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Income Taxes | 6 Months Ended
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Jun. 30, 2018
Income Taxes |
Income Taxes | 11. Income Taxes On December 22, 2017, President Trump signed into law the Tax Act. The Tax Act makes many significant amendments to the Internal Revenue Code of 1986, as amended (the “Code”), including reducing the corporate tax rate from 35% to 21%, effective January 1, 2018. GAAP requires that companies record and reflect the impact of the Tax Act in their financial statements for the quarter during which the Tax Act becomes law, even if provisions of the Tax Act become effective at a future date. Accordingly, the Company reported the impact of the Tax Act on its results of operations in its consolidated financial statements for the fourth quarter and year ended December 31, 2017. The reduction in the corporate tax rate under the Tax Act required a one-time revaluation of certain tax-related assets, which resulted in the Company recording $47.6 million in additional income tax expense in our consolidated statements of income in the fourth quarter of 2017. The Company’s effective tax rate was 26.00% and 37.12% for the three months ended June 30, 2018 and 2017, respectively, and 26.00% and 37.01% for the six months ended June 30, 2018 and 2017, respectively. The Company is subject to examination by the Internal Revenue Service (“IRS”) and tax authorities in states in which the Company has significant business operations. The tax years under examination and open for examination vary by jurisdiction. There are currently no federal examinations under way; however, refund claims and tax returns for certain years are being reviewed by state jurisdictions. No material unanticipated adjustments were made by the IRS in the years most recently examined. The Company’s income tax returns for 2014 and subsequent tax years generally remain subject to examination by U.S. federal and foreign jurisdictions, and 2013 and subsequent years are subject to examination by state taxing authorities. A reconciliation of the amount of unrecognized tax benefits is as follows for the six months ended June 30, 2018 and 2017:
|  | Six Months Ended June 30,
|  | 2018 |  | 2017
|  |  |  |  | Interest |  |  |  |  |  |  |  | Interest |  |  |
|  |  |  |  | and |  |  |  |  |  |  |  | and |  |  |
(dollars in thousands) |  | Tax |  | Penalties |  | Total |  | Tax |  | Penalties |  | Total
Balance at January 1, |  | $ | 130,619 |  | $ | 10,660 |  | $ | 141,279 |  | $ | 127,085 |  | $ | 9,965 |  | $ | 137,050
Additions for current year tax positions |  |  | 819 |  |  | — |  |  | 819 |  |  | 1,478 |  |  | — |  |  | 1,478
Additions for Reorganization Transactions |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 226 |  |  | 226
Additions for prior years' tax positions: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Accrual of interest and penalties |  |  | — |  |  | 509 |  |  | 509 |  |  | — |  |  | 209 |  |  | 209
Reductions for prior years' tax positions: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Expiration of statute of limitations |  |  | (140) |  |  | (63) |  |  | (203) |  |  | (254) |  |  | (101) |  |  | (355)
Other |  |  | (515) |  |  | — |  |  | (515) |  |  | — |  |  | — |  |  | —
Balance at June 30, |  | $ | 130,783 |  | $ | 11,106 |  | $ | 141,889 |  | $ | 128,309 |  | $ | 10,299 |  | $ | 138,608
Included in the balance of unrecognized tax benefits was $15.2 million and $11.0 million of unrecognized tax benefits for the six months ended June 30, 2018 and 2017, respectively that, if recognized, would impact the effective tax rate. In connection with the Reorganization Transactions discussed below, the Company recorded unrecognized tax benefits and interest and penalties of $121.4 million and $7.0 million, respectively. Included in the balance of the unrecognized tax benefits as of June 30, 2018 was $93.9 million attributable to tax refund claims with respect to tax years 2005 through 2012 in the State of California. Such refund claims were filed by the Company in 2015, on behalf of the Company and its affiliates, including BOW, concerning the determination of taxes for which no benefit is currently recognized. It is reasonably possible that the amount of unrecognized tax benefits could decrease within the next 12 months by as much as $107.5 million of taxes and $5.6 million of accrued interest and penalties as a result of settlements and the expiration of the statute of limitations in various states. The Company recognizes interest and penalties attributable to both unrecognized tax benefits and undisputed tax adjustments in the provision for income taxes. For the six months ended June 30, 2018 and 2017, the Company recorded $0.1 million and $0.4 million, respectively, of net expense attributable to interest and penalties. The Company had a liability of $12.9 million and $12.8 million as of June 30, 2018 and December 31, 2017, respectively, for accrued interest and penalties, of which $11.1 million and $10.7 million as of June 30, 2018 and December 31, 2017, respectively, were attributable to unrecognized tax benefits and the remainder was attributable to tax adjustments which are not expected to be in dispute. Prior to the Reorganization Transactions, the Company filed consolidated U.S. Federal and combined state tax returns that incorporated the tax receivables and unrecognized tax benefits of FHB and BOW. The consummation of the Reorganization Transactions did not relieve the Company of the pre-Reorganization Transactions tax receivables and unrecognized tax benefits recognized by BOW that were included in the Company's consolidated and combined tax returns. As of June 30, 2018, the Company maintained balances of $93.9 million related to current tax receivables, $116.5 million related to unrecognized tax benefits, and an indemnification receivable of $22.6 million. Additionally, in connection with the Reorganization Transactions, the Company incurred certain tax-related liabilities related to the distribution of its interest in BWHI amounting to $95.4 million. The amount necessary to pay the distribution taxes (net of the expected federal tax benefit of $33.4 million) was paid by BNPP to the Company on April 1, 2016. The Company reported total distribution taxes of $92.1 million in the 2016 tax returns of various state and local jurisdictions, and reimbursed BWHI approximately $2.1 million pursuant to a tax sharing agreement entered into on April 1, 2016 and pursuant to certain tax allocation agreements entered into among the parties. The Company expects that any future adjustment to such taxes will be similarly reimbursed to, or funded by, BWHI or its affiliates. Accordingly, the assumption of the pre-Reorganization Transactions tax receivables, unrecognized tax benefits and distribution tax liabilities and the offsetting indemnification receivables or payables were reflected as equity contributions and distributions on April 1, 2016. The reimbursement of distribution taxes to BWHI was also reflected as an adjustment to equity. If there are any future adjustments to the indemnified tax receivables or unrecognized tax benefits, an offsetting adjustment to the indemnification receivables or payables will be recorded to the provision for income taxes and other noninterest income or expense.

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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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