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Income Taxes | 12 Months Ended
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Dec. 31, 2022
Income Tax Disclosure [Abstract] |
Income Taxes | 13. INCOME TAXES Pretax income for the years ended December 31, 2022, 2021 and 2020 was $134.3 million, $149.1 million and $146.7 million, respectively. The provision for income taxes for the years ended December 31, 2022, 2021 and 2020 consists of the following (dollars in thousands):
|  | For the Year Ended December 31, |
|  | 2022 |  |  | 2021 |  |  | 2020 |
Current provision |  |  |  |  |  |  |  |  |
Federal |  | $ | 33,166 |  |  | $ | 19,143 |  |  | $ | - |
State and local |  |  | 5,913 |  |  |  | 4,956 |  |  |  | 2,110 |
Total current provision |  |  | 39,079 |  |  |  | 24,099 |  |  |  | 2,110 |
Deferred (benefit) provision |  |  |  |  |  |  |  |  |
Federal |  |  | (3,767 | ) |  |  | 13,389 |  |  |  | 15,425 |
State and local |  |  | 3,090 |  |  |  | 1,942 |  |  |  | 4,941 |
Total deferred (benefit) provision |  |  | (677 | ) |  |  | 15,331 |  |  |  | 20,366 |
Total provision for income taxes |  | $ | 38,402 |  |  | $ | 39,430 |  |  | $ | 22,476 |
A reconciliation of the statutory U.S. federal income tax rate to our effective income tax rate for the years ended December 31, 2022, 2021 and 2020 is as follows:
|  | For the Year Ended December 31, |  |
|  | 2022 |  |  | 2021 |  |  | 2020 |  |
Statutory U.S. federal income tax rate |  |  | 21.0 |  | % |  | 21.0 |  | % |  | 21.0 |  | %
State and local income taxes |  |  | 2.7 |  |  |  | 2.6 |  |  |  | 2.7 |  |
Stock-based compensation |  |  | 0.6 |  |  |  | 1.0 |  |  |  | (0.3 | ) |
Capital loss |  |  | 2.3 |  |  |  | (2.1 | ) |  |  | - |  |
Valuation allowance |  |  | (0.6 | ) |  |  | 2.1 |  |  |  | (10.9 | ) |
Tax credits |  |  | (0.3 | ) |  |  | (0.3 | ) |  |  | (0.1 | ) |
Other |  |  | 2.9 |  |  |  | 2.1 |  |  |  | 2.9 |  |
Effective income tax rate |  |  | 28.6 |  | % |  | 26.4 |  | % |  | 15.3 |  | %
The effective tax rate for the year ended December 31, 2022 includes a $0.8 million unfavorable adjustment associated with the tax effect of stock-based compensation, which increased the effective rate by 0.6%. The 2022 effective rate also reflects the establishment of a full valuation allowance of $1.4 million with respect to select combined state net operating losses that are anticipated to go unused based on current expectations and $0.9 million related to the expected non-deductibility of reductions in the carrying value of our equity investment, which collectively increased the effective rate by 1.7%. During 2022, the Company re-evaluated the character of the loss incurred on the elimination of a wholly-owned subsidiary during the prior year and re-categorized this transaction in its 2021 tax returns as an ordinary loss attributable to the stock of a worthless subsidiary. As a result of our assessment, the $3.1 million deferred tax asset and offsetting valuation allowance with respect to the capital loss carryforward was eliminated, which had an offsetting impact on the effective tax rate of 2.3%. The effective tax rate for the year ended December 31, 2021 includes a $1.6 million unfavorable adjustment associated with the tax effect of stock-based compensation, which increased the effective tax rate by 1.0%. The 2021 effective tax rate also reflects a $0.5 million favorable adjustment related to federal and state credits claimed for the 2020 tax return and anticipated for the 2021 tax year, which decreased the effective tax rate by 0.3% and a $3.1 million favorable adjustment associated with a capital loss incurred for tax purposes on the elimination of a wholly-owned subsidiary, which decreased the effective tax rate by 2.1%. Since utilization of the capital loss is not anticipated, a valuation allowance of $3.1 million was established against the full amount of the deferred tax balance for the capital loss carryforward, which increased the effective tax rate by 2.1%. The effective tax rate for the year ended December 31, 2020 includes a $16.0 million favorable adjustment related to the release of a valuation allowance maintained against the portion of the foreign tax credit carryforward supported by an overall domestic loss (“ODL”) account balance, which decreased the effective tax rate by 10.9%. The 2020 effective tax rate also reflects a $0.4 million favorable adjustment associated with the tax effect of stock-based compensation, which decreased the effective tax rate by 0.3%. A reconciliation of the beginning and ending amounts of gross unrecognized tax benefits as of December 31, 2022, 2021 and 2020 is as follows (dollars in thousands):
|  | 2022 |  |  | 2021 |  |  | 2020 |
Gross unrecognized tax benefits, beginning of the year |  | $ | 15,951 |  |  | $ | 11,794 |  |  | $ | 9,859 |
Additions for tax positions of prior years |  |  | 4,290 |  |  |  | 941 |  |  |  | - |
Additions for tax positions related to the current year |  |  | 5,584 |  |  |  | 4,250 |  |  |  | 2,954 |
Reductions for tax positions of prior years |  |  | - |  |  |  | - |  |  |  | (51 | )
Reductions due to lapse of applicable statute of limitations |  |  | (1,167 | ) |  |  | (1,034 | ) |  |  | (968 | )
Subtotal |  |  | 24,658 |  |  |  | 15,951 |  |  |  | 11,794 |
Interest and penalties |  |  | 2,451 |  |  |  | 2,020 |  |  |  | 1,919 |
Total gross unrecognized tax benefits, end of the year |  | $ | 27,109 |  |  | $ | 17,971 |  |  | $ | 13,713 |
The total amount of net unrecognized tax benefits that, if recognized, would favorably affect the effective tax rate in future periods was $22.2 million and $14.2 million for the years ended December 31, 2022 and 2021, respectively. As of December 31, 2022, our short and long-term reserves, recorded within current accrued income taxes and other non-current liabilities, respectively, related to FASB’s interpretation No. 48 of ASC Topic 740-10, Accounting for Uncertainty in Income Taxes or (“FIN 48”), were $5.7 million and $19.0 million, respectively. We record interest and penalties related to unrecognized tax benefits within provision for income taxes on our consolidated statements of income. The total amount of accrued interest and penalties resulting from such unrecognized tax benefits was $2.5 million and $2.0 million as of the years ended December 31, 2022 and 2021, respectively. For the years ended December 31, 2022, 2021 and 2020, we recognized less than $0.4 million of expense, less than $0.1 million of expense and less than $0.1 million of expense, respectively, related to interest and penalties from unrecognized tax benefits in our consolidated results of operations. Perdoceo and its subsidiaries file income tax returns in the U.S. and in various state and local jurisdictions and are routinely examined by tax authorities in these jurisdictions. As of December 31, 2022, Perdoceo had been examined by the Internal Revenue Service through our tax year ending December 31, 2014. Due to the expiration of various statutes of limitations, it is reasonably possible that Perdoceo’s gross unrecognized tax benefits balance may change within the next twelve months by a range of zero to $6.3 million. Deferred income tax assets and liabilities result primarily from temporary differences in the recognition of various expenses for tax and financial statement purposes, and from the recognition of the tax benefits of net operating loss and tax credit carry forwards. Components of deferred income tax assets and liabilities as of December 31, 2022 and 2021 are as follows (dollars in thousands):
|  | December 31, |
|  | 2022 |  |  | 2021 |
Deferred income tax assets: |  |  |  |  |  |
Accrued occupancy |  | $ | 8,232 |  |  | $ | 11,012 |
Foreign tax credits |  |  | 7,229 |  |  |  | 16,958 |
Valuation allowance foreign tax credits |  |  | (7,229 | ) |  |  | (16,958 | )
Compensation and employee benefits |  |  | 9,399 |  |  |  | 6,371 |
Tax net operating loss carry forwards |  |  | 17,530 |  |  |  | 17,832 |
Valuation allowance |  |  | (13,159 | ) |  |  | (12,090 | )
Allowance for doubtful accounts |  |  | 6,444 |  |  |  | 5,721 |
Accrued settlements and legal |  |  | 159 |  |  |  | 199 |
Accrued restructuring and severance |  |  | 539 |  |  |  | 343 |
Equity method for investments |  |  | 881 |  |  |  | 401 |
Equity method for investments valuation allowance |  |  | (881 | ) |  |  | - |
Available for sale short-term investments |  |  | 1,267 |  |  |  | - |
Available for sale short-term investments valuation allowance |  |  | (1,267 | ) |  |  | - |
Capital loss |  |  | - |  |  |  | 3,130 |
Capital loss valuation allowance |  |  | - |  |  |  | (3,130 | )
Capitalized research and development |  |  | 2,896 |  |  |  | - |
Amortization |  |  | - |  |  |  | 3,486 |
Depreciation |  |  | 1,060 |  |  |  | 851 |
Other |  |  | 1,492 |  |  |  | 1,587 |
Total deferred income tax assets |  |  | 34,592 |  |  |  | 35,713 |
Deferred income tax liabilities: |  |  |  |  |  |
Amortization |  |  | 1,420 |  |  |  | - |
Right of use asset, net |  |  | 6,199 |  |  |  | 9,244 |
Other |  |  | 2,360 |  |  |  | 1,355 |
Total deferred income tax liabilities |  |  | 9,979 |  |  |  | 10,599 |
Net deferred income tax assets |  | $ | 24,613 |  |  | $ | 25,114 |

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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/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 21 -URI https://asc.fasb.org/extlink&oid=121826272&loc=d3e32857-109319 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section S99 -Paragraph 2 -Subparagraph (SAB Topic 11.C) -URI https://asc.fasb.org/extlink&oid=122134291&loc=d3e330215-122817 Reference 3: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 17 -Subparagraph (b) -URI https://asc.fasb.org/extlink&oid=121826272&loc=d3e32809-109319 Reference 4: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SAB TOPIC 6.I.5.Q1) -URI https://asc.fasb.org/extlink&oid=122134291&loc=d3e330036-122817 Reference 5: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 14 -URI https://asc.fasb.org/extlink&oid=121826272&loc=d3e32705-109319 Reference 6: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 270 -Section 50 -Paragraph 1 -URI https://asc.fasb.org/extlink&oid=6424409&loc=d3e44925-109338 Reference 7: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI https://asc.fasb.org/topic&trid=2144680 Reference 8: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 30 -Section 50 -Paragraph 2 -Subparagraph (a) -URI https://asc.fasb.org/extlink&oid=6424122&loc=d3e41874-109331 Reference 9: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08(h)(2)) -URI https://asc.fasb.org/extlink&oid=120395691&loc=d3e23780-122690 + Details
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