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Income Taxes
 12 Months Ended
Dec. 31, 2022
Income Tax Disclosure [Abstract]  
Income Taxes

14. Income Taxes:

 

The components of the income tax provision (benefit) are as follows (in thousands):

 

 

 

December 31,

 

 

 

2022

 

 

2021

 

 

2020

 

Federal:

 

 

 

 

 

 

 

 

 

Current

 

$

38,877

 

 

$

41,592

 

 

$

(16,610

)

Deferred

 

 

(19,679

)

 

 

(20,373

)

 

 

28,719

 

 

 

 

19,198

 

 

 

21,219

 

 

 

12,109

 

State:

 

 

 

 

 

 

 

 

 

Current

 

 

2,700

 

 

 

16,888

 

 

 

(2,954

)

Deferred

 

 

(3,092

)

 

 

(10,866

)

 

 

7,573

 

 

 

 

(392

)

 

 

6,022

 

 

 

4,619

 

Total

 

$

18,806

 

 

$

27,241

 

 

$

16,728

 

 

The Company files its tax return on a consolidated basis with its subsidiaries, and its affiliated professional contractors file tax returns on an individual basis.

 

The effective tax rate for continuing operations was 23.1%, 20.1% and 234.0% for the years ended December 31, 2022, 2021 and 2020, respectively. The effective tax rate for the year ended December 31, 2021 includes a $10.8 million benefit related to a change in estimate of an income tax receivable based on loss carryback provisions under the CARES Act which allow 2020 net operating loss to be carried back for refund at prior 35% federal tax rate. The income tax receivable resulted from a mutual agreement reached with the buyer of our former anesthesiology services medical group to treat a portion of the divestiture as an asset sale for tax purposes. The effective tax rate for the year ended December 31, 2020 was not meaningful due to a significant reduction in pre-tax income as a result of the impacts from transformational and restructuring related expenses and COVID-19.

 

The differences between the effective rate and the United States federal income tax statutory rate are as follows:

 

 

 

December 31,

 

 

 

2022

 

 

2021

 

 

2020

 

Tax at statutory rate

 

 

21.00

%

 

 

21.00

%

 

 

21.00

%

State income tax, net of federal benefit

 

 

1.53

 

 

 

4.72

 

 

 

24.34

 

Non-deductible expenses

 

 

1.48

 

 

 

3.42

 

 

 

60.44

 

Equity compensation adjustments

 

 

1.35

 

 

 

0.77

 

 

 

98.61

 

Change in accrual estimates relating to
   uncertain tax positions

 

 

(3.28

)

 

 

(1.08

)

 

 

4.22

 

Change in valuation allowance

 

 

1.72

 

 

 

(0.26

)

 

 

23.67

 

Other, net

 

 

(0.69

)

 

 

(0.46

)

 

 

1.71

 

Change in tax law

 

─

 

 

 

(7.97

)

 

─

 

Income tax provision

 

 

23.11

%

 

 

20.14

%

 

 

233.99

%

 

All of the Company’s deferred tax assets and liabilities are classified as long-term. The significant components of deferred income tax assets and liabilities are as follows (in thousands):

 

 

 

December 31,

 

 

 

2022

 

 

2021

 

Allowance for uncollectible accounts

 

$

152,526

 

 

$

135,280

 

Reserves and accruals

 

 

66,969

 

 

 

55,549

 

Stock-based compensation

 

 

3,694

 

 

 

3,303

 

Operating loss and other carryforwards

 

 

28,773

 

 

 

29,045

 

Capital loss carryforwards

 

 

422,793

 

 

 

428,805

 

Operating lease assets

 

 

19,096

 

 

 

18,960

 

Property and equipment

 

 

2,481

 

 

 

1,967

 

Other

 

 

256

 

 

 

686

 

Deferred tax assets before valuation
   allowance

 

 

696,588

 

 

 

673,595

 

Less: Valuation allowance

 

 

(429,260

)

 

 

(441,529

)

Deferred tax assets, net of valuation
   allowance

 

 

267,328

 

 

 

232,066

 

Gross deferred tax liabilities:

 

 

 

 

 

 

Amortization

 

 

(176,398

)

 

 

(168,505

)

Operating lease liabilities

 

 

(16,510

)

 

 

(16,439

)

Other

 

 

(2,133

)

 

 

(187

)

Total deferred tax liabilities

 

 

(195,041

)

 

 

(185,131

)

Net deferred tax assets

 

$

72,287

 

 

$

46,935

 

 

The Company’s net deferred tax assets were $72.3 million as of December 31, 2022, as compared to $46.9 million at December 31, 2021. The increase in net deferred tax assets of $25.4 million during the year ended December 31, 2022 was primarily related to an increase in deferred tax assets related to the allowance for uncollectible accounts of $17.2 million, valuation allowance of $12.2 million and reserves and accruals of $11.4 million, partially offset by an increase in deferred tax liabilities for amortization of $7.9 million. The decrease in valuation allowance was predominantly offset by adjustments to the carrying value of corresponding deferred tax assets.

 

For the years ended December 31, 2022, 2021 and 2020, income tax expense of $1.1 million, $1.0 million and $7.1 million, respectively, was recognized for excess tax deficiencies associated with equity compensation.

 

The Company has $1.71 billion of capital loss carryforwards as of December 31, 2022 which were generated from disposal of its former anesthesiology and radiology services medical groups, of which $1.69 billion expire in 2025 and $25.9 million expire in 2027. As of December 31, 2022, management has determined that it is more likely than not that the tax benefits related to these carryforwards will not be realized and has recorded a full valuation allowance against the related deferred tax assets. Additionally, the Company has net operating loss carryforwards for federal and state tax purposes totaling $46.7 million, $61.7 million and $35.4 million at December 31, 2022, 2021 and 2020, respectively. With respect to the December 31, 2022 balance, $26.4 million expires at various times from 2033 through 2042, and $20.3 million does not expire.

 

As of December 31, 2022, 2021 and 2020, the Company’s liability for uncertain tax positions, excluding accrued interest and penalties, was $2.8 million, $4.9 million and $6.2 million, respectively. As of December 31, 2022, the Company had $2.8 million of uncertain tax positions that, if recognized, would favorably impact its effective tax rate.

 

The following table summarizes the activity related to the Company’s liability for uncertain tax positions for the years ended December 31, 2022, 2021 and 2020 (in thousands):

 

 

 

Years Ended December 31,

 

 

 

2022

 

 

2021

 

 

2020

 

Balance at beginning of year

 

$

4,928

 

 

$

6,168

 

 

$

7,409

 

Increases (decreases) related to prior year tax
   positions

 

 

379

 

 

 

—

 

 

 

(1,041

)

Increases related to current year tax
   positions

 

 

800

 

 

 

900

 

 

 

100

 

Decreases related to divestitures

 

 

—

 

 

 

—

 

 

 

(300

)

Decreases related to lapse of statutes
   of limitation

 

 

(3,269

)

 

 

(2,140

)

 

 

—

 

Balance at end of year

 

$

2,838

 

 

$

4,928

 

 

$

6,168

 

 

During the year ended December 31, 2022, the Company decreased its liability for uncertain tax positions by $2.1 million, primarily related to expiration of statutes of limitation, partially offset by additional taxes on current year and prior year positions. During the year ended December 31, 2021, the Company decreased its liability for uncertain tax positions by $1.2 million, primarily related to expiration of statutes of limitation, partially offset by additional taxes on current year positions. In addition, the Company anticipates that its liability for uncertain tax positions will increase by $0.5 million over the next 12 months.

 

The Company includes interest and penalties related to income tax liabilities in income tax expense. During the year ended December 31, 2022, 2021 and 2020, the Company included $0.3 million, $0.4 million and $0.5 million, respectively, of interest and penalties in income tax expense. At December 31, 2022 and 2021, the Company's accrued liability for interest and penalties related to income tax liabilities totaled $0.2 million and $0.8 million, respectively.

 

The Company is currently subject to U.S. Federal and various state income tax examinations for the tax years 2019 through 2021.