Note 13 - Income Taxes

12 Months Ended

Dec. 31, 2019

Notes to Financial Statements

Income Tax Disclosure [Text Block]

Note 13 – Income Taxes

The provision for income taxes is comprised of the following components (in thousands):

	Year Ended December 31,
	2019		2018		2017
Current Tax Provision
Federal	$	13,356	$	13,583	$	23,038
State		1,101		1,612		2,150
Total current tax provision		14,457		15,195		25,188
Deferred Tax Provision
Federal		4,048		610		(6,548	)
State		1,534		380		227
Total deferred tax provision		5,582		990		(6,321	)
Income Tax Provision	$	20,039	$	16,185	$	18,867

The deferred tax assets and liabilities, consisting of temporary differences tax effected at the respective income tax rates, are as follows (in thousands):

	December 31,
	2019			2018
Deferred tax assets:
Allowance for doubtful accounts receivable	$	46		$	48
Accrued risk reserves		1,625			1,433
Accrued expenses		5,926			5,504
Financial reporting depreciation in excess of tax depreciation		3,966			6,340
Stock based compensation		666			959
Non-refundable entrance fees		89			103
Obligation to provide future services		530			580
Deferred revenue		5,425			3,480
State net operating loss carryforwards		–			5,762
Operating lease liabilities		52,870			–
Total gross deferred tax assets		71,143			24,209
Less: Valuation allowance		-			(5,762	)
Deferred tax assets less valuation allowance	$	71,143		$	18,447
Deferred tax liabilities:
Unrealized gains on marketable securities	$	(32,638	)	$	(28,032	)
Deferred gain on sale of assets, net		(2,094	)		(2,146	)
Book basis in excess of tax basis of intangible assets		(2,063	)		(1,748	)
Book basis in excess of tax basis of securities		(2,172	)		(1,889	)
Long–term investments		(3,318	)		(3,182	)
Operating lease assets		(52,870	)		–
Total deferred tax liabilities	$	(95,155	)	$	(36,997	)
Net deferred tax liability	$	(24,012	)	$	(18,550	)

A reconciliation of income tax expense and the amount computed by applying the statutory federal income tax rate to income before income taxes is as follows (in thousands):

	Year Ended December 31,
	2019			2018			2017
Tax provision at federal statutory rate	$	18,483		$	15,726		$	26,092
Increase (decrease) in income taxes resulting from:
Tax expense from minority interest		61			71			204
State, net of federal benefit		3,850			3,213			2,647
Nondeductible expenses		207			478			230
Return to provision		(793	)		(1,418	)		–
Share based payments		(263	)		(136	)		(237	)
Insurance expense		(82	)		(128	)		(103	)
Revalue tax assets/liabilities due to federal tax reform		–			–			(8,488	)
Other, net		128			15			(338	)
Unrecognized tax benefits		512			586			613
Expiration of statute of limitations		(2,064	)		(2,222	)		(1,753	)
Total increases (decreases)		1,556			459			(7,225	)
Effective income tax expense	$	20,039		$	16,185		$	18,867

The exercise of non–qualified stock options results in state and federal income tax benefits to the Company related to the difference between the market price at the date of exercise and the option exercise price. During 2019, 2018 and 2017, $263,000, $136,000, and $237,000, respectively, attributable to the tax (expense) benefit of stock options exercised and restricted stock vested, was recorded. Such tax benefits are recorded in the income statement.

Our deferred tax assets have been evaluated for realization based on historical taxable income, tax planning strategies, the expected timing of reversals of existing temporary differences and future taxable income anticipated. Our deferred tax assets are more likely than not to be realized in full due to the existence of sufficient taxable income of the appropriate character under the tax law.

On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (“2017 Tax Act”) was signed into law making significant changes to the Internal Revenue Code. The SEC issued Staff Accounting Bulletin No. 118 (“SAB 118”), which provides guidance on accounting for the tax effects of the 2017 Tax Act. As of December 31, 2017, we made a reasonable estimate that the revaluation of our net deferred tax liability using the new federal corporate tax rates resulted in a provisional net tax benefit of $8,488,000, which reduced our net deferred tax liability balance. After analyzing existing statute and additional guidance on the 2017 Tax Act, we have not made any adjustments to the provisional adjustment made as of December 31, 2017.

Uncertain tax positions may arise where tax laws may allow for alternative interpretations or where the timing of recognition of income is subject to judgment. We believe we have adequate provisions for unrecognized tax benefits related to uncertain tax positions. However, because of uncertainty of interpretation by various tax authorities and the possibility that there are issues that have not been recognized by management, we cannot guarantee we have accurately estimated our tax liabilities. We believe that our liabilities reflect the anticipated outcome of known uncertain tax positions in conformity with ASC Topic 740 Income Taxes. Our liabilities for unrecognized tax benefits are presented in the consolidated balance sheets within other noncurrent liabilities.

Also, under ASC Topic 740, tax positions are evaluated for recognition using a more–likely–than–not threshold, and those tax positions requiring recognition are measured at the largest amount of tax benefit that is greater than 50 percent likely of being realized upon ultimate settlement with a taxing authority that has full knowledge of all relevant information.

In accordance with current guidance, the Company has established a liability for unrecognized tax benefits, which are differences between a tax position taken or expected to be taken in a tax return and the benefit recognized and measured. Generally, a liability is created for an unrecognized tax benefit because it represents a company’s potential future obligation to a taxing authority for a tax position that was not recognized.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):

	Deferred Tax Asset			Liability For Unrecognized Tax Benefits			Liability For Interest and Penalties			Liability Total
Balance, January 1, 2017		8,023			12,965			3,337			16,302
Additions based on tax positions related to the current year		1,219			1,219			–			1,219
Additions for tax positions of prior years		342			844			865			1,709
Reductions for statute of limitation expirations		(1,682	)		(2,508	)		(927	)		(3,435	)
Revaluation due to federal tax reform		(2,854	)		–			–			–
Balance, December 31, 2017		5,048			12,520			3,275			15,795
Additions based on tax positions related to the current year		811			811			–			811
Additions for tax positions of prior years		209			388			937			1,325
Reductions for statute of limitation expirations		(505	)		(1,786	)		(941	)		(2,727	)
Balance, December 31, 2018		5,563			11,933			3,271			15,204
Additions based on tax positions related to the current year		1,418			1,418			–			1,418
Additions for tax positions of prior years		907			1,002			973			1,975
Reductions for statute of limitation expirations		(475	)		(1,604	)		(935	)		(2,539	)
Balance, December 31, 2019	$	7,413		$	12,749		$	3,309		$	16,058

During the year ended December 31, 2019, we have recognized a $1,604,000 decrease in unrecognized tax benefits and an accompanying $935,000 decrease of related interest and penalties due to the effect of statute of limitations lapse. The favorable impact on our tax provision was $2,064,000. During the years ended December 31, 2018 and 2017, the favorable impact on our tax provision due to the effect of statute of limitations lapsing was $2,222,000 and $1,753,000, respectively.

Unrecognized tax benefits of $5,829,000, net of federal benefit at December 31, 2019, attributable to permanent differences, would favorably impact our effective tax rate if recognized. We do not expect significant increases or decreases in unrecognized tax benefits within the twelve months beginning December 31, 2019, except for the effect of decreases related to the lapse of statute of limitations estimated at $2,834,000.

Interest and penalties expense related to U.S. federal and state income tax returns are included within income tax expense. Interest and penalties expense (benefit) was $38,000, $(4,000), and $(62,000) for the years ended December 31, 2019, 2018, and 2017, respectively.

The Company is no longer subject to U.S. federal and state examinations by tax authorities for years before 2016 (with few state exceptions).