Income Taxes

6 Months Ended

Apr. 30, 2020

Income Tax Disclosure [Abstract]

Schedule of Components of Income Tax Expense (Benefit) [Table Text Block]

Income TaxesThe provision for income taxes for the three months ended July 31, 2020 was a benefit of $591 on a loss before income taxes of $137,725 for a consolidated effective tax rate of 0.4%. The provision for income taxes for the nine months ended July 31, 2020 was an expense of $1,650 on a loss before income taxes of $197,872 for a consolidated effective tax rate of 0.8%. The year-to-date expense was calculated using one single effective tax rate for tax jurisdictions not subject to a valuation allowance, applied to the year-to-date ordinary income/(loss). Tax effects of significant, unusual or infrequently occurring items

are excluded from the annual effective rate calculation and recognized in the period in which they occur. For the nine months ended July 31, 2020, the valuation allowance adjustments resulted in a negative impact of 28.1% to the effective tax rate.

        The provision for income taxes for the three months ended July 31, 2019 was a benefit of $973 on a loss before income taxes of $3,682 for a consolidated effective tax rate of 26.4%. The provision for income taxes for the nine months ended July 31, 2019 was a benefit of $2,612 on a loss before income taxes of $8,907 for a consolidated effective tax rate of 29.3%. The year-to-date benefit was calculated using the year-to-date loss, considering non-taxable and non-deductible items expected to be incurred for the full year multiplied by the statutory rate. This methodology is required by ASC 740, Income Taxes, as the use of an estimated annual effective rate would not be reliable.

On March 27, 2020, the CARES Act was enacted and signed into law. The CARES Act, among other things, permits NOL carryovers and carrybacks to offset 100% of taxable income for taxable years beginning before 2021. In addition, the CARES Act allows NOLs incurred in 2018, 2019, and 2020 to be carried back to each of the five preceding taxable years to generate a refund of previously paid income taxes. The Company continues to examine the impact of the CARES Act to our business and the extent to which we will benefit from the tax provisions in the CARES Act. The CARES Act also contains modifications on the limitation of business interest expense for tax years beginning in 2019 and 2020. The change in the interest expense limitation pursuant to the CARES Act will not have an impact to the third quarter of 2020, other than an increase in the net operating loss deferred tax assets in the U.S. on which a full valuation allowance has been established.

        The U.S. Internal Revenue Service has proposed disallowances of a portion of fiscal years 2012 and 2013 U.S. R&D credits claimed. We have reached agreement with the U.S. Internal Revenue Service and are close to a settlement of the litigation for 2012 and 2013. The U.S. Internal Revenue Service has also been auditing fiscal years 2014 and 2015 and has proposed disallowances of the U.S. R&D credits claimed on 2014 and 2015 federal income tax returns. We have reached an agreement on the audited R&D credits and are bringing the audits to a close. The Company considers these positions to be effectively settled and does not expect the settlement of litigation and audits to materially impact our results of operations, financial position or cash flows. For remaining open tax years through fiscal year 2020, the total amounts related to the unreserved portion of the tax contingency, inclusive of any related interest, amounts to approximately $7,000, of which the majority has been assessed by management as being remote as to the likelihood of ultimately resulting in a loss to the Company. We routinely assess tax matters as to the probability of incurring a loss and record our best estimate of the ultimate loss in situations where we assess the likelihood of an ultimate loss as probable.