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Income Taxes | 12 Months Ended
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Dec. 31, 2020
Income Tax Disclosure [Abstract] |
Income Taxes | Note 20 — Income Taxes On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was signed into law. The CARES Act includes several significant business tax provisions that, among other things, temporarily repealed the taxable income limitation for certain net operating losses (NOL) and allows businesses to carry back NOLs arising in 2018, 2019, and 2020 tax years to the five prior tax years, accelerated refunds of previously generated corporate Alternative Minimum Tax (AMT) credits, and adjusted the business interest expense limitation under section 163(j) from 30% to 50% of Adjusted Taxable Income (ATI) for 2019 and 2020 tax years. Based on information available at this time, we estimate that modifications to the tax rules for the carryback of NOLs and business interest expense limitations will result in U.S. and USVI federal net tax refunds of approximately $62.6 million and $1.4 million, respectively, and as such we recognized an income tax benefit of $64.0 million in our consolidated financial statements for the year ended December 31, 2020. As of December 31, 2020, we collected $51.4 million, which represents the tax refund associated with the NOLs generated in 2018 carried back to prior tax years, and recognized a $24.0 million receivable which represents the tax refund associated with the NOLs generated in 2019. We collected this $24.0 million tax refund receivable from the U.S. Internal Revenue Service in January 2021. The income tax benefit recognized represents the release of valuation allowances against certain NOL and Section 163(j) deferred tax assets that are now more likely than not to be realizable as a result of certain provisions of the CARES Act as well as a permanent income tax benefit related to the carryback of NOLs created in a tax year that was subject to U.S. federal tax at 21% to a tax year subject to tax at 35%. For income tax purposes, the components of income (loss) from continuing operations before taxes were as follows:
| Years Ended December 31,
| 2020 |  | 2019 |  | 2018
Domestic | $ | (118,043) |  |  | $ | (93,487) |  |  | $ | 11,477 |
Foreign | 12,359 |  |  | (33,004) |  |  | (82,953) |
| $ | (105,684) |  |  | $ | (126,491) |  |  | $ | (71,476) |
The components of income tax expense (benefit) were as follows:
| Years Ended December 31,
| 2020 |  | 2019 |  | 2018
Current: |  |  |  |  |
Federal | $ | (67,080) |  |  | $ | 873 |  |  | $ | (7,670) |
State | 348 |  |  | 4,460 |  |  | 356 |
Foreign | 2,600 |  |  | 7,181 |  |  | 11,132 |
| (64,132) |  |  | 12,514 |  |  | 3,818 |
Deferred: |  |  |  |  |
Federal | (25,762) |  |  | (40,429) |  |  | 23,991 |
State | (2,047) |  |  | (914) |  |  | 319 |
Foreign | (1,445) |  |  | 11,993 |  |  | (4,252) |
Provision for (reversal of) valuation allowance on deferred tax assets | 27,880 |  |  | 32,470 |  |  | (23,347) |
| (1,374) |  |  | 3,120 |  |  | (3,289) |
Total | $ | (65,506) |  |  | $ | 15,634 |  |  | $ | 529 |
Ocwen is a global company with operations in the USVI, India and the Philippines, among other jurisdictions. In the effective tax rate reconciliation, we first calculate income tax expense attributable to worldwide continuing operations at the U.S. statutory tax rate. The foreign tax rate differential therefore represents the difference in tax expense between jurisdictional income taxed at the U.S. statutory rate and each respective jurisdictional statutory rate. Income tax expense (benefit) differs from the amounts computed by applying the U.S. Federal corporate income tax rate as follows:
| Years Ended December 31,
| 2020 |  | 2019 |  | 2018
Expected income tax expense (benefit) at statutory rate | $ | (22,194) |  |  | $ | (26,563) |  |  | $ | (15,010) |
Differences between expected and actual income tax expense: |  |  |  |  |
CARES Act | (63,954) |  |  | — |  |  | — |
Provision for (reversal of) valuation allowance on deferred tax assets (1) | 27,880 |  |  | 32,470 |  |  | (23,347) |
Provision for (reversal of) liability for uncertain tax positions | (2,033) |  |  | 4,198 |  |  | (3,987) |
Other provision to return differences | (3,347) |  |  | 1,242 |  |  | (6,559) |
Foreign tax differential including effectively connected income (2) | (2,511) |  |  | 15,979 |  |  | 22,990 |
State tax, after Federal tax benefit | (1,700) |  |  | (784) |  |  | 675 |
Executive compensation disallowance | 594 |  |  | 1,344 |  |  | 959 |
Excess tax benefits from share-based compensation | 424 |  |  | 381 |  |  | (356) |
Other permanent differences | 382 |  |  | 66 |  |  | 122 |
Foreign tax credit (generation) utilization | (13) |  |  | 263 |  |  | (25,601) |
Revaluation of deferred tax assets related to legal entity mergers | (2) |  |  | (25,509) |  |  | — |
U.S. Tax Reform - Global Intangible Low-Taxed Income (GILTI) inclusion | 182 |  |  | 11,859 |  |  | — |
U.S. Tax Reform - Change in Federal rate | — |  |  | — |  |  | (10,666) |
U.S. Tax Reform - Transition Tax | — |  |  | — |  |  | 14,412 |
U.S. Tax Reform - BEAT Tax | — |  |  | (555) |  |  | 1,076 |
Reduction in tax attributes for Section 382 & 383 limitations | — |  |  | — |  |  | 55,668 |
Bargain purchase gain disallowance | — |  |  | 80 |  |  | (13,448) |
Subpart F income | — |  |  | — |  |  | 3,222 |
Other | 786 |  |  | 1,163 |  |  | 379 |
Actual income tax expense (benefit) | $ | (65,506) |  |  | $ | 15,634 |  |  | $ | 529 |
(1)The benefit recorded for the provision for valuation allowance in 2018 relates primarily to a reduction in the valuation allowance necessary as a result of the reduction in tax attributes due to Section 382 & 383 limitations. This benefit is partially offset by an increase in valuation allowance necessary for current year losses and for adjustments to provisional amounts recorded under SAB 118 at December 31, 2017 when accounting for the effects of tax reform passed on December 22, 2017. (2)The foreign tax differential includes expense recognized in 2019 and a benefit recognized in 2018 for taxable income or losses earned by Ocwen Mortgage Servicing, Inc. (OMS) prior to the merger of OMS into OVIS in 2019, which are taxable in the U.S. as effectively connected income (ECI). The impact of ECI to income tax expense (benefit) for 2019 and 2018 was $2.6 million and $(3.3) million, respectively. Net deferred tax assets were comprised of the following:
| December 31,
| 2020 |  | 2019
Deferred tax assets |  |  |
Net operating loss carryforwards - federal and foreign | $ | 40,557 |  |  | $ | 64,817 |
Net operating loss carryforwards and credits - state and local | 67,293 |  |  | 70,254 |
Interest expense disallowance | 23,112 |  |  | 12,423 |
Reserve for servicing exposure | 10,273 |  |  | 7,711 |
Accrued legal settlements | 9,200 |  |  | 6,028 |
Partnership losses | 7,316 |  |  | 7,029 |
Stock-based compensation expense | 6,486 |  |  | 5,297 |
Accrued incentive compensation | 6,240 |  |  | 5,063 |
Accrued other liabilities | 5,722 |  |  | 6,377 |
Lease liabilities | 4,943 |  |  | 5,459 |
Intangible asset amortization | 4,541 |  |  | 4,946 |
Foreign deferred assets | 3,731 |  |  | 3,620 |
Tax residuals and deferred income on tax residuals | 2,968 |  |  | 2,885 |
Foreign tax credit | 107 |  |  | 94 |
Bad debt and allowance for loan losses | — |  |  | 2,530 |
Deferred income | — |  |  | 8,493 |
Other | 5,928 |  |  | 8,708 |
| 198,417 |  |  | 221,734 |
Deferred tax liabilities |  |  |
Mortgage servicing rights amortization | 8,123 |  |  | 16,358 |
Bad debt and allowance for loan losses | 1,951 |  |  | — |
Foreign undistributed earnings | 287 |  |  | 1,615 |
Other | 864 |  |  | 1,151 |
| 11,225 |  |  | 19,124 |
| 187,192 |  |  | 202,610 |
Valuation allowance | (183,649) |  |  | (200,441) |
Deferred tax assets, net | $ | 3,543 |  |  | $ | 2,169 |
As of December 31, 2020, we had a deferred tax asset, net of deferred tax liability, including $182.7 million in the U.S. Valuation Allowances We conduct periodic evaluations of positive and negative evidence to determine whether it is more likely than not that the deferred tax asset can be realized in future periods. In these evaluations, we gave more significant weight to objective evidence, such as our actual financial condition and historical results of operations, as compared to subjective evidence, such as projections of future taxable income or losses. Both the U.S. and USVI jurisdictions are in a three-year cumulative loss position as of December 31, 2020. Other factors considered in these evaluations are estimates of future taxable income, future reversals of temporary differences, taxable income in prior carryback years, tax character and the impact of tax planning strategies that may be implemented, if warranted. As a result of these evaluations, we recorded a valuation allowance of $182.7 million and $199.5 million on our U.S. net deferred tax assets at December 31, 2020 and 2019, respectively, and a valuation allowance of $0.4 million and $0.4 million on our USVI net deferred tax assets at December 31, 2020 and 2019, respectively. These U.S. and USVI jurisdictional deferred tax assets are not considered to be more likely than not realizable based on all available positive and negative evidence. We intend to continue maintaining a full valuation allowance on our deferred tax assets in both the U.S. and USVI until there is sufficient evidence to support the reversal of all or some portion of these allowances. Net Operating Loss Carryforwards At December 31, 2020, we had U.S. NOL carryforwards of $190.5 million, and state NOL and tax credit carryforwards valued at $67.3 million. These U.S. federal and state NOL carryforwards will expire beginning 2021 through 2040 with U.S. federal NOLs generated after 2017 never expiring. We believe that it is more likely than not that the benefit from certain U.S. federal and state NOL carryforwards will not be realized. In recognition of this risk, we have provided a total valuation allowance of $40.0 million and $67.3 million on the deferred tax assets relating to the U.S. federal and state NOL carryforwards, respectively. If our assumptions change and we determine we will be able to realize these NOLs, the tax benefits relating to any reversal of the valuation allowance on deferred tax assets as of December 31, 2020 will be accounted for as a reduction of income tax expense. Additionally, $334.5 million of USVI NOLs have been carried back to offset prior period tax due in the USVI and we have, therefore, reflected the tax-effect of this attribute as a $12.9 million income taxes receivable. We also have U.S. capital loss carryforwards of $7.9 million at December 31, 2020 against which a valuation allowance has been recorded. Change of Control: Annual Limitations on Utilization of Tax Attributes NOL carryforwards may be subject to annual limitations under Internal Revenue Code Section 382 (Section 382) (or comparable provisions of foreign or state law) in the event that certain changes in ownership were to occur. We periodically evaluate our NOL carryforwards and whether certain changes in ownership have occurred that would limit our ability to utilize a portion of our NOL and tax credit carryforwards. If it is determined that an ownership change(s) has occurred, there may be annual limitations on the use of these NOL and tax credit carryforwards under Section 382 (or comparable provisions of foreign or state law). Generally, a Section 382 ownership change occurs if, over a rolling three-year period, there has been an aggregate increase of 50 percentage points or more in the percentage of our stock owned by one or more “5-percent shareholders.” We have evaluated whether we experienced an ownership change, as defined under Section 382, and determined that an ownership change did occur in the U.S. jurisdiction in January 2015 and in December 2017, which also results in an ownership change under Section 382 in the USVI jurisdiction. In addition, a Section 382 ownership change occurred at PHH when Ocwen acquired the stock of PHH in October 2018. PHH was a loss corporation as defined under Section 382 at the date of the acquisition. PHH also had an existing Section 382 ownership change on March 31, 2018. For certain states, an additional Section 382 ownership change occurred on August 9, 2017. These Section 382 ownership changes may limit our ability to fully utilize NOLs, tax credit carryforwards, deductions and/or certain built-in losses that existed as of each respective ownership change date in various jurisdictions. Due to the Section 382 and 383 limitations and the maximum carryforward period for our NOLs and tax credits, we will be unable to fully recognize certain deferred tax assets. Accordingly, as of December 31, 2018, we reduced our gross deferred tax asset related to our U.S. federal and USVI NOLs by $160.9 million, our foreign tax credit deferred tax asset by $29.5 million, and corresponding valuation allowance by $55.7 million. The realization of all or a portion of our remaining deferred income tax assets (including NOLs and tax credits) is dependent upon the generation of future taxable income during the statutory carryforward periods. In addition, the limitation on the utilization of our NOL and tax credit carryforwards could result in Ocwen incurring a current tax liability in future tax years. Ocwen is continuing to monitor the ownership in its stock to evaluate information that will become available in 2021 and that may result in a different outcome for Section 382 purposes and our future cash tax obligations. As such, our analysis regarding the amount of tax attributes that may be available to offset taxable income in the future without restrictions imposed by Section 382 may continue to evolve. Uncertain Tax Positions Our major jurisdiction tax years that remain subject to examination are our U.S. federal tax return for the years ended December 31, 2017 through the present, our USVI corporate tax return for the years ended December 31, 2013 through the present, and our India corporate tax returns for the years ended March 31, 2010 through the present. We are currently under audit in the USVI jurisdiction for tax years 2013 - 2016 due to the carryback of losses generated in 2015 and 2016 to tax years 2013 and 2014, respectively. A reconciliation of the beginning and ending amounts of the total unrecognized tax benefits for uncertain tax position is as follows:
| Years Ended December 31,
| 2020 |  | 2019 |  | 2018
Beginning balance | $ | 10,589 |  |  | $ | 9,622 |  |  | $ | 2,281 |
Additions for tax positions of current year | — |  |  | 207 |  |  | 412 |
Additions for tax positions of prior years | 15,242 |  |  | 3,110 |  |  | 1,354 |
Reductions for tax positions of prior years | (219) |  |  | — |  |  | (236) |
Reductions for settlements | (3,067) |  |  | (1,293) |  |  | (3,188) |
Lapses in statute of limitations | (1,907) |  |  | (1,057) |  |  | (4,109) |
Additions - PHH acquisition | — |  |  | — |  |  | 13,108 |
Ending balance (1) | $ | 20,638 |  |  | $ | 10,589 |  |  | $ | 9,622 |
(1)$12.8 million of the balance at December 31, 2020 is included in the Liability for uncertain tax positions in Other liabilities, with the remaining $7.8 million balance included as a reduction of Income taxes receivable in Receivables. The balance at December 31, 2019 is included in the Liability for uncertain tax positions in Other liabilities. We recognized total interest and penalties of $(1.6) million, $2.7 million and $2.9 million as income tax expense or (benefit) in 2020, 2019 and 2018, respectively. At December 31, 2020 and 2019, accruals for interest and penalties were $3.4 million and $6.6 million, respectively, and are included in the Liability for uncertain tax positions in Other liabilities. As of December 31, 2020 and 2019, we had unrecognized tax benefits for uncertain tax positions, excluding accrued interest and penalties, of $20.6 million and $10.6 million, respectively, all of which if recognized would affect the effective tax rate. It is reasonably possible that there could be a change in the amount of our unrecognized tax benefits within the next 12 months due to activities of the Internal Revenue Service or other taxing authorities, including proposed assessments of additional tax, possible settlement of audit issues, or the expiration of applicable statutes of limitations. We believe that it is reasonably possible that a decrease of up to $11.6 million in unrecognized tax benefits may be necessary within the next 12 months. Undistributed Foreign Earnings and Non-U.S. Jurisdictions As of December 31, 2020, we have recognized a deferred tax liability of $0.3 million for foreign subsidiary undistributed earnings. We do not consider our foreign subsidiary undistributed earnings to be indefinitely invested outside the U.S.

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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 http://asc.fasb.org/extlink&oid=84230637&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 http://asc.fasb.org/extlink&oid=116825942&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 http://asc.fasb.org/extlink&oid=84230637&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 http://asc.fasb.org/extlink&oid=116825942&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 http://asc.fasb.org/extlink&oid=84230637&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 http://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 http://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 http://asc.fasb.org/extlink&oid=6424122&loc=d3e41874-109331 + Details
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