Income Taxes

9 Months Ended

Sep. 30, 2022

Disclosure Text Block

Income Taxes

11. Income Taxes

The income tax provision during interim periods is computed by applying an estimated annual effective income tax rate to year-to-date pre-tax income, plus adjustments for significant unusual or infrequently occurring items, in accordance with ASC 740-270, Income Taxes – Interim Reporting.

During the three and the nine months ended September 30, 2022, the Company recorded income tax expense of $19.6 million and $54.0 million, respectively. Due to the Company's ability to offset its pre-tax income against net operating losses, the majority of its tax provision is expected to represent a non-cash expense until its net operating losses have been fully utilized.

During the three and nine months ended September 30, 2021, the Company recorded income tax expense of $3.8 million and income tax benefit of $332.7 million, respectively. The income tax benefit primarily pertains to the discrete income tax benefit of $335.2 million related to the release of the valuation allowance on the majority of the Company’s tax attributes and other deferred tax assets, partially offset by state income taxes in certain states which have temporarily disallowed or only partially allow the use of net operating losses to offset taxable income.

The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities. These differences are measured using the enacted statutory tax rates that are expected to be in effect for the years in which differences are expected to reverse.

On a periodic basis, the Company reassesses any valuation allowances that it maintains on its deferred tax assets, weighing positive and negative evidence to assess the recoverability of the deferred tax assets. Until the second quarter of 2021, the Company recorded a full valuation allowance against net deferred tax assets. During the three months ended June 30, 2021, the Company reassessed the valuation allowance noting the shift of positive evidence outweighing negative evidence, including: continued strong prescription demand growth of LINZESS, continued profitability of a GI focused business since completing the tax-free spin-off of Cyclerion Therapeutics Inc. on April 1, 2019, and expectations regarding future profitability. After assessing both the positive evidence and negative evidence, the Company determined it was more likely than not that it will realize the majority of its deferred tax assets and during the three months ended June 30, 2021, released the majority of its valuation allowance, as a discrete item, for the deferred tax assets that are expected to be utilized in future years. The Company maintains a valuation allowance on deferred tax assets not expected to be realized, related primarily to certain tax credits that are expected to expire prior to utilization.

In August 2022, the Inflation Reduction Act was enacted. This law amended certain sections of the Internal Revenue Code, including establishing a new corporate minimum tax. The Company does not expect these amendments to the Internal Revenue Code to have a material impact on the Company’s financial position or results of operations.