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Income Taxes | 12 Months Ended
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Aug. 31, 2018
Income Tax Disclosure [Abstract] |
Income Taxes | Income Taxes The provision for (benefit from) income taxes for the years ended August 31, 2018, 2017, and 2016 is as follows:
| 2018 |  | (As Restated) 2017 |  | (As Restated) 2016
| (Dollars in thousands)
Current: |  |  |  |  |
Federal | $ | 15,576 |  |  | $ | 8,394 |  |  | $ | (14,536 | )
State | 7,041 |  |  | (1,787 | ) |  | 2,427 |
Foreign | 20,268 |  |  | 6,736 |  |  | 3,018 |
| 42,885 |  |  | 13,343 |  |  | (9,091 | )
Deferred: |  |  |  |  |
Federal | (146,780 | ) |  | (173,184 | ) |  | 34,753 |
State | (127 | ) |  | (13,244 | ) |  | (13,684 | )
Foreign | (54 | ) |  | (8,039 | ) |  | 7,121 |
| (146,961 | ) |  | (194,467 | ) |  | 28,190 |
Total | $ | (104,076 | ) |  | $ | (181,124 | ) |  | $ | 19,099 |
The tax expense above for fiscal 2017 and 2016 are restatements of originally filed amounts to reflect necessary tax adjustments caused by restatements to pre-tax income for the relevant periods as well as to reflect certain tax only adjustments moved to or from other years. For fiscal 2017 and 2016, the adjustments to tax expense were $1.0 million and $23.2 million, respectively. In addition, the disclosures of deferred tax assets for fiscal 2017 discussed below similarly reflect restatements from originally filed amounts for changes in book income and tax only adjustments to or from previous years. The net deferred tax liability for fiscal 2017 reflects a total adjustment from originally filed for $3.7 million. All other disclosures reflect amounts after restatement. Domestic income before income taxes was $717.4 million, $158.5 million, and $473.0 million for the years ended August 31, 2018, 2017, and 2016, respectively. Foreign income before income taxes was ($46.2) million, ($268.7) million, and ($70.9) million for the years ended August 31, 2018, 2017, and 2016, respectively. On December 22, 2017, the Tax Act was enacted into law. The Tax Act provides for significant U.S. tax law changes that reduced our federal corporate statutory tax rate from 35% to 21% as of January 1, 2018. As a fiscal year-end taxpayer, our annual statutory federal corporate tax rate applicable to fiscal 2018 was a blended rate of 25.7%. Beginning in fiscal 2019, the annual statutory federal corporate tax rate will be 21%. The Tax Act also requires companies to pay a one-time repatriation tax on certain unrepatriated earnings of foreign subsidiaries that were previously tax deferred ("transition tax") and creates new taxes on certain foreign sourced earnings. Foreign taxes have not historically had a material impact on our consolidated financial statements. The foreign impacts of the Tax Act are discussed below. The Tax Act initially repealed the Domestic Production Activities Deduction ("DPAD") and enacted the Deduction for Qualified Business Income of Pass-Thru Entities ("QBI Deduction"); however, the Consolidated Appropriations Act, 2018 (the "Appropriations Act") enacted into law on March 23, 2018, impacted these deductions. The Appropriations Act modifies the QBI Deduction under Sec. 199A of the Tax Act to reenact DPAD for agricultural and horticultural cooperatives as it existed prior to the enactment of the Tax Act, and also modifies the QBI Deduction available to cooperative patrons as enacted by the Tax Act. All references to the Tax Act below include the modifications introduced by the Appropriations Act. As discussed in Note 1, Organization, Basis of Presentation and Significant Accounting Policies, the FASB issued ASU 2018-05 during March 2018, which allows for entities to report provisional amounts for specific income tax effects associated with the Tax Act for which the accounting is not complete, but a reasonable estimate can be determined. As of August 31, 2018, we have not finalized our work associated with the income tax effects of the enactment of the Tax Act; however, a reasonable estimate was provisionally recorded as a net benefit of $155.2 million from the revaluation of our U.S. net deferred tax liability that resulted from the reduced federal corporate tax rate and CHS being subject to the employee compensation deduction limitations imposed by Internal Revenue Code Section 162(m). We have provisionally estimated that we will not have a transition tax liability; however, we continue to gather additional information and will refine that estimate, if necessary. Additionally, we continue to review the anticipated impacts of global intangible low-taxed income ("GILTI"), including whether its tax effects should be accounted for as an in-period or deferred tax expense. Due to the complexity of the GILTI tax rules and the dependency upon future results of our global operations and our global structure, we are currently unable to make a reasonable estimate of this provision and have not recorded any impact associated with GILTI in the tax rate for the year ended August 31, 2018. Deferred taxes are comprised of basis differences related to investments, accrued liabilities and certain federal and state tax credits. Deferred tax assets and liabilities as of August 31, 2018, and 2017, are as follows:
| 2018 |  | (As Restated) 2017
| (Dollars in thousands)
Deferred tax assets: |  |  |  |  |
Accrued expenses | $ | 138,417 |  |  | $ | 227,877 |
Postretirement health care and deferred compensation | 41,797 |  |  | 82,682 |
Tax credit carryforwards | 154,240 |  |  | 169,549 |
Loss carryforwards | 104,519 |  |  | 156,615 |
Nonqualified equity | 178,046 |  |  | 140,009 |
Major maintenance | 5,484 |  |  | 13,011 |
Other | 83,580 |  |  | 83,138 |
Deferred tax assets valuation reserve | (230,373 | ) |  | (289,082 | )
Total deferred tax assets | 475,710 |  |  | 583,799 |
Deferred tax liabilities: |  |  |  |  |
Pension | 19,397 |  |  | 32,150 |
Investments | 98,608 |  |  | 130,816 |
Property, plant and equipment | 513,238 |  |  | 709,313 |
Other | 26,828 |  |  | 40,323 |
Total deferred tax liabilities | 658,071 |  |  | 912,602 |
Net deferred tax liabilities | $ | 182,361 |  |  | $ | 328,803 |
We have total gross loss carry forwards of $531.1 million, of which $342.8 million will expire over periods ranging from fiscal 2019 to fiscal 2040. The remainder will carry forward indefinitely. Based on estimates of future taxable profits and losses in certain foreign tax jurisdictions, as well as consideration of other factors, we assessed whether a valuation allowance was necessary to reduce specific foreign loss carry forwards to amounts that we believe are more likely than not to be realized as of August 31, 2018. If our estimates prove inaccurate, adjustments to the valuation allowances may be required in the future with gains or losses being charged to income in the period such determination is made. During fiscal 2018, valuation allowances related to foreign operations decreased by $33.8 million due to net operating loss carry forwards and other timing differences. CHS McPherson Refinery Inc. ("CHS McPherson") (formerly known as National Cooperative Refinery Association) gross state tax credit carry forwards for income tax were approximately $121.6 million and $172.9 million as of August 31, 2018, and 2017, respectively. During the year ended August 31, 2018, the valuation allowance for CHS McPherson decreased by $17.0 million, net of federal tax, due to a change in the amount of state tax credits that will be available for use and estimated to be utilized. The significant decrease in state tax credit carry forwards resulted from the CHS McPherson expansion project qualifying for an alternative Kansas state credit than the credit under which the project previously qualified. CHS McPherson's valuation allowance on Kansas state credits is necessary due to the limited amount of taxable income generated in Kansas by the combined group on an annual basis. Our foreign tax credit of $11.2 million was generated in fiscal 2018 and will expire in ten years. Our alternative minimum tax credit of $6.1 million will not expire. Our general business credits of $61.2 million, comprised primarily of low sulfur diesel credits, will begin to expire on August 31, 2027 and our state tax credits of $121.6 million will begin to expire on August 31, 2019. As of August 31, 2018, and 2017, net deferred tax assets of $0.4 million and $1.2 million were included in other assets, respectively. The reconciliation of the statutory federal income tax rates to the effective tax rates for the years ended August 31, 2018, 2017, and 2016 is as follows:
| 2018 |  | (As Restated) 2017 |  | (As Restated) 2016
Statutory federal income tax rate | 25.7 | % |  | 35.0 | % |  | 35.0 | %
State and local income taxes, net of federal income tax benefit | 0.7 |  |  | 12.1 |  |  | 0.3 |
Patronage earnings | (13.6 | ) |  | 91.7 |  |  | (21.2 | )
Domestic production activities deduction | (8.4 | ) |  | 30.5 |  |  | (12.1 | )
Export activities at rates other than the U.S. statutory rate | 6.1 |  |  | 51.6 |  |  | (3.0 | )
U.S. tax reform | (23.2 | ) |  | — |  |  | — |
Intercompany transfer of business assets | (6.1 | ) |  | — |  |  | — |
Increase in unrecognized tax benefits | 6.8 |  |  | — |  |  | — |
Valuation allowance | (3.4 | ) |  | (77.1 | ) |  | 25.4 |
Tax credits | 0.7 |  |  | 22.8 |  |  | (14.1 | )
Crack spread contingency | — |  |  | 4.8 |  |  | (5.3 | )
Other | (0.8 | ) |  | (7.0 | ) |  | (0.3 | )
Effective tax rate | (15.5 | )% |  | 164.4 | % |  | 4.7 | %
The primary drivers of the fiscal 2018 income tax benefit are the recognition of deferred benefits from the revaluation of our net deferred tax liability resulting from the Tax Act, the intercompany transfer of a business on December 1, 2017 and a current tax benefit from retaining a significant portion of the DPAD, which were partially offset by deferred tax expense from an increase in our unrecognized tax benefit as descried below. The components of the income tax benefit disclosed as a percentage of income (loss) before income taxes in the reconciliation of the statutory federal income tax rate for the year ended August 31, 2017, were magnified because our fiscal 2017 income tax benefit was unusually large in relation to our income (loss) before income taxes. The primary drivers of the fiscal 2017 income tax benefit were the recognition of deferred tax benefits related to the issuance of non-qualified equity certificates for fiscal 2013 and 2014, which is disclosed within ‘Patronage earnings’ and U.S. and Brazil deductions related to the Brazilian trading partner loss, which are disclosed within ‘Statutory federal income tax rate’ and ‘Export activities at rates other than the U.S. statutory rate’, respectively, as well as a current tax benefit from retaining a significant portion of the DPAD. A significant income tax expense within the fiscal 2017 income tax benefit is an increase in the valuation allowance against deferred tax assets generated in the Brazilian trading partner loss and Kansas state tax credits. We file income tax returns in the U.S. federal jurisdiction, as well as various state and foreign jurisdictions. Our uncertain tax positions are affected by the tax years that are under audit or remain subject to examination by the relevant taxing authorities. In addition to the current year, fiscal 2007 through 2017 remain subject to examination, at least for certain issues. We account for our income tax provisions in accordance with ASC Topic 740, Income Taxes, which prescribes a minimum threshold that a tax provision is required to meet before being recognized in our consolidated financial statements. This interpretation requires us to recognize in our consolidated financial statements tax positions determined more likely than not to be sustained upon examination, based on the technical merits of the position. A reconciliation of the gross beginning and ending amounts of unrecognized tax benefits for the periods presented follows:
| 2018 |  | 2017 |  | 2016
| (Dollars in thousands)
Balance at beginning of period | $ | 37,830 |  |  | $ | 37,105 |  |  | $ | 72,181 |
Additions attributable to current year tax positions | 3,640 |  |  | 725 |  |  | 1,387 |
Additions attributable to prior year tax positions | 49,665 |  |  | — |  |  | — |
Reductions attributable to prior year tax positions | — |  |  | — |  |  | (36,463 | )
Balance at end of period | $ | 91,135 |  |  | $ | 37,830 |  |  | $ | 37,105 |
During fiscal 2018, adverse judicial opinions received by other taxpayers with similar filing positions resulted in an increase to our unrecognized tax benefits primarily for excise tax credits related to the blending and sale of renewable fuels deducted from income taxes. During fiscal 2017, we increased our unrecognized tax benefits for excise tax credits related to the blending and sale of renewable fuels deducted for income taxes. During fiscal 2016, we decreased our unrecognized tax benefits due to a settlement with the Internal Revenue Service and increased our unrecognized tax benefits for excise tax credits related to the blending and sale of renewable fuels deducted for income taxes. If we were to prevail on all positions taken in relation to uncertain tax positions, $83.3 million of the unrecognized tax benefits would ultimately benefit our effective tax rate. However, we do not believe it is reasonably possible that the total amount of unrecognized tax benefits will significantly increase or decrease within the next 12 months. We recognize interest and penalties related to unrecognized tax benefits in our provision for income taxes. We recognized $1.2 million for interest related to unrecognized tax benefits in our Consolidated Statement of Operations for the year ended August 31, 2018, and a related $1.2 million interest payable on our Consolidated Balance Sheet as of August 31, 2018. No interest or penalties were recognized in our Consolidated Statements of Operations for the years ended August 31, 2017, and 2016 and no interest payable was recorded on our Consolidated Balance Sheet as of August 31, 2017.

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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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