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INCOME TAXES | 12 Months Ended
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Dec. 31, 2019
INCOME TAXES [ABSTRACT] |
INCOME TAXES | (10)INCOME TAXES The sources of pre-tax operating income are as follows (in thousands):
|  | Year Ended December 31, |
|  | 2019 |  | 2018 |  | 2017 |
Domestic |  | $ | 39,864 |  | $ | (13,926) |  | $ | 10,909 |
Foreign |  |  | 70,547 |  |  | 70,164 |  |  | 77,978 |
Total |  | $ | 110,411 |  | $ | 56,238 |  | $ | 88,887 |
In 2017, the United States enacted comprehensive tax reform legislation known as the Tax Cuts and Jobs Act (the "2017 Tax Act") that, among other things, reduces the U.S. federal corporate income tax rate from 35% to 21% and implements a territorial tax system, but imposes an alternative “base erosion and anti-abuse tax” (“BEAT”), and an incremental tax on global intangible low taxed foreign income (“GILTI”) effective January 1, 2018. In addition, the law imposed a one-time mandatory repatriation tax on accumulated post-1986 foreign earnings on domestic corporations effective for the 2017 tax year. As of December 31, 2018, the Company had completed its analysis of the impacts of the 2017 Tax Act within the measurement period in accordance with SAB 118, and no material adjustment was recorded to the 2017 estimate. The significant components of this expense include (i) the remeasurement of net deferred tax assets at the lower enacted U.S. federal corporate tax rate, (ii) the deemed repatriation tax on unremitted non-U.S. earnings and profits that were previously tax deferred and (iii) other miscellaneous tax impacts. While the Company’s accounting for the recorded impact of the 2017 Tax Act is deemed to be complete, these amounts are based on prevailing regulations and currently available information, and any additional guidance issued by the Internal Revenue Service (“IRS”) or the results of an audit related to these items, could impact the Company’s recorded amounts in future periods. The Company’s selection of an accounting policy with respect to both the new GILTI and BEAT rules is to compute the related taxes in the period the entity becomes subject to either. A reasonable estimate of the effects of these provisions has been included in the 2019 and 2018 annual financial statements. No changes in indefinite reinvestment assertion were made during the year. The Company has completed its analysis in regard to the full tax impact related to prior changes in indefinite reinvestment reassertion and any related taxes have been recorded. No additional income taxes have been provided for any remaining outside basis difference inherent in the Company’s foreign subsidiaries as these amounts continue to be indefinitely reinvested in foreign operations. Determination of any unrecognized deferred tax liability related to the outside basis difference in investments in foreign subsidiaries is not practicable due to the inherent complexity of the multi-national tax environment in which the Company operates. The components of the Company’s Provision for (benefit from) income taxes are as follows (in thousands):
|  | Year Ended December 31, |
|  | 2019 |  | 2018 |  | 2017 |
Current provision for (benefit from) |  |  |  |  |  |  |  |  |  |
Federal |  | $ | 5,289 |  | $ | 2,771 |  | $ | 48,556 |
State |  |  | 2,826 |  |  | 2,754 |  |  | 99 |
Foreign |  |  | 18,938 |  |  | 18,933 |  |  | 12,643 |
Total current provision for (benefit from) |  |  | 27,053 |  |  | 24,458 |  |  | 61,298 |
Deferred provision for (benefit from) |  |  |  |  |  |  |  |  |  |
Federal |  |  | 2,515 |  |  | (943) |  |  | 14,441 |
State |  |  | 118 |  |  | (138) |  |  | 707 |
Foreign |  |  | (4,009) |  |  | (6,894) |  |  | 1,629 |
Total deferred provision for (benefit from) |  |  | (1,376) |  |  | (7,975) |  |  | 16,777 |
Total provision for (benefit from) income taxes |  | $ | 25,677 |  | $ | 16,483 |  | $ | 78,075 |
The following reconciles the Company’s effective tax rate to the federal statutory rate (in thousands):
|  | Year Ended December 31, |
|  | 2019 |  | 2018 |  | 2017 |
Income tax per U.S. federal statutory rate (21%, 21%, 35%) |  | $ | 23,186 |  | $ | 11,810 |  | $ | 31,110 |
State income taxes, net of federal deduction |  |  | 3,144 |  |  | 2,003 |  |  | 460 |
Change in valuation allowances |  |  | 9,832 |  |  | 2,191 |  |  | (924) |
Foreign income taxes at different rates than the U.S. |  |  | (3,356) |  |  | (3,758) |  |  | (14,417) |
Foreign withholding taxes |  |  | 600 |  |  | 785 |  |  | 323 |
Losses in international markets without tax benefits |  |  | (2,651) |  |  | (68) |  |  | 1,098 |
Nondeductible compensation under Section 162(m) |  |  | 668 |  |  | 615 |  |  | 647 |
Liabilities for uncertain tax positions |  |  | 661 |  |  | 1,105 |  |  | 1,607 |
Permanent difference related to foreign exchange gains |  |  | 36 |  |  | 136 |  |  | 142 |
(Income) losses of foreign branch operations |  |  | 55 |  |  | 475 |  |  | (824) |
Non-taxable earnings of noncontrolling interest |  |  | (1,294) |  |  | (594) |  |  | (1,030) |
Foreign dividend less foreign tax credits |  |  | (1,681) |  |  | (1,748) |  |  | (4,798) |
Decrease (increase) to deferred tax asset - change in tax rate |  |  | (2,848) |  |  | (1,944) |  |  | 1,101 |
State income tax credits |  |  | (1,176) |  |  | 19 |  |  | 207 |
Foreign earnings taxed currently in U.S. |  |  | 2,172 |  |  | 3,976 |  |  | 3,143 |
Taxes related to prior year filings |  |  | (1,643) |  |  | (1,659) |  |  | (865) |
Taxes related to acquisition accounting |  |  | 978 |  |  | 2,110 |  |  | — |
Transition tax |  |  | — |  |  | — |  |  | 61,569 |
Other |  |  | (1,006) |  |  | 1,029 |  |  | (474) |
Income tax per effective tax rate |  | $ | 25,677 |  | $ | 16,483 |  | $ | 78,075 |
Effective tax rate percentage |  |  | 23.30% |  |  | 29.30% |  |  | 87.80% |
The Company’s deferred income tax assets and liabilities are summarized as follows (in thousands):
|  | Year Ended December 31, |
|  | 2019 |  | 2018 |
Deferred tax assets, gross |  |  |  |  |  |  |
Accrued workers compensation, deferred compensation and employee benefits |  | $ | 7,999 |  | $ | 8,724 |
Allowance for doubtful accounts, insurance and other accruals |  |  | 3,393 |  |  | 3,301 |
Amortization of deferred lease liabilities |  |  | 25,757 |  |  | 2,614 |
Net operating losses |  |  | 19,222 |  |  | 18,475 |
Equity compensation |  |  | 1,442 |  |  | 1,348 |
Customer acquisition and deferred revenue accruals |  |  | 9,047 |  |  | 13,894 |
Federal and state tax credits, net |  |  | 1,263 |  |  | 549 |
Unrealized losses on derivatives |  |  | 1,421 |  |  | 2,035 |
Impairment of equity investment |  |  | 4,142 |  |  | 4,221 |
Partnership Investment |  |  | 2,435 |  |  | — |
Other |  |  | 1,322 |  |  | 1,001 |
Total deferred tax assets, gross |  |  | 77,443 |  |  | 56,162 |
Valuation allowances |  |  | (17,051) |  |  | (10,867) |
Total deferred tax assets, net |  |  | 60,392 |  |  | 45,295 |
Deferred tax liabilities |  |  |  |  |  |  |
Depreciation and amortization |  |  | (6,095) |  |  | (15,547) |
Unrealized gain on derivatives |  |  | (1,491) |  |  | — |
Contract acquisition costs |  |  | (5,740) |  |  | (8,519) |
Intangible assets |  |  | (22,585) |  |  | (15,890) |
Operating lease assets |  |  | (21,413) |  |  | — |
Other |  |  | (407) |  |  | (187) |
Total deferred tax liabilities |  |  | (57,731) |  |  | (40,143) |
Net deferred tax assets |  | $ | 2,661 |  | $ | 5,152 |
Quarterly, the Company assesses the likelihood by jurisdiction that its net deferred tax assets will be recovered. Based on the weight of all available evidence, both positive and negative, the Company records a valuation allowance against deferred tax assets when it is more-likely-than-not that a future tax benefit will not be realized. As of December 31, 2019 the Company had approximately $3.9 million of net deferred tax liabilities in the U.S. and $6.6 million of net deferred tax assets related to certain international locations whose recoverability is dependent upon their future profitability. As of December 31, 2019 the deferred tax valuation allowance was $17.1 million and related primarily to tax losses in foreign jurisdictions which do not meet the “more-likely-than-not” standard under current accounting guidance. When there is a change in judgment concerning the recovery of deferred tax assets in future periods, a valuation allowance is recorded into earnings during the quarter in which the change in judgment occurred. In 2019, the Company made adjustments to its deferred tax assets and corresponding valuation allowances. The net change to the valuation allowance consisted of the following: a $4.6 million increase related to capital loss carry forwards and other credit carry forwards not expected to be utilized in Brazil and Canada, a $2.7 million increase in valuation allowance in the United Kingdom, Ireland, Canada, Luxembourg, Turkey, the United States and Australia for deferred tax assets that do not meet the “more-likely-than-not” standard, and a $1.1 million release of valuation allowance in Argentina, New Zealand, and the Netherlands and various other jurisdictions related to the utilization or write-off of deferred tax assets. Activity in the Company’s valuation allowance accounts consists of the following (in thousands):
|  | Year Ended December 31, |
|  | 2019 |  | 2018 |  | 2017 |
Beginning balance |  | $ | 10,867 |  | $ | 9,526 |  | $ | 9,949 |
Additions of deferred income tax expense |  |  | 7,373 |  |  | 2,913 |  |  | 2,044 |
Reductions of deferred income tax expense |  |  | (1,189) |  |  | (1,572) |  |  | (2,467) |
Ending balance |  | $ | 17,051 |  | $ | 10,867 |  | $ | 9,526 |
As of December 31, 2019, after consideration of all tax loss and tax credit carry back opportunities, the Company had tax affected tax loss carry forwards worldwide expiring as follows (in thousands):
2020 |  | $ | 1,151
2021 |  |  | 5
2022 |  |  | 3
2023 |  |  | 1,105
After 2023 |  |  | 9,298
No expiration |  |  | 7,660
Total |  | $ | 19,222
The Company has been granted “Tax Holidays” as an incentive to attract foreign investment by the governments of the Philippines and Costa Rica. Generally, a Tax Holiday is an agreement between the Company and a foreign government under which the Company receives certain tax benefits in that country, such as exemption from taxation on profits derived from export-related activities. In the Philippines, the Company has been granted multiple agreements, with an initial period of four years and additional periods for varying years, expiring at various times between 2020 and 2022. The aggregate benefit to income tax expense for the years ended December 31, 2019, 2018 and 2017 was approximately $8.4 million, $8.2 million and $11.9 million, respectively, which had a favorable impact on diluted net income per share of $0.18, $0.18 and $0.26, respectively. Accounting for Uncertainty in Income Taxes In accordance with ASC 740, the Company has recorded a reserve for uncertain tax positions. The total amount of interest and penalties recognized in the accompanying Consolidated Balance Sheets and Consolidated Statements of Comprehensive Income (Loss) as of December 31, 2019, 2018 and 2017 was approximately $2.1 million, $1.4 million and $1.8 million, respectively. The Company had a reserve for uncertain tax benefits, on a net basis, of $4.8 million and $4.8 million for the years ended December 31, 2019 and 2018, respectively. The liability for uncertain tax positions was unchanged during 2019. The tabular reconciliation of the reserve for uncertain tax benefits on a gross basis without interest for the three years ended December 31, 2019 is presented below (in thousands):
Balance as of December 31, 2016 |  | $ | 2,382
Additions for current year tax positions |  |  | 916
Reductions in prior year tax positions |  |  | —
Balance as of December 31, 2017 |  |  | 3,298
Additions for current year tax positions |  |  | 3,600
Reductions in prior year tax positions |  |  | (2,114)
Balance as of December 31, 2018 |  |  | 4,784
Additions for current year tax positions |  |  | —
Reductions in prior year tax positions |  |  | —
Balance as of December 31, 2019 |  | $ | 4,784
At December 31, 2019, the amount of uncertain tax benefits including interest, that, if recognized, would reduce tax expense was $6.8 million. Within the next 12 months, it is expected that the amount of unrecognized tax benefits may be reduced by $1.4 million as a result of the expiration of various statutes of limitation or other confirmations of tax positions. In accordance with ASC 740, during the second quarter of 2018, $1.1 million of liability was released due to the closing of statues of limitations. During the third quarter of 2018, $2.0 million of liability was released due to the closing of statutes of limitations and changes calculated as allowed under SAB 118 related to the 2017 Tax Act. During the fourth quarter of 2018, the Company recorded liabilities of $3.6 million related to new uncertain tax positions. The Company and its domestic and foreign subsidiaries (including Percepta LLC and its domestic and foreign subsidiaries) file income tax returns as required in the U.S. federal jurisdiction and various state and foreign jurisdictions. The following table presents the major tax jurisdictions and tax years that are open as of December 31, 2019 and subject to examination by the respective tax authorities:
Tax Jurisdiction |  | Tax Year Ended
United States |  | 2016 to present
Australia |  | 2015 to present
Brazil |  | 2014 to present
Canada |  | 2011 to present
Mexico |  | 2014 to present
Philippines |  | 2016 to present
The Company’s U.S. income tax returns filed for the tax years ending December 31, 2016 to present, remain open tax years. The Company has been notified of the intent to audit, or is currently under audit of, income taxes for the United States for tax year 2017, Canada for tax years 2009 and 2010, and the state of New York for tax years 2015 through 2017. Although the outcome of examinations by taxing authorities are always uncertain, it is the opinion of management that the resolution of these audits will not have a material effect on the Company’s Consolidated Financial Statements.

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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://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 + Details
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