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Income Taxes
 12 Months Ended
Dec. 31, 2021
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 The CARES Act includes several significant business tax provisions that, among other things, temporarily repealed the taxable income limitation for certain net operating losses (NOL) and allows businesses to carry back NOLs arising in 2018, 2019, and 2020 tax years to the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 the time, we estimated that modifications to the tax rules for the carryback of NOLs and business interest expense limitations would 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, net of related uncertain tax positions, of $64.0 million in our consolidated financial statements for the year ended December 31, 2020. We recognized an additional $12.6 million of income tax benefit in our financial statements for the year ended December 31, 2021 as we refined estimates and received resolution on uncertainties related to our CARES Act claims. During the years ended December 31, 2021 and 2020, we collected $24.6 million and $51.4 million, respectively, which represents the tax refunds associated with the NOLs generated in 2018 and 2019 carried back to prior tax years.
The income tax benefit recognized represents the release of valuation allowances against certain NOL and Section 163(j) deferred tax assets that are now more likely than not to be realizable as a result of certain provisions of the CARES Act as well as a permanent income tax benefit related to the carryback of NOLs created in a tax year that was subject to U.S. federal tax at 21% to a tax year subject to tax at 35%.
For income tax purposes, the components of income (loss) from continuing operations before taxes were as follows:
Years Ended December 31,
 202120202019
Domestic$(13,901)$(118,043)$(93,487)
Foreign9,530 12,359 (33,004)
 $(4,371)$(105,684)$(126,491)
The components of income tax expense (benefit) were as follows:
Years Ended December 31,
 202120202019
Current:   
Federal$(20,134)$(67,080)$873 
State(1,310)348 4,460 
Foreign1,554 2,600 7,181 
 (19,890)(64,132)12,514 
Deferred:   
Federal(2,265)(26,029)(40,429)
State(31)(2,115)(914)
Foreign167 (1,445)11,993 
Provision for (reversal of) valuation allowance on deferred tax assets2,344 28,215 32,470 
 215 (1,374)3,120 
Other(2,774)— — 
Total$(22,449)$(65,506)$15,634 
Ocwen is a global company with operations in the U.S., 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,
 202120202019
Expected income tax expense (benefit) at statutory rate $(918)$(22,194)$(26,563)
Differences between expected and actual income tax expense:   
CARES Act(12,631)(79,049)— 
Provision for (reversal of) valuation allowance on deferred tax assets 2,344 28,214 32,470 
Provision for (reversal of) liability for uncertain tax positions(8,700)13,062 4,198 
Interest on refund claims due from tax authorities(2,774)— — 
Other provision to return differences(954)(3,347)1,242 
Foreign tax differential including effectively connected income (1)1,401 (2,511)15,979 
State tax, after Federal tax benefit212 (1,396)(619)
Benefit of state NOL carryback claims and amended return filings(1,803)— — 
Executive compensation disallowance1,384 594 1,344 
Excess tax benefits from share-based compensation(518)424 381 
Other permanent differences150 382 66 
Foreign tax credit (generation) utilization(49)(13)263 
Revaluation of deferred tax assets related to legal entity mergers(5)(2)(25,509)
U.S. Tax Reform - Global Intangible Low-Taxed Income (GILTI) inclusion175 182 11,859 
U.S. Tax Reform - BEAT Tax— — (555)
Bargain purchase gain disallowance— — 80 
Other237 148 998 
Actual income tax expense (benefit)$(22,449)$(65,506)$15,634 
(1)The foreign tax differential includes expense recognized in 2019 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 was $2.6 million.
Net deferred tax assets were comprised of the following:
December 31,
 20212020
Deferred tax assets  
Net operating loss carryforwards - federal and foreign$54,569 $40,557 
Net operating loss carryforwards and credits - state and local70,680 67,293 
Interest expense disallowance39,277 23,112 
Reserve for servicing exposure6,752 10,273 
Accrued legal settlements9,905 9,200 
Partnership losses8,553 7,316 
Stock-based compensation expense9,857 6,486 
Accrued incentive compensation6,698 6,240 
Accrued other liabilities5,900 5,722 
Lease liabilities2,549 4,943 
Intangible asset amortization4,964 4,541 
Foreign deferred assets3,763 3,731 
Tax residuals and deferred income on tax residuals1,460 2,968 
Bad debt and allowance for loan losses4,014 — 
Other5,133 6,035 
234,074 198,417 
Deferred tax liabilities  
Mortgage servicing rights amortization57,324 8,123 
Bad debt and allowance for loan losses— 1,951 
Other1,312 1,151 
58,636 11,225 
175,438 187,192 
Valuation allowance(172,109)(183,649)
Deferred tax assets, net$3,329 $3,543 
As of December 31, 2021, we had a deferred tax asset, net of deferred tax liability, of $175.4 million including $171.1 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, 2021. 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 $171.1 million and $182.7 million on our U.S. net deferred tax assets at December 31, 2021 and 2020, respectively, and a valuation allowance of $0.4 million on our USVI net deferred tax assets at both December 31, 2021 and 2020. 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 net 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, 2021, we had U.S. NOL carryforwards of $256.9 million, and state NOL and tax credit carryforwards valued at $70.7 million.
These U.S. federal and state NOL carryforwards will expire beginning 2022 through 2041 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 $53.9 million and $70.7 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, 2021 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 $7.5 million at December 31, 2021 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).
Ocwen and PHH have both experienced historical ownership changes that have caused the use of certain tax attributes to be limited and have resulted in the write-off of certain of these attributes based on our inability to use them in the carryforward periods defined under the tax laws. Ocwen continues to monitor the ownership in its stock to evaluate whether any additional ownership changes have occurred that would further limit its ability to utilize certain tax attributes. 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, 2018 through the present, our USVI corporate tax return for the years ended December 31, 2018 through the present, and our India corporate tax returns for the years ended March 31, 2010 through the present. During 2021, we concluded our audit in the USVI jurisdiction for tax years 2013 - 2016 related to the carryback of losses generated in 2015 and 2016 to tax years 2013 and 2014, respectively, without any adjustment.
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,
 202120202019
Beginning balance $20,638 $10,589 $9,622 
Additions for tax positions of current year— — 207 
Additions for tax positions of prior years178 15,242 3,110 
Reductions for tax positions of prior years(6,361)(219)— 
Reductions for settlements(555)(3,067)(1,293)
Lapses in statute of limitations(2,365)(1,907)(1,057)
Ending balance (1)$11,535 $20,638 $10,589 
(1)At December 31, 2021 and 2020, $11.3 million and $12.8 million, respectively, of the balance is included in the Liability for uncertain tax positions in Other liabilities, with the remaining $0.2 million and $7.8 million, respectively, included as a reduction of Income taxes receivable in Receivables.
We recognized total interest and penalties of $0.1 million, $(1.6) million and $2.7 million as income tax expense or (benefit) in 2021, 2020 and 2019, respectively. At December 31, 2021 and 2020, accruals for interest and penalties were $3.4 million, and are included in the Liability for uncertain tax positions in Other liabilities. As of December 31, 2021 and 2020, we had unrecognized tax benefits for uncertain tax positions, excluding accrued interest and penalties, of $11.5 million and $20.6 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 $10.1 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, 2021, we have recognized a deferred tax liability of $0.6 million for foreign subsidiary undistributed earnings. We do not consider our foreign subsidiary undistributed earnings to be indefinitely invested outside the U.S.