Income Taxes

12 Months Ended

Dec. 31, 2020

11. Income Taxes

Significant components of deferred tax assets and liabilities included in the consolidated balance sheets at December 31, 2020 and 2019 were as follows (in thousands):

	December 31, 2020			December 31, 2019

Deferred tax assets:
Compensation	$	1,865		$	1,964
Allowance for credit losses		396			514
Acquired net operating losses		558			840
Lease obligations - including closed clinics		23,819			21,445
Deferred tax assets	$	26,638		$	24,763
Deferred tax liabilities:
Depreciation and amortization	$	(12,650	)	$	(13,195	)
Operating lease right-of-use assets		(21,419	)		(21,416	)
Other		(348	)		(223	)
Deferred tax liabilities		(34,417	)		(34,834	)
Net deferred tax liability	$	(7,779	)	$	(10,071	)

The deferred tax assets and liabilities related to purchased interests not yet finalized may result in an immaterial adjustment.

During 2020, the Company recorded deferred tax assets of $1.2 million related to the revaluation of redeemable non-controlling interests and acquisitions of non-controlling interests. In addition, during 2020, the Company recorded an adjustment to the deferred tax assets of $1.4 million as a result of a detailed reconciliation of its federal and state taxes payable and receivable accounts along with its federal and state deferred tax asset and liability accounts with its federal and state tax returns for 2019. The offset of this adjustment was a decrease to the previously reported federal income tax receivable. As of December 31, 2020, the Company has a federal income tax payable of $5.7 million and state tax receivables of $0.7 million. The federal income tax payable is included in accrued liabilities and the tax receivable is included in other current assets on the accompanying consolidated balance sheets.

The differences between the federal tax rate and the Company’s effective tax rate for the years ended December 31, 2020, 2019 and 2018 were as follows (in thousands):

		December 31, 2020			December 31, 2019			December 31, 2018
U. S. tax at statutory rate	$	10,125	21.0%	$	11,274	21.0%	$	9,710	21.0%
State income taxes, net of federal benefit		1,956	3.9%		2,059	3.8%		1,722	3.7%
Excess equity compensation deduction		(99)	0.0%		(871)	-1.6 %		(806)	-1.7 %
Non-deductible expenses		1,040	2.1%		1,185	2.2%		743	1.6%
	$	13,022	27.0%	$	13,647	25.4%	$	11,369	24.6%

Significant components of the provision for income taxes for the years ended December 31, 2020, 2019 and 2018 were as follows (in thousands):

	December 31, 2020			December 31, 2019		December 31, 2018
Current:
Federal	$	10,506		$	6,523	$	5,357
State		2,774			2,473		1,199
Total current		13,280			8,996		6,556
Deferred:
Federal		(38	)		3,730		3,771
State		(220	)		921		1,042
Total deferred		(258	)		4,651		4,813
Total income tax provision	$	13,022		$	13,647	$	11,369

For 2020, 2019 and 2018, the Company performed a detailed reconciliation of its federal and state taxes payable and receivable accounts along with its federal and state deferred tax asset and liability accounts. The adjustments were immaterial. The Company considers this reconciliation process to be an annual control.

The Company is required to establish a valuation allowance for deferred tax assets if, based on the weight of available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the projected future taxable income and tax planning strategies in making this assessment. Based upon the level of historical taxable income and projections for future taxable income in the periods which the deferred tax assets are deductible, management believes that a valuation allowance is not required, as it is more likely than not that the results of future operations will generate sufficient taxable income to realize the deferred tax assets.

The Company’s U.S. federal returns remain open to examination for 2017 through 2019 and U.S. state jurisdictions are open for periods ranging from 2016 through 2019.

The Company does not believe that it has any significant uncertain tax positions at December 31, 2020 and December 31, 2019, nor is this expected to change within the next twelve months due to the settlement and expiration of statutes of limitation.

The Company did not have any accrued interest or penalties associated with any unrecognized tax benefits nor was any interest expense recognized during the years ended December 31, 2020, 2019 and 2018.

- 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.

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