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INCOME TAXES | 3 Months Ended
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Apr. 30, 2021
INCOME TAXES |
INCOME TAXES | NOTE 10 – INCOME TAXES Income Tax Expense Reconciliation The Company’s income tax amounts for the three months ended April 30, 2021 and 2020 differed from corresponding amounts computed by applying the federal corporate income tax rate of 21% to the income (loss) before income taxes for the periods as presented below: ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ |  | Three Months Ended April 30, | ​
​ |  | 2021 |  | 2020 | ​
Computed expected income tax (expense) benefit | ​ | $ | (3,052) | ​ | $ | 1,102 | ​
Difference resulting from: | ​ | ​ | ​ | ​ | ​ | ​ | ​
State income taxes, net of federal tax effect | ​ |  | (334) | ​ |  | — | ​
Deferred tax asset adjustments | ​ | ​ | (284) | ​ | ​ | — | ​
Net operating loss carryback benefit (see discussion below) | ​ | ​ | — | ​ | ​ | 4,175 | ​
Net operating losses deemed unrealizable (UK) | ​ | ​ | — | ​ | ​ | (695) | ​
Adjustments and other differences | ​ | ​ | (98) | ​ | ​ | (128) | ​
Income tax (expense) benefit | ​ | $ | (3,768) | ​ | $ | 4,454 | ​
​ Foreign income tax expense amounts for the three months ended April 30, 2021 and 2020 were not material except that for the three months ended April 30, 2020, the valuation allowance established against the unrealizable net operating loss benefits of the subsidiary located in the UK was increased by $0.7 million. During the quarter ended April 30, 2021, the Company wrote-off previously established deferred tax assets in the amount of $0.3 million based on the estimated non-deductible portion of stock option compensation. ​ Net Operating Loss (“NOL”) 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 included 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 tax changes of the CARES Act included a temporary suspension of 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 the year ended January 31, 2020, which was approximately $39.5 million. The Company made the appropriate filing with the Internal Revenue Service (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 the year then ended. With the enactment of the CARES Act, the asset was moved to income taxes receivable (included in other current assets in the condensed consolidated balance sheets as of April 30, 2021 and 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 income tax benefit, estimated at the time to be approximately $4.2 million, was recorded in the three-month period ended April 30, 2020. 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 IRS has concluded examinations of the Company’s consolidated federal income tax returns for the years ended January 31, 2016 (“Fiscal 2016”) and 2017 (“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 the year ended January 31, 2018 (“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 April 30, 2021 is $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 April 30, 2021 and January 31, 2021. 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 April 30, 2021, the Company does not believe that it has any other material uncertain income tax positions reflected in its accounts. As of April 30, 2021 and January 31, 2021, the balances of other current assets in the condensed consolidated balance sheet included income tax refunds and prepaid income taxes in the total amount of approximately $26.9 million at each date. 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. 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 reported 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. The Company believes 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 April 30, 2021. In March 2021, the Company submitted a formal protest of the findings of the IRS examiner and intends to pursue its income tax position with the IRS through the established protest and 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. Supplemental Cash Flow Information The Company was not required to make any income tax payments during the three months ended April 30, 2021 or 2020. During the three months ended April 30, 2021, the Company did not receive any income tax refunds that were material. During the three months ended April 30, 2020, the Company received cash refunds of previously paid income taxes from various taxing authorities in the total amount of $0.8 million.

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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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