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 The CARES Act includes several significant business tax provisions that, among other things, temporarily repealed the taxable income limitation for certain net operating losses (NOL) and allows businesses to carry back NOLs arising in 2018, 2019, and 2020 tax years to the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%.


	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.


	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

(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.


	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

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

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.

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).

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.

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.


	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.