INCOME TAXES

12 Months Ended

Dec. 31, 2020

Income Tax Disclosure [Abstract]

Income Taxes

INCOME TAXES

The income tax expense (benefit) consists of the following for the years ended December 31, 2020, 2019 and 2018 (in thousands):

	2020		2019		2018
US federal income tax expense (benefit):
Current	$	(69)	$	—	$	—
Deferred	996		(3,072)		(2,688)
	927		(3,072)		(2,688)
State income tax expense (benefit):
Current	1,707		2,074		1,176
Deferred	199		(1,276)		(1,141)
	1,906		798		35
Total income tax expense (benefit)	$	2,833	$	(2,274)	$	(2,653)

The difference between the statutory federal income tax rate and the effective tax rate is as follows for the years ended December 31, 2020, 2019 and 2018:

	2020		2019		2018
US federal statutory tax rate	21.0	%	21.0	%	21.0	%
State and local income taxes net of federal tax benefit	(29.5)		(0.5)		2.4
Valuation allowance	(29.9)		(13.4)		0.0
Stock-based compensation	6.7		0.0		0.0
Non-deductible compensation	(16.3)		(0.7)		0.0
Changes in uncertain tax positions	0.0		0.0		14.7
Non-deductible expenses	(8.2)		(2.8)		(7.5)
Other, net	2.2		(0.7)		(0.3)
Effective income tax rate	(54.0)	%	2.9	%	30.3	%

The components of deferred income tax assets and liabilities using the 21% U.S. Federal statutory tax rate were as follows as of December 31, 2020 and 2019 (in thousands):

	2020		2019
Deferred tax assets:
Price concessions	$	6,907	$	12,302
Compensation and benefits	4,058		3,672
Interest limitation carryforward	39,094		38,623
Operating lease liability	22,644		19,462
Net operating losses	155,922		147,749
Other	8,682		5,506
Deferred tax assets before valuation allowance	237,307		227,314
Valuation allowance	(112,085)		(109,531)
Deferred tax assets net of valuation allowance	125,222		117,783
Deferred tax liabilities:
Accelerated depreciation	(12,593)		(10,376)
Operating lease right-of-use asset	(17,186)		(15,442)
Intangible assets	(67,127)		(71,204)
Goodwill	(28,976)		(20,250)
Other	(2,679)		(2,654)
Deferred tax liabilities	(128,561)		(119,926)
Net deferred tax liabilities	$	(3,339)	$	(2,143)

As a result of the Merger, the Company recorded a full valuation allowance against all of its net U.S. federal and state deferred tax assets except for certain state net operating losses (“NOL”) which were estimated to be $0.4 million as of December 31, 2020. The initial recognition of this valuation allowance by the Company was reflected in the opening balance sheet of BioScrip and, to that extent, did not impact the Company’s tax expense (benefit) for the years ended December 31, 2020 and 2019. The valuation allowance for deferred tax assets as of December 31, 2020 was $112.1 million.

In assessing the realizability of deferred tax assets, the Company considers whether it is more likely than not that some or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets depends on the generation of future taxable income during the periods in which those temporary differences are deductible. The Company considers the scheduled reversal of deferred tax liabilities (including the effect in available carryback and carryforward periods), projected taxable income, and tax-planning strategies in making this assessment. On a quarterly basis, the Company evaluates the positive and negative evidence in determining if the valuation allowance is fairly stated.

The Company is subject to taxation in the United States and various states. As a result of the Merger, BioScrip carried over $458.9 million of federal net operating losses, $479.6 million of state net operating losses, and $85.0 million of interest limitation carryforwards. At December 31, 2020, the Company had $577.9 million of gross federal NOL carryforwards of which $438.1 million are available to offset future taxable income in the United States. These NOL’s will begin to expire in 2026 if not utilized. The remaining gross federal NOL’s of $139.8 million at December 31, 2020 are expected to expire unutilized due to limitations under Internal Revenue Code Section 382. At December 31, 2019, the Company had $548.0 million of gross federal NOL’s. At December 31, 2020 and 2019, the Company had $154.8 million and $145.6 million of interest limitation carryforwards. At December 31, 2020 and 2019, the Company also had $600.1 million and $578.5 million of cumulative gross state NOL carryforwards available to offset future taxable income in various states. These state NOL’s will begin to expire starting in 2021 if not utilized.

At December 31, 2020 and 2019, the unrecognized tax benefits for uncertain tax positions was $0.

The following table presents the valuation allowance for deferred tax assets for the years ended December 31, 2020, 2019 and 2018 (in thousands):

			Additions
Description	Balance at Beginning of Period		Charged (Benefit) to Costs and Expenses		Charged to Other Accounts		Balance at End Period
2018: Valuation allowance for deferred tax assets	$	1,263	$	110	$	—	$	1,373
2019: Valuation allowance for deferred tax assets	$	1,373	$	15,395	$	92,763	$	109,531
2020: Valuation allowance for deferred tax assets	$	109,531	$	1,549	$	1,005	$	112,085

Currently, the Company is not subject to any U.S. Federal income tax audits. The Company is subject to various state tax audits, and believes that the outcome of these audits will not have a material impact on the Company.

The Company recorded no income tax expense or benefit for the year ended December 31, 2020 associated with the tax provisions of the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”). However, certain adjustments were made to the Company’s components of deferred tax assets and liabilities to reflect the tax provisions of the CARES Act. These adjustments were the result of the CARES Act’s tax provisions associated with interest expense limitations and bonus depreciation on leasehold improvements. These adjustments to the Company’s components of deferred tax assets and liabilities were offset by one another or the Company’s valuation allowance.