INCOME TAXES

12 Months Ended

Dec. 31, 2020

Income Tax Disclosure [Abstract]

INCOME TAXES

INCOME TAXES

The following table reflects Loss before income taxes by source for the years ended December 31, 2020 and 2019 (in thousands):

	Year ended December 31,
	2020		2019
U.S.	$	(45,327)	$	(222,484)
Outside the U.S.	(186)		—
Net loss before income taxes	$	(45,513)	$	(222,484)

The following table reflects benefit provision for income taxes for the years ended December 31, 2020 and 2019 (in thousands):

	Year ended December 31,
	2020		2019
Current:
Federal	$	(9,100)	$	(1,231)
State	155		1,715
Total current taxes	$	(8,945)	$	484
Deferred:
Federal	$	(7,037)	$	(5,767)
State	(1,387)		—
Total deferred taxes	(8,424)		(5,767)
Total benefit for income taxes	$	(17,369)	$	(5,283)

The following table reflects a reconciliation of income taxes at the statutory federal income tax rate to the actual tax rate included in the Statements of Comprehensive Income for the years ended December 31, 2020 and 2019 (in thousands):

	Year ended December 31,
	2020		2019
Tax at federal statutory rate	$	(9,558)	$	(46,722)
State tax, net of federal benefit	276		(3,845)
Goodwill impairment	3,661		—
Disallowed officers' compensation	818		—
Non-deductible transaction cost	451		—
Non-deductible meals and entertainment	148		129
Stock based compensation	17		2,038
Change in valuation allowance	(13,029)		48,943
Uncertain tax provisions	(190)		(5,758)
Non-deductible other expense	37		5,837
Research credit	—		(138)
Intraperiod tax allocations	—		(5,767)
Total tax benefit	$	(17,369)	$	(5,283)

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act was enacted. The CARES ACT was a massive tax-and-spending package intended to provide additional economic relief to address the impact of the COVID-19 pandemic. The CARES Act, among other business tax provisions, included legislative changes and updates to net operating losses (NOLs), interest disallowance, and depreciation for qualified improvement property. The Company considered the income tax accounting implications from CARES Act to the Company’s income tax provision calculation for the year ended December 31, 2020. Prior to the enactment of the CARES Act, federal NOLs generated after December 31, 2017 could not be carried back to prior tax years. Upon the enactment of the CARES Act, federal NOLs generated in tax years 2018, 2019, and 2020 can now be carried back to the previous five tax years without taxable income limitation. The Company is intending to carryback the 2020 federal taxable loss to the 2018 and 2019 tax years to offset taxable income (and federal taxes paid) for those two tax years. The estimated cash tax refund is approximately $8.3 million, which should be received in 2021.

During the year ended December 31, 2020, the Company recorded an income tax benefit of $17.4 million, principally due to the carryback of the Company’s 2020 federal NOL to its 2018 and 2019 tax years under the NOL carryback provisions enacted as part of the CARES Act mentioned above and the current year reversal of valuation allowance related to the utilization of the Company’s deferred tax assets (“DTA”) to offset the deferred tax liabilities (“DTL”) of Zyla recorded through acquisition accounting.

During 2019, the Company recorded an income tax benefit of $5.3 million, principally due to the release of FASB Interpretation No. 48, Accounting for Uncertainties in Income Taxes (FIN 48) liabilities based on lapsing of statute of limitation, and tax benefits being recorded as a result of intraperiod tax allocation from the Company’s Convertible Note Exchange.

Utilization of the Company’s net operating loss and credit carryforwards may be subject to a substantial annual limitation due to ownership change limitations provided by the Internal Revenue Code of 1986 and similar state provisions. The annual limitation may result in the expiration of net operating losses and credits before utilization.

Deferred income taxes reflect the temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The following table reflects significant components of the Company’s deferred tax assets are as of December 31, 2020 and 2019 (in thousands):

	December 31,
	2020		2019
Deferred tax assets:
Net operating losses	$	81,471	$	5,885
Tax credit carryforwards	3,360		1,411
Intangible assets	—		82,582
Stock-based compensation	2,999		1,907
Operating lease liabilities	1,248		1,577
Fixed assets	1,315		—
Reserves and other accruals not currently deductible	20,652		9,729
Disallowed interest carryforward	15,496		718
Total deferred tax assets	$	126,541	$	103,809
Valuation allowance for deferred tax assets	(103,906)		(90,820)
	$	22,635	$	12,989
Deferred tax liabilities:
Intangible assets	$	(21,739)	$	—
Convertible debt	(459)		(12,247)
Fixed Assets	—		(109)
Operating lease right-of-use assets	(437)		(633)
Net deferred tax liability	$	—	$	—

During the year ended December 31, 2020, the Company recorded a valuation allowance of $103.9 million to offset, in full, the benefit related to its net deferred tax assets as of December 31, 2020 because realization of the future benefits is uncertain. The Company reviewed both positive evidence such as, but not limited to, the projected availability of future taxable income and negative evidence such as the history of cumulative losses in recent years. The Company will continue to assess the realizability of its deferred tax assets on a quarterly basis and assess whether an additional reserve or a release of the valuation allowance is required in future periods.

The valuation allowance increased $13.1 million to $103.9 million during the year ended December 31, 2020 and increased $48.9 million to $90.8 million during the year ended December 31, 2019.

As of December 31, 2020, the Company had federal NOLs of $288.1 million with no expiration and $40.1 million expiring in varying amounts from 2032 through 2036. NOL carryforwards for state income tax purposes are $181.9 million, which begin to expire in 2021. Utilization of the Company’s NOL and credit carryforwards may be subject to a substantial annual limitation due to ownership change limitations provided by the Internal Revenue Code of 1986 and similar state provisions. The annual limitation may result in the expiration of net operating losses and credits before utilization.

The Company does not have any significant federal or state tax examinations in process as of December 31, 2020. The federal and state statute of limitations remains open primarily for the 2017 through 2019 tax years. The California statute of limitations is open for the 2007 through 2019 tax years.

The following table reflects activity related to the Company’s unrecognized tax benefits for the years ended December 31, 2020 and 2019 (in thousands):

Unrecognized tax benefits—December 31, 2018	$	16,064
Increases related to current year tax positions	212
Changes in prior year tax positions	(232)
Decreases related to lapse of statutes	(12,011)
Unrecognized tax benefits—December 31, 2019	$	4,033
Increases related to current year tax positions	194
Changes in prior year tax positions	(2)
Decreases related to lapse of statutes	(124)
Unrecognized tax benefits—December 31, 2020	$	4,101

The total amount of unrecognized tax benefit that would affect the effective tax rate is $4.1 million as of December 31, 2020 and $4.0 million as of December 31, 2019.

The Company does not expect a significant change to its unrecognized tax benefits over the next twelve months. The unrecognized tax benefits may increase or change during the next year for items that arise in the ordinary course of business.