Income Taxes

3 Months Ended

Mar. 31, 2020

Income Tax Disclosure [Abstract]

Income Taxes

15. Income Taxes

Income Tax Expense

The Company used the Annual Effective Tax Rate ("ETR") approach of ASC 740-270, Interim Reporting, to calculate its 2020 interim tax provision. Income tax was a benefit of $12.6 million and an expense of $4.0 million for the three months ended March 31, 2020 and 2019, respectively.

The income tax benefit recorded for the three months ended March 31, 2020 primarily relates to a one-time, discrete tax benefit from the carryback of net operating losses at the Insurance segment as a result of the enactment of the CARES Act on March 27, 2020. The CARES Act was enacted during the first quarter of 2020 and includes several provisions which were applicable to the Company, including the ability to carryback Federal net operating losses generated in tax years beginning in 2018-2020, the removal of the 80% taxable income limitation for net operating loss deductions for tax years beginning before January 1, 2021, and a temporary increase in the interest limitation from 30% to 50% for tax years beginning in 2019 and 2020. We have included the impact of these provisions in our overall tax benefit for the three months ended March 31, 2020. Additionally, the tax benefits associated with losses generated by the HC2 Holdings, Inc. U.S. consolidated income tax return and certain other businesses have been reduced by a full valuation allowance as we do not believe it is more-likely-than-not that the losses will be utilized prior to expiration.

The income tax expense recorded for March 31, 2019 relates to the projected expense as calculated under ASC 740 for taxpaying entities and because no benefit is recognized on the losses of the HC2 U.S. tax consolidated group and the losses of their subsidiaries as valuation allowances are recorded on the deferred tax assets of these companies.

Unrecognized Tax Benefits

The Company follows the provision of ASC 740-10, Income Taxes, which prescribes a comprehensive model for how a company should recognize, measure, present, and disclose in its financial statements uncertain tax positions that the Company has taken or expects to take on a tax return. The Company is subject to challenge from various taxing authorities relative to certain tax planning strategies, including certain intercompany transactions as well as regulatory taxes.

Examinations

The Company conducts business globally, and as a result, the Company or one or more of its subsidiaries files income tax returns in the United States federal jurisdiction and various state and foreign jurisdictions. In the normal course of business the Company is subject to examination by taxing authorities throughout the world. The open tax years contain matters that could be subject to differing interpretations of applicable tax laws and regulations as they relate to the amount, character, timing or inclusion of revenue and expenses or the applicability of income tax credits for the relevant tax period. Given the nature of tax audits there is a risk that disputes may arise. Tax years 2002 - 2019 remain open for examination.