carryback under the CARES Act include the Company’s domestic NOL for Fiscal 2020, which was approximately $39.5 million. The Company has made the appropriate filing with the IRS requesting carryback refunds of income taxes paid for the years ended January 31, 2017, 2016 and 2015. A deferred tax asset in the amount of $8.3 million was recorded as of January 31, 2020 associated with the income tax benefit of the NOL for Fiscal 2020. With the enactment of the CARES Act, the asset was moved to income taxes receivable (included in other current assets in the consolidated financial statements as of January 31, 2021) where the value was increased to approximately $12.7 million. The carryback provided a favorable rate benefit for the Company as the loss, which was incurred in a year where the statutory federal tax rate was 21%, has been carried back to tax years where the tax rate was higher. The substantial portion of the net amount of this additional tax benefit, approximately $4.4 million, was recorded in Fiscal 2021. On December 27, 2020, the Consolidated Appropriations Act, 2021 (the “CCA”), which includes certain business tax provisions, became law. The provisions of the CCA did not have any material effects on the Company’s financial statements for Fiscal 2021. 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 tax credits that may have been available to reduce 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. The amount of research and development tax credit benefit recognized in Fiscal 2019 was $16.6 million. During Fiscal 2020, deferred tax assets related to the research and development tax credits were reduced by $0.4 million. As described below, the Internal Revenue Service (the “IRS”) has concluded examinations of the Company’s consolidated federal income tax returns for Fiscal 2016 and Fiscal 2017, as amended to include research and development tax credits, and has commenced an examination of the Company’s consolidated federal income tax return for Fiscal 2018 with an expressed intent to focus on the research and development tax credit included therein. All of the aforementioned filings were made prior to January 31, 2019. The amount of identified but unrecognized income tax benefits related to research and development tax credits as of January 31, 2021 was $5.0 million, for which the Company has established a liability for uncertain income tax return positions, most of which is included in accrued expenses as of January 31, 2021 and 2020. The final outcome of these uncertain tax positions is not yet determinable. However, the Company does not expect that the amount of unrecognized tax benefits will significantly change due to any expiration of statutes of limitation over the next 12 months. However, it is possible that the disputes with the IRS related to the Company’s federal research and development tax credits (see discussion of income tax returns below) could be resolved within the next twelve months depending on the scheduling of an appeals hearing and/or the results of negotiations with the IRS. If resolution of the disputes occurs, it would result in the Company’s elimination of at least a substantial portion of the amount of the liability for uncertain income tax positions discussed above. As of January 31, 2021, the Company does not believe that it has any other material uncertain income tax positions reflected in its accounts. As of January 31, 2021, the balance of other current assets in the consolidated balance sheet included income tax refunds and prepaid income taxes in the total amount of $26.9 million. The income tax refunds include the amounts expected to be received from the IRS upon completion of the tax return examination appeals process identified below and the amount expected to be received from the IRS upon its processing of the Company’s NOL carryback refund request discussed above. At January 31, 2020, the consolidated balance of other current assets included a comparable balance in the amount of $14.5 million. Deferred Taxes The tax effects of temporary differences that are reflected in deferred taxes as of January 31, 2021 and 2020 included the following: ​
​ | ​ | ​ | ​ | ​ | ​ | ​
​ |  | 2021 |  | 2020
Assets: | ​ | ​ | ​ | ​ | ​ | ​
Net operating loss carryforwards | ​ | $ | 14,192 | ​ | $ | 22,683
Stock awards | ​ | ​ | 2,549 | ​ | ​ | 2,367
Research and development credit carryforwards | ​ | ​ | 102 | ​ | ​ | 134
Purchased intangibles | ​ |  | 234 | ​ |  | 415
Lease liabilities | ​ | ​ | 775 | ​ | ​ | 528
Accrued expenses and other | ​ |  | 1,422 | ​ |  | 991
​ | ​ |  | 19,274 | ​ |  | 27,118
​ | ​ | ​ | ​ | ​ | ​ | ​
Liabilities: | ​ | ​ | ​ | ​ | ​ | ​
Purchased intangibles | ​ | ​ | (3,513) | ​ | ​ | (3,317)
Construction contracts | ​ |  | (968) | ​ |  | (1,618)
Property and equipment | ​ |  | (1,801) | ​ |  | (1,983)
Right-of-use assets | ​ | ​ | (770) | ​ | ​ | (525)
Other | ​ | ​ | (176) | ​ | ​ | (193)
​ | ​ |  | (7,228) | ​ |  | (7,636)
Valuation allowances | ​ | ​ | (11,797) | ​ | ​ | (11,588)
Deferred tax assets | ​ | $ | 249 | ​ | $ | 7,894
​ The Company acquired unused 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 $6.3 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. 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 Company’s use of temporarily deferred deductions and tax planning strategies. If such estimates and assumptions change in the future, the Company may be required to record additional 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. Income Tax Returns The Company is subject to federal and state income taxes in the US, and income taxes in Ireland and the UK. 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, 2017 except for several notable exceptions including Ireland, the UK and several states where the open periods are one year longer. The IRS conducted an examination of the Company’s original federal consolidated income tax return for Fiscal 2016. The IRS represented to the Company that no unfavorable adjustment items were noted during this examination. However, the Company consented to an extension of the audit timeline which enabled the IRS to also examine the amendment to the income tax return, which included the research and development credit for the year. In addition, the IRS opened an examination of the Company’s amended consolidated income tax return for Fiscal 2017. In substance, these efforts evolved into simultaneously conducted examinations of the research and development credits claimed in each year. In January 2021, the IRS issued its final revenue agents report that documents its understanding of the facts, attempts to summarize the Company’s arguments in support of the research and development claims and states its position which disagrees with the Company’s treatment of a substantial amount of the costs that support the Company’s claims for Fiscal 2016 and Fiscal 2017. After a careful review of the report, the Company has concluded that its arguments are sound and that the report does not present any new facts relating to the issues or make any new arguments that would cause it to make any adjustments to its accounting for the research and development claims as of January 31, 2021. The Company has formally protested the findings of the IRS examiner and intends to pursue its income tax position with the IRS through the established appeals process. The Company expects that the ultimate settlement of the income tax dispute will be resolved on a basis favorable to the Company. In November 2020, the Company was notified by the IRS that it intends to examine the consolidated income tax return for Fiscal 2018, with an expressed focus on the research and development tax credit claimed therein. The Company expects that by the time the appeals process commences, its protest will dispute the results of the examinations of the tax returns for all three years. The Company believes that any resulting disagreements regarding its income taxes for Fiscal 2018 will be resolved on a basis favorable to the Company. Supplemental Cash Flow Information The amounts of cash paid for income taxes during Fiscal 2021, Fiscal 2020 and Fiscal 2019 were $5.5 million, $3.1 million and $3.9 million, respectively. During Fiscal 2021 and Fiscal 2020, the Company received cash refunds of previously paid income taxes from various taxing authorities in the total amounts of $1.0 million and $8.4 million, respectively. No meaningful amounts of refunds were received in Fiscal 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://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 + Details
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