Income Taxes

3 Months Ended

Mar. 31, 2020

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

The Company’s tax provision for interim periods is determined using an estimate of the Company’s annual effective tax rate adjusted for discrete interim period tax impacts. Each quarter the Company updates its estimated annual effective tax rate and, if the estimate changes, makes a cumulative adjustment. The Company’s effective tax rate was 132.5% and (0.9)% for the three months ended March 31, 2020 and 2019, respectively. The Company’s increased rate is primarily a result of an increase in tax expense during the period to establish a valuation allowance on deferred tax assets related to the impairment of certain investments. In addition, during the three months ended March 31 2019, the Company had a decrease in the effective rate as a result of a reduction in its reserve for uncertain tax positions with no similar event for the three months ended March 31, 2020. (Loss) income before income taxes included income from domestic operations of $(18.9) million and $2.5 million for the three months ended March 31, 2020 and 2019, respectively, and income from foreign operations of $25.5 million and $30.1 million for the three months ended March 31, 2020 and 2019, respectively.

As of March 31, 2020 and December 31, 2019, the Company had $54.1 million and $52.5 million, respectively, in liabilities for uncertain income tax positions. Accrued interest and penalties related to unrecognized tax benefits are recognized in income tax expense on the Company’s consolidated statement of operations.

Cash paid for income taxes net of refunds received was $6.6 million and $6.7 million for the three months ended March 31, 2020 and 2019, respectively.

Certain taxes are prepaid during the year and, where appropriate, included within prepaid expenses and other current assets on the condensed consolidated balance sheet. The Company’s prepaid taxes were $3.7 million and $3.7 million at March 31, 2020 and December 31, 2019, respectively.

Income Tax Audits:

The Company is in various stages of audit by the U.S. Internal Revenue Service (“IRS”) for its 2012 through 2016 tax years. As of March 31, 2020, the audits are ongoing.

        J2 Global is under income tax audit by the California Franchise Tax Board (the “FTB”) for its tax years 2012 and 2013. The FTB, however, has suspended its audit for 2012 and 2013 pending the outcome of the IRS audit for such tax years. In August 2018, the FTB notified the Company that it will commence an audit of tax years 2015 and 2016. As of March 31, 2020, the audits are ongoing.

In June 2019, the New York State Department of Taxation and Finance (“NYS”) notified the Company that it will commence an audit for tax year 2015. As of March 31, 2020, the audit is ongoing.

It is reasonably possible that these audits may conclude in the next 12 months and that the uncertain tax positions the Company has recorded in relation to these tax years may change compared to the liabilities recorded for these periods. If the recorded uncertain tax positions are inadequate to cover the associated tax liabilities, the Company would be required to record additional tax expense in the relevant period, which could be material. If the recorded uncertain tax positions are adequate to

cover the associated tax liabilities, the Company would be required to record any excess as a reduction in tax expense in the relevant period, which could be material. However, it is not currently possible to estimate the amount, if any, of such change.