NOTE 16 – INCOME TAXES

The provision for (benefit from) income taxes consists of the following:


	For the Year Ended December 31,
	2018		2017		2016
	(in thousands)
Federal:
Current provision	$	-	$	-	$	(111)
Deferred provision		(1,512)		(131,344)		10,145
		(1,512)		(131,344)		10,034
Foreign:
Current provision		84		134		206
Deferred provision		-		-		-
		84		134		206
State:
Current provision		19		-		(519)
Deferred provision		715		(1,325)		(564)
		734		(1,325)		(1,083)
(Benefit from) provision for income taxes	$	(694)	$	(132,535)	$	9,157

The difference between the provision for (benefit from) income taxes and the expected income tax provision determined by applying the statutory federal and state income tax rates to pre-tax income are as follows:


	For the Year Ended December 31,
	2018		2017		2016
Federal statutory rate	21.0	%	35.0	%	35.0	%
State taxes, net of federal tax benefit	3.4		0.1		0.2
Goodwill impairment	—		(33.9)		—
Non-deductible transaction costs	—		—		0.7
Noncontrolling interest	20.4		0.6		(16.5)
Valuation allowance	(17.9)		29.5		43.2
Nondeductible compensation	(13.9)		(0.1)		2.2
Foreign taxes	(1.2)		(0.1)		1.3
Other	2.4		(0.7)		1.1
Tax Cuts and Jobs Act	—		11.8		—
Change in state tax rates	(2.0)		—		(5.5)
FIN 48 reversal	—		—		(3.7)
	12.2	%	42.2	%	58.0	%

The Tax Cuts and Jobs Act

On December 22, 2017, the U.S. enacted the Tax Cuts and Jobs Act (“Tax Act”) that instituted fundamental changes to the taxation of multinational corporations. The Tax Act includes changes to the taxation of foreign earnings by implementing a dividend exemption system, expansion of the current anti-deferral rules, a minimum tax on low-taxed foreign earnings and new measures to deter base erosion. The Tax Act also includes a permanent reduction in the corporate tax rate to 21%, repeal of the corporate alternative minimum tax, expensing of capital investment, and limitation of the deduction for interest expense. Furthermore, as part of the transition to the new tax system, a one-time transition tax is imposed on a U.S. shareholder’s historical undistributed earnings of foreign affiliates. Although the Tax Act was generally effective as of January 1, 2018, GAAP required recognition of the tax effects of new legislation during the reporting period that included the enactment date, which was December 22, 2017.

In response to the Tax Act, the U.S. Securities and Exchange Commission (“SEC”) provided guidance by issuing Staff Accounting Bulletin No. 118 (“SAB 118”). SAB 118 allowed companies to record provisional amounts during a measurement period with respect to the impacts of the Tax Act for which the accounting requirements under ASC Topic 740 are not complete, but a reasonable estimate has been determined. The measurement period ends when a company has obtained, prepared and analyzed the information that was needed in order to complete the accounting requirements under ASC Topic 740, but cannot exceed one year.

As of December 31, 2018, the Company has completed the accounting for the effects of the Tax Act and determined that no further adjustments were required.

The components of the Company’s consolidated deferred income tax balances as of December 31, 2018 and 2017 are as follows:


	December 31,
	2018		2017
	(in thousands)
Deferred income tax assets
Net operating loss carryforwards	$	51,042	$	54,909
Capital loss carryforwards		4,417		1,885
Intangible assets - finite life		3,261		6,809
Stock-based compensation		439		716
Property and equipment		3,649		3,587
Deferred rent		799		(64)
Credits carryforward		1,281		2,274
Deferred revenue		2,755		2,973
Deferred interest expense		8,644		-
Deferred compensation		1,053		1,772
Other		3,585		1,187
		80,925		76,048
Deferred income tax liability - long-term
Intangible assets - Indefinite-lived		(130,818)		(126,443)
		(130,818)		(126,443)
Less: Valuation Allowance		(17,109)		(17,404)
Net deferred income tax liability - long-term	$	(67,002)	$	(67,799)

Deferred income taxes arise principally from net operating loss (“NOL”) carryforwards and intangible asset deferred tax assets and liabilities. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred income tax assets will not be realized. The ultimate realization of deferred income tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred income tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. Based on consideration of these items and new tax provisions under the Tax Act, primarily the new limitation on interest expense deductions, management determined that enough certainty existed to warrant the release of the valuation allowance recorded against substantially all the Company’s deferred tax assets as of December 31, 2017. As of December 31, 2018 and 2017, a valuation allowance of $17.1 million and $17.4 million, respectively, has been recognized for deferred income taxes that may not be realized by the Company in future periods. The valuation allowance at December 31, 2018 primarily relates to state net operating losses and capital loss carryforwards.

The Company has federal NOLs available to carryforward to future periods of $188.9 million as of December 31, 2018 which begin expiring in 2024. The Company has state NOLs available to carryforward to future periods of $208.2 million as of December 31, 2018 which begin expiring in 2019. The Company has foreign tax credits available to carryforward to future periods of $0.6 million as of December 31, 2018 which began expiring in 2019. The Company has experienced several changes of ownership under Section 382 of the Internal Revenue Code of 1986, as amended (the “Code”), which places various limitations on the NOLs. The limitations on NOLs are based upon a formula provided under Section 382 of the Code that is based on the fair market value of the Company and prevailing interest rates at the time of the ownership change. An “ownership change” is generally a 50% increase in ownership over a three-year period by stockholders who directly or indirectly own at least five percent of a company’s stock. The limitations on the use of the NOLs under Section 382 could affect the Company’s ability to offset future taxable income.

The Company currently files U.S. federal tax returns and various state tax returns. Tax years that remain open for assessment for federal and state purposes include years ended December 31, 2015 through December 31, 2018.

The Company recognizes interest and penalties related to unrecognized tax benefits in the tax provision. The Company has no unrecognized tax benefits at December 31, 2018 and 2017.