INCOME TAXES

3 Months Ended

Mar. 31, 2020

Income Tax Benefit

The Company's benefit for federal and state income taxes was as follows:



(in thousands)	Three Months Ended
	March 31,
	2020			2019

Current income tax benefit	$	—		$	(103	)
Deferred income tax benefit	(1,699		)	(1,621		)
Provision for DTA valuation allowance	2,006			—
Adjustment for DTA valuation allowance - discrete item	(1,540		)	—
Total income tax benefit	$	(1,233	)	$	(1,724	)

DTA = Deferred income tax asset

The Company's effective income tax rate for the three months ended March 31, 2020 and 2019 was 17.4% and 21.1%, respectively.

Valuation Allowance for Deferred Income Tax Assets

The Company considers all available positive and negative evidence to determine whether sufficient taxable income will be generated in the future to permit realization of the existing deferred tax assets. In accordance with the provisions of ASC 740, Income Taxes ("ASC 740"), the Company is required to provide a valuation allowance against deferred tax assets when it is "more likely than not" that some portion or all of the deferred tax assets will not be realized.

Among other provisions, the Tax Cuts and Jobs Act of 2017 amended Internal Revenue Code Section 163(j) to create limitations on the deductibility of business interest expense. Section 163(j) limits the business interest deduction to 30% of adjusted taxable income (ATI). For taxable years through 2021, the calculation of ATI closely aligns with earnings before interest, taxes, depreciation and amortization (EBITDA). Commencing in 2022, the ATI limitation more closely aligns with earnings before interest and taxes (EBIT), without adjusting for depreciation and amortization. Any business interest in excess of the annual limitation is carried forward indefinitely. In March 2020, the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") was enacted, which among other provisions, provides for the increase of the 163(j) ATI limitation from 30% to 50% for tax years 2019 and 2020.

With respect to recording a deferred tax benefit for the carryforward of business interest expense, the Company is required to apply the "more likely than not" threshold for assessing recoverability. Based on management’s assessment, the Company recorded an increase in the valuation allowance in the three months ended March 31, 2020 of $0.5 million for the business interest expense carryover comprised of (i) a discrete valuation allowance benefit of $1.5 million associated with the 2019 business interest deferred tax asset as a result of the CARES Act and (ii) a provision for the valuation allowance of $2.0 million associated with the 2020 excess business interest.

The provisions for and adjustments to the valuation allowance are a component of income tax expense (benefit) in the Company's unaudited condensed consolidated statements of operations.

The Company will continue to evaluate the realizability of the deferred tax assets on a quarterly basis and, as a result, the valuation allowance may change in future periods.

Uncertain Tax Positions

The Company recognizes the tax effects of uncertain tax positions only if such positions are more likely than not to be sustained based solely upon its technical merits at the reporting date. The Company refers to the difference between the tax benefit recognized in its financial statements and the tax benefit claimed in the income tax return as an "unrecognized tax benefit." As of March 31, 2020, the net amount of our unrecognized tax benefits was not material.

The Company is subject to U.S. federal income tax and income tax in multiple state jurisdictions. Tax periods for 2016 and all years thereafter remain open to examination by the federal and state taxing jurisdictions and tax periods for 2015 and all years thereafter remain open for certain state taxing jurisdictions to which the Company is subject.