Income Taxes

9 Months Ended

Sep. 30, 2017

For each interim reporting period, the Company estimates the effective tax rate expected for the full fiscal year and uses that estimated rate in providing for income taxes on a current year-to-date basis. The provision for income taxes consisted of the following components (in thousands):



	Three Months Ended September 30,					Nine Months Ended September 30,
	Successor			Predecessor		Successor			Predecessor
	2017			2016		2017			2016
Current
Federal	$	(8,460	)	$	—	$	(8,460	)	$	—
State	3			4		(36		)	11
Total provision	$	(8,457	)	$	4	$	(8,496	)	$	11

Deferred income taxes are provided to reflect the future tax consequences of temporary differences between the tax basis of assets and liabilities and their reported amounts in the financial statements. The Company’s deferred tax assets have been reduced by a valuation allowance due to a determination that it is more likely than not that some or all of the deferred assets will not be realized based on the weight of all available evidence. The Company continues to closely monitor and weigh all available evidence, including both positive and negative, in making its determination whether to maintain a valuation allowance. During the three-month period ended September 30, 2017, the Company reduced the valuation allowance associated with deferred tax assets related to alternative minimum tax (AMT) credits that became realizable as a result of a special tax election. Accordingly, the Company recorded an income tax benefit of $8.5 million in the three-month period ended September 30, 2017. As a result of the significant weight placed on the Company's cumulative negative earnings position, the Company continued to maintain a full valuation allowance against its remaining net deferred tax asset at September 30, 2017.

Internal Revenue Code (“IRC”) Section 382 addresses company ownership changes and specifically limits the utilization of certain deductions and other tax attributes on an annual basis following an ownership change. As a result of the Chapter 11 reorganization and related transactions, the Company experienced an ownership change within the meaning of IRC Section 382 on October 4, 2016. The Company analyzed alternatives available within the IRC to taxpayers in Chapter 11 bankruptcy proceedings in order to minimize the impact of the October 4, 2016 ownership change on its tax attributes. Previously, the Company planned to elect an available alternative upon filing its 2016 U.S. Federal income tax return that would not subject existing tax attributes to an immediate IRC Section 382 limitation but would have resulted in a full limitation should a subsequent ownership change occur within two years of the emergent date ownership change. Alternatively, upon filing its 2016 U.S. Federal income tax return, the Company elected a method that did subject tax attributes including net operating losses (“NOLs”) existing at October 4, 2016, to an annual limitation but provided more certainty with respect to the future availability of the Company’s existing NOLs. This limitation is expected to result in a significant portion of our NOL carryforwards expiring unused. As such, the Company’s deferred tax asset associated with NOLs and corresponding valuation allowance are expected to be materially less at December 31, 2017, compared to December 31, 2016. The election and resulting limitation did not result in an income tax expense as the Company’s net deferred tax asset had previously been reduced by a valuation allowance. Additionally, the limitation did not result in a tax liability for the tax year ended December 31, 2016 and is not expected to result in a tax liability for the tax year ending December 31, 2017.

The Company’s only taxing jurisdiction is the United States (federal and state). The Company’s tax years 2014 to present remain open for federal examination. Additionally, tax years 2005 through 2013 remain subject to examination for the purpose of determining the amount of remaining federal NOL and other carryforwards. The number of years open for state tax audits varies, depending on the state, but are generally from three to five years.