INCOME TAXES

12 Months Ended

Dec. 31, 2021

Income Tax Disclosure [Abstract]

Income Taxes

INCOME TAXES

The income tax expense (benefit) consists of the following for the years ended December 31, 2021, 2020 and 2019 (in thousands):

	2021		2020		2019
US federal income tax (benefit) expense:
Current	$	—	$	(69)	$	—
Deferred	(30,411)		996		(3,072)
	(30,411)		927		(3,072)
State income tax expense:
Current	6,817		1,707		2,074
Deferred	190		199		(1,276)
	7,007		1,906		798
Total income tax (benefit) expense	$	(23,404)	$	2,833	$	(2,274)

The difference between the statutory federal income tax rate and the effective tax rate is as follows for the years ended December 31, 2021, 2020 and 2019:

	2021		2020		2019
US federal statutory tax rate	21.0	%	21.0	%	21.0	%
State and local income taxes net of federal tax benefit	4.9	%	(29.5)	%	(0.5)	%
Valuation allowance	(46.2)	%	(29.9)	%	(13.4)	%
Stock-based compensation	(0.1)	%	6.7	%	0.0	%
Non-deductible compensation	0.1	%	(16.3)	%	(0.7)	%
Non-deductible expenses	0.3	%	(8.2)	%	(2.8)	%
Other, net	(0.1)	%	2.2	%	(0.7)	%
Effective income tax rate	(20.1)	%	(54.0)	%	2.9	%

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, 2021 and 2020 (in thousands):

	2021		2020
Deferred tax assets:
Price concessions	$	6,373	$	6,907
Compensation and benefits	5,889		4,058
Interest limitation carryforward	35,114		39,094
Operating lease liability	23,266		22,644
Net operating losses	97,880		155,922
Other	6,381		8,501
Deferred tax assets before valuation allowance	174,903		237,126
Valuation allowance	(13,151)		(112,085)
Deferred tax assets net of valuation allowance	161,752		125,041
Deferred tax liabilities:
Accelerated depreciation	(10,602)		(12,593)
Operating lease right-of-use asset	(18,437)		(17,186)
Intangible assets	(61,629)		(67,127)
Goodwill	(36,702)		(28,976)
Other	(7,349)		(2,498)
Deferred tax liabilities	(134,719)		(128,380)
Net deferred tax assets (liabilities)	$	27,033	$	(3,339)

As a result of the Merger, the Company had 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”). 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 company adjusted its valuation allowance to offset tax benefits that would have otherwise been recognized for the years ended December 31, 2020 and 2019. In the current year ended December 31, 2021, the company has assessed that it more likely than not will realize its deferred tax assets, with the exception of certain state NOL’s valued at $13.2 million, resulting in a reversal of the company’s valuation allowance in the current period.

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. In the current period, the company determined the positive evidence to outweigh any negative evidence, such that the realization of the deferred tax assets is more likely than not and the reversal of the Company’s valuation allowance is warranted. Compelling objective positive evidence is the Company now realizing a multi-year cumulative income position combined with actual utilization of its deferred tax assets in the current period due to the Company generating positive pre-tax book income. Other objective positive factors include the Company’s January 2021 and October 2021 debt refinancing transactions, which result in reduced interest expense for the company compared to historical trends as well as the Company’s 2021 business acquisitions, which provide for a new and objective source of future income compared to prior year earnings. With the exception of the federal NOL carryovers noted below that are expected to expire unutilized due to limitations under Internal Revenue Code (“Code”) Section 382, the Company expects to fully utilize all of its deferred tax assets prior to any expiration based on current period income trends of the company.

The Company is subject to taxation in the United States and various states. At December 31, 2021, the Company had $358.4 million of gross federal NOL carryforwards all of which are currently available to offset future taxable income in the United States and reflected as a deferred tax asset of the company. Gross federal NOL carryforwards of $223.7 million expire beginning in 2025 through 2037 and $134.7 million have an indefinite carryforward period. Excluded from this figure and not reflected as a deferred tax asset is $139.8 million of federal NOL carryovers that are expected to expire unutilized due to limitations under Code Section 382 and were written off in the current year. At December 31, 2020, the Company had $577.9 million of gross federal NOL’s, which included $139.8 million of fully reserved federal NOL carryovers that are expected to expire unutilized due to limitations under Code Section 382. At December 31, 2021 and 2020, the Company had $140.2 million and $154.8 million of interest limitation carryforwards which have an indefinite carryforward period. At December 31, 2021

and 2020, the Company also had $405.1 million and $600.1 million of cumulative gross state NOL carryforwards available to offset future taxable income in various states. These state NOL carryforwards will begin to expire beginning in 2022 through 2041, with some having an indefinite carryforward period.

At December 31, 2021 and 2020, 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, 2021, 2020 and 2019 (in thousands):

			Additions
Description	Balance at Beginning of Period		Charged (Benefit) to Costs and Expenses		Charged (Benefit) to Other Accounts		Balance at End Period
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
2021: Valuation allowance for deferred tax assets	$	112,085	$	(96,136)	$	(2,798)	$	13,151

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 years ended December 31, 2021 and 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 previously recognized valuation allowance.