Income Taxes

9 Months Ended

Aug. 31, 2019

Income Tax Expense. Our income tax expense and effective tax rates were as follows (dollars in thousands):



	Three Months Ended August 31,						Nine Months Ended August 31,
	2019			2018			2019			2018
Income tax expense	$	23,800		$	27,200		$	37,600		$	165,500
Effective tax rate	25.9		%	23.7		%	20.5		%	69.2		%

Our income tax expense and effective tax rate for the three months ended August 31, 2018, included the favorable impacts of $3.0 million of federal energy tax credits that we earned from building energy-efficient homes and $.6 million of excess tax benefits related to stock-based compensation. There were no such impacts included in our income tax expense for the three months ended August 31, 2019.

For the nine months ended August 31, 2019, our income tax expense and effective tax rate included the favorable impacts of $4.3 million of federal energy tax credits, a $3.3 million reversal of a deferred tax asset valuation allowance and $2.9 million of excess tax benefits related to stock-based compensation. Our income tax expense and effective tax rate for the nine months ended August 31, 2018 included a non-cash charge of $111.2 million for the estimated impacts of the TCJA. Of the total charge, $107.9 million related to the accounting re-measurement of our deferred tax assets based on the reduction in the federal corporate income tax rate from 35% to 21%, effective January 1, 2018, under the TCJA. The remaining $3.3 million was due to our establishing a federal deferred tax asset valuation allowance for the sequestration of refundable alternative minimum tax (“AMT”) credits. Our income tax expense and effective tax rate for the nine months ended August 31, 2018 also reflected the favorable impacts of $7.2 million of federal energy tax credits and $3.0 million of excess tax benefits related to stock-based compensation.

Deferred Tax Asset Valuation Allowance. We evaluate our deferred tax assets quarterly to determine if adjustments to our valuation allowance are required based on the consideration of all available positive and negative evidence using a “more likely than not” standard with respect to whether deferred tax assets will be realized. Our evaluation considers, among other factors, our historical operating results, our expectation of future profitability, the duration of the applicable statutory carryforward periods, and conditions in the housing market and the broader economy. The ultimate realization of our deferred tax assets depends primarily on our ability to generate future taxable income during the periods in which the related deferred tax assets become deductible. The value of our deferred tax assets depends on applicable income tax rates.

Our deferred tax assets of $422.3 million as of August 31, 2019 and $465.4 million as of November 30, 2018 were partly offset by valuation allowances of $20.2 million and $23.6 million, respectively. The decrease in the valuation allowance

during the nine months ended August 31, 2019 primarily reflected our reversal of the above-mentioned $3.3 million federal deferred tax asset valuation allowance due to the Internal Revenue Service’s announcement in January 2019 that refundable AMT credits will not be subject to sequestration for taxable years beginning after December 31, 2017. The deferred tax asset valuation allowances as of August 31, 2019 and November 30, 2018 were primarily related to certain state net operating losses (“NOLs”) that had not met the “more likely than not” realization standard at those dates. Based on our evaluation of our deferred tax assets as of August 31, 2019, we determined that most of our deferred tax assets would be realized. Therefore, other than the $3.3 million reversal discussed above, no significant adjustments to our deferred tax valuation allowance were needed for the nine months ended August 31, 2019.

We will continue to evaluate both the positive and negative evidence on a quarterly basis in determining the need for a valuation allowance with respect to our deferred tax assets. The accounting for deferred tax assets is based upon estimates of future results. Changes in positive and negative evidence, including differences between estimated and actual results, could result in changes in the valuation of our deferred tax assets that could have a material impact on our consolidated financial statements. Changes in existing federal and state tax laws and corporate income tax rates could also affect actual tax results and the realization of deferred tax assets over time.

Unrecognized Tax Benefits. As of August 31, 2019 and November 30, 2018, we had no gross unrecognized tax benefits (including interest and penalties). The fiscal years ending 2016 and later remain open to federal examinations, while 2014 and later remain open to state examinations.