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Income Taxes
 12 Months Ended
Dec. 31, 2024
Income Tax Disclosure [Abstract]  
Income Taxes

13. INCOME TAXES

Pretax income for the years ended December 31, 2024, 2023 and 2022 was $201.4 million, $192.1 million and $134.3 million, respectively.

The provision for income taxes for the years ended December 31, 2024, 2023 and 2022 consists of the following (dollars in thousands):

 

 

For the Year Ended December 31,

 

 

 

2024

 

 

2023

 

 

2022

 

Current provision

 

 

 

 

 

 

 

 

 

Federal

 

$

40,947

 

 

$

32,792

 

 

$

33,166

 

State and local

 

 

10,308

 

 

 

7,903

 

 

 

5,913

 

Foreign

 

 

18

 

 

 

13

 

 

 

-

 

Total current provision

 

 

51,273

 

 

 

40,708

 

 

 

39,079

 

Deferred provision (benefit)

 

 

 

 

 

 

 

 

 

Federal

 

 

3,375

 

 

 

2,640

 

 

 

(3,767

)

State and local

 

 

(798

)

 

 

1,121

 

 

 

3,090

 

Total deferred provision (benefit)

 

 

2,577

 

 

 

3,761

 

 

 

(677

)

Total provision for income taxes

 

$

53,850

 

 

$

44,469

 

 

$

38,402

 

 

A reconciliation of the statutory U.S. federal income tax rate to our effective income tax rate for the years ended December 31, 2024, 2023 and 2022 is as follows:

 

 

For the Year Ended December 31,

 

 

 

 

2024

 

 

2023

 

 

2022

 

 

Statutory U.S. federal income tax rate

 

 

21.0

 

%

 

21.0

 

%

 

21.0

 

%

State and local income taxes

 

 

3.2

 

 

 

2.9

 

 

 

2.7

 

 

Stock-based compensation

 

 

(0.4

)

 

 

(0.1

)

 

 

0.6

 

 

Capital loss

 

 

-

 

 

 

-

 

 

 

2.3

 

 

Valuation allowance

 

 

-

 

 

 

(0.1

)

 

 

(0.6

)

 

Worthless stock deduction

 

 

-

 

 

 

(2.4

)

 

 

-

 

 

Tax credits

 

 

(0.3

)

 

 

(0.4

)

 

 

(0.3

)

 

Other

 

 

3.2

 

 

 

2.2

 

 

 

2.9

 

 

Effective income tax rate

 

 

26.7

 

%

 

23.1

 

%

 

28.6

 

%

 

The effective tax rate for the year ended December 31, 2024 includes a $0.9 million favorable adjustment associated with the tax effect of stock-based compensation, which decreased the effective tax rate by 0.4%.

The effective tax rate for the year ended December 31, 2023 reflects a $4.5 million favorable adjustment related to the recognition of the tax benefits associated with a previously disclosed prior year ordinary loss attributable to the stock of a worthless subsidiary, which decreased the effective tax rate by 2.4%.

The effective tax rate for the year ended December 31, 2022 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 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%.

 

A reconciliation of the beginning and ending amounts of gross unrecognized tax benefits as of December 31, 2024, 2023 and 2022 is as follows (dollars in thousands):

 

 

2024

 

 

2023

 

 

2022

 

Gross unrecognized tax benefits, beginning of the year

 

$

25,686

 

 

$

24,658

 

 

$

15,951

 

Additions for tax positions of prior years

 

 

-

 

 

 

16

 

 

 

4,290

 

Additions for tax positions related to the current year

 

 

7,641

 

 

 

7,325

 

 

 

5,584

 

Reductions for tax positions of prior years

 

 

(1,127

)

 

 

(5,083

)

 

 

-

 

Reductions due to lapse of applicable statute of limitations

 

 

(1,920

)

 

 

(1,230

)

 

 

(1,167

)

Subtotal

 

 

30,280

 

 

 

25,686

 

 

 

24,658

 

Interest and penalties

 

 

4,424

 

 

 

3,257

 

 

 

2,451

 

Total gross unrecognized tax benefits, end of the year

 

$

34,704

 

 

$

28,943

 

 

$

27,109

 

The total amount of net unrecognized tax benefits that, if recognized, would favorably affect the effective tax rate in future periods was $27.4 million and $22.9 million for the years ended December 31, 2024 and 2023, respectively. As of December 31, 2024, 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 $2.2 million and $28.1 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 $4.4 million and $3.3 million as of December 31, 2024 and 2023, respectively. For the years ended December 31, 2024, 2023 and 2022, we recognized expenses of less than $1.0 million, less than $0.7 million and less than $0.4 million, 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, 2024, the Company's federal income tax returns are open to examinations for the tax years ended December 31, 2021 and forward. 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 $3.1 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 carryforwards. Components of deferred income tax assets and liabilities as of December 31, 2024 and 2023 are as follows (dollars in thousands):

 

 

December 31,

 

 

 

2024

 

 

2023

 

Deferred income tax assets:

 

 

 

 

 

 

Accrued occupancy

 

$

18,419

 

 

$

6,635

 

Compensation and employee benefits

 

 

6,754

 

 

 

6,921

 

Tax net operating loss carry forwards

 

 

17,161

 

 

 

16,446

 

Valuation allowance

 

 

(10,861

)

 

 

(13,003

)

Allowance for doubtful accounts

 

 

7,775

 

 

 

6,227

 

Accrued settlements and legal

 

 

179

 

 

 

462

 

Accrued severance

 

 

614

 

 

 

1,095

 

Equity method for investments

 

 

1,180

 

 

 

873

 

Equity method for investments valuation allowance

 

 

(1,180

)

 

 

(873

)

Available for sale short-term investments

 

 

-

 

 

 

146

 

Available for sale short-term investments valuation allowance

 

 

-

 

 

 

(146

)

Capitalized research and development

 

 

4,908

 

 

 

5,189

 

Interest expense disallowance carry forward

 

 

4,299

 

 

 

-

 

Depreciation

 

 

4,081

 

 

 

1,262

 

Amortization

 

 

33,148

 

 

 

-

 

Other

 

 

1,676

 

 

 

1,846

 

Total deferred income tax assets

 

 

88,153

 

 

 

33,080

 

Deferred income tax liabilities:

 

 

 

 

 

 

Amortization

 

 

-

 

 

 

1,710

 

Right of use asset, net

 

 

16,041

 

 

 

4,564

 

Available for sale short-term investments

 

 

80

 

 

 

-

 

Other

 

 

3,258

 

 

 

3,002

 

Total deferred income tax liabilities

 

 

19,379

 

 

 

9,276

 

Net deferred income tax assets

 

$

68,774

 

 

$

23,804

 

As of December 31, 2024, the Company has a gross deferred tax asset before valuation allowance of $373.0 million and a gross deferred tax liability of $79.1 million. As of December 31, 2023, the Company had a gross deferred tax asset before valuation allowance of $151.7 million and a gross deferred tax liability of $38.8 million.

Included among USAHS' gross deferred tax assets at the time of acquisition was a federal net operating loss ("NOL") carryforward of approximately $16.2 million, amortizable intangible assets of approximately $202.3 million, an interest expense disallowance carryforward of approximately $18.1 million and state NOL carryforwards of approximately $7.7 million. For the tax year ended December 31, 2024, we expect to claim approximately $0.8 million of tax amortization and no portion of the federal and state NOL or interest expense disallowance carryforwards due to the limitation on the utilization of acquired tax attributes. Excluding the USAHS NOLs referred to above, we have a federal NOL carryforward of $3.9 million, which we expect to utilize in 2024. Additionally, we have state NOL carryforwards of approximately $222.1 million, which expire between 2024 and 2037. Of this amount, approximately $51.8 million relates to separate state NOL carryforwards and $128.3 million relates to combined state NOL carryforwards, which we anticipate will not be utilized. Valuation allowances have been established against the full amounts of the deferred tax balances for these separate and combined state NOL carryforwards.

As of December 31, 2023 a valuation allowance of $14.0 million was maintained with respect to our equity investment, available for sale short-term investments and state NOLs. During the year, our valuation allowance for state NOLs decreased $2.1 million due to the elimination of separate state NOLs upon the dissolution of inactive subsidiaries and the valuation allowance attributable to our available for sale short-term investments was no longer needed since we are in a cumulative unrealized gain position. As of December 31, 2024, the total valuation allowance attributable to our equity investment and state NOLs is $12.0 million. After considering both positive and negative evidence related to the realization of the deferred tax assets, the Company concluded the cumulative losses related to the reduction in carrying value of the equity investment are significant relative to the amount invested and indicative of a potential capital loss, which would not be realizable given the absence of offsetting capital gains. The separate state NOLs can only be used by the originating entity and generally relate to entities that no longer maintain active schools. Since these entities are not expected to generate future operating income, the more likely than not threshold was not reached with respect to this portion of the deferred tax assets. Similarly, the Company determined a valuation allowance was needed with respect to the portion of the combined state NOLs which will likely go unused due to the teach-out of the schools located in the

applicable combined filing jurisdictions. We will continue to evaluate our valuation allowance in future years for any change in circumstances that causes a change in judgment about the realizability of these deferred tax assets.