Note 11 - Income Taxes

12 Months Ended

Dec. 31, 2023

Notes to Financial Statements

Income Tax Disclosure [Text Block]

Note 11 Income Taxes

We operate and are required to file tax returns in the U.S. and various foreign jurisdictions.

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

	For the years ended December 31,
(In thousands)	2023			2022			2021
Current
Federal	$	(487	)	$	—		$	—
State		946			(394	)		(2,536	)
Foreign		(4,750	)		(10,512	)		(2,794	)
		(4,291	)		(10,906	)		(5,330	)
Deferred
Federal		(52	)		40,750			(10,901	)
State		298			12,078			1,280
Foreign		(392	)		21,577			(538	)
		(146	)		74,405			(10,159	)
Total, net	$	(4,437	)	$	63,499		$	(15,489	)

Deferred income tax assets and liabilities as of December 31, 2023 and 2022 were comprised of the following:

(In thousands)	December 31, 2023			December 31, 2022
Deferred income tax assets:
Federal net operating loss	$	70,779		$	68,022
State net operating loss		59,650			55,134
Foreign net operating loss		13,315			16,947
Research and development expense		21,431			14,349
Tax credits		20,827			22,488
Stock options		30,431			33,558
Accruals		4,743			2,724
Equity investments		25,718			17,309
Bad debts		348			265
Lease liability		1,578			1,842
Foreign credits		9,653			9,629
Available-for-sale securities		2,642			2,649
Operating lease asset		17,141			10,919
Fixed assets		318			—
Investment in subsidiaries		—			3,659
Other		3,558			5,263
Deferred income tax assets		282,132			264,757
Deferred income tax liabilities:
Intangible assets		(91,020	)		(94,856	)
Operating lease liability		(16,773	)		(10,675	)
Fixed assets		—			(180	)
Other		(3,067	)		(3,097	)
Deferred income tax liabilities		(110,860	)		(108,808	)
Net deferred income tax assets		171,272			155,949
Valuation allowance		(294,563	)		(279,212	)
Net deferred income tax assets (liabilities)	$	(123,291	)	$	(123,263	)

Note: Net deferred income tax liability balances at December 31, 2023 and 2022 include $3.5 million and $3.2 million, respectively, recorded to Other assets on the Consolidated Balance Sheets.

As of December 31, 2023, we have federal, state and foreign net operating loss carryforwards of approximately $430.2 million, $797.3 million and $49.9 million, respectively, that expire at various dates through 2039 unless indefinite in nature. As of December 31, 2023, we have research and development tax credit carryforwards of approximately $20.8 million that expire in varying amounts through 2041. As of each reporting date, management considers new evidence, both positive and negative, that could affect its view of the future realization of deferred tax assets. We have determined a valuation allowance is required against all of our net deferred tax assets that we do not expect to be utilized by the reversing of deferred income tax liabilities.

Under Section 382 of the Internal Revenue Code of 1986, as amended, certain significant changes in ownership may restrict the future utilization of our income tax loss carryforwards and income tax credit carryforwards in the U.S. The annual limitation is equal to the value of our stock immediately before the ownership change, multiplied by the long-term tax-exempt rate (i.e., the highest of the adjusted federal long-term rates in effect for any month in the three-calendar-month period ending with the calendar month in which the change date occurs). This limitation may be increased under the IRC Section 338 Approach (IRS approved methodology for determining recognized Built-In Gain). As a result, federal net operating losses and tax credits may expire before we are able to fully utilize them.

During 2008, we conducted a study to determine the impact of the various ownership changes that occurred during 2007 and 2008. As a result, we have concluded that the annual utilization of our net operating loss carryforwards (“NOLs”) and tax credits is subject to a limitation pursuant to Internal Revenue Code Section 382. Under the tax law, such NOLs and tax credits are subject to expiration from 15 to 20 years after they were generated. As a result of the annual limitation that may be imposed on such tax attributes and the statutory expiration period, some of these tax attributes may expire prior to our being able to use them. There is no current impact on these financial statements as a result of the annual limitation. This study did not conclude whether OPKO’s predecessor, eXegenics, Inc., pre-merger NOLs were limited under Section 382. As such, of the $430.2 million of federal net operating loss carryforwards, at least approximately $23.3 million may not be able to be utilized.

During 2020, we conducted a study to determine whether any ownership changes occurred from 2009 through 2020. In 2023, the study has been updated and we have concluded that the annual utilization of our NOLs and tax credits is not subject to a limitation pursuant to Internal Revenue Code Section 382.

We file federal income tax returns in the U.S. and various foreign jurisdictions, as well as with various U.S. states and the Ontario and Nova Scotia provinces in Canada. We are subject to routine tax audits in all jurisdictions for which we file tax returns. Tax audits by their very nature are often complex and can require several years to complete. It is reasonably possible that some audits will close within the next twelve months, which we do not believe would result in a material change to our accrued uncertain tax positions.

U.S. Federal: Under the tax statute of limitations applicable to the Internal Revenue Code, we are no longer subject to U.S. federal income tax examinations by the Internal Revenue Service for years before 2020. However, because we are carrying forward income tax attributes, such as net operating losses and tax credits from those years, these attributes can still be audited when utilized on returns filed in the future.

State: Under the statute of limitations applicable to most state income tax laws, we are no longer subject to state income tax examinations by tax authorities for years before 2019 in states in which we have filed income tax returns. Certain states may take the position that we are subject to income tax in such states even though we have not filed income tax returns in such states and, depending on the varying state income tax statutes and administrative practices, the statute of limitations in such states may extend to years before 2019.

Foreign: Under the statute of limitations applicable to our foreign operations, we are generally no longer subject to tax examination for years before 2018 in jurisdictions where we have filed income tax returns.

Tax Cuts and Jobs Act

On December 22, 2017, the 2017 Tax Act was enacted into law and the new legislation contains several key tax provisions, including a reduction of the corporate income tax rate from 35% to 21% effective January 1, 2018 and a one-time mandatory transition tax on accumulated foreign earnings, among others. We were required to recognize the effect of the tax law changes in the period of enactment, such as remeasuring our U.S. deferred tax assets and liabilities, as well as reassessing the net realizability of our deferred tax assets and liabilities.

Effective January 1, 2018, the Tax Act provides for a new Global Intangible Low Taxed Income provision (“GILTI”). Under the GILTI provision, certain foreign subsidiary earnings in excess of an allowable return on the foreign subsidiary’s tangible assets are included in U.S. taxable income. The Company has not recorded any deferred taxes for future GILTI inclusions as any future inclusions are expected to be treated as a period expense and offset by net operating loss carryforwards in the U.S.

Unrecognized Tax Benefits

As of December 31, 2023, 2022, and 2021, the total amount of gross unrecognized tax benefits was approximately $16.9 million, $14.8 million, and $11.5 million, respectively. As of December 31, 2023, the total amount of unrecognized tax benefits that, if recognized, would affect our effective income tax rate was $(10.5) million. We account for any applicable interest and penalties on uncertain tax positions as a component of income tax expense and we recognized $0.1 million and $0.0 million of interest expense for the years ended December 31, 2023 and 2022, respectively. As of December 31, 2022 and 2021, $(10.8) million and $(7.9) million of the unrecognized tax benefits, if recognized, would have affected our effective income tax rate. We do not expect any unrecognized tax benefits will be recognized within the next twelve months.

The following summarizes the changes in our gross unrecognized income tax benefits.

	For the years ended December 31,
(In thousands)	2023			2022
Unrecognized tax benefits at beginning of period	$	14,843		$	11,497
Gross increases – tax positions in current period		3,991			3,713
Gross decreases – tax positions in prior period		(348	)		(271	)
Settlements		(1,360	)		—
Lapse of Statute of Limitations		(195	)		(96	)
Unrecognized tax benefits at end of period	$	16,931		$	14,843

Other Income Tax Disclosures

The significant elements contributing to the difference between the federal statutory tax rate and the effective tax rate are as follows:

	For the years ended December 31,
	2023			2022			2021
Federal statutory rate		21.0	%		21.0	%		21.0	%
State income taxes, net of federal benefit		4.7	%		4.0	%		(7.9	)%
Foreign income tax		(2.5	)%		(2.0	)%		21.6	%
Income Tax Refunds		(0.4	)%		—	%		6.1	%
Research and development tax credits		0.7	%		0.2	%		2.3	%
GeneDx Disposition		—	%		0.8	%		—	%
Valuation allowance		(7.0	)%		(6.3	)%		235.4	%
Rate change effect		0.4	%		5.2	%		(40.5	)%
Non-deductible items		(0.6	)%		0.6	%		(67.0	)%
Unrecognized tax benefits		0.7	%		(0.7	)%		11.3	%
GILTI		(14.8	)%		(4.9	)%		—	%
Stock options excess tax benefit, cancellations & expirations		(2.3	)%		(0.3	)%		(3.8	)%
Imputed interest		(0.8	)%		(0.4	)%		(6.3	)%
Investment in subsidiaries		—	%		—	%		(287.6	)%
Tax on deemed dividend		—	%		(1.0	)%		—	%
True-Up to Adjustments		(2.3	)%		—	%		—	%
Other		0.8	%		—	%		9.7	%
Total		(2.4	)%		16.2	%		(105.7	)%

Certain operations in Israel have been granted "Beneficiary Enterprise" status by the Israeli Income Tax Authority, which makes us eligible for tax benefits under the Israeli Law for Encouragement of Capital Investments, 1959. Under the terms of the Beneficiary Enterprise program, beneficiary income that is attributable to our operations in Kiryat Gat, Israel will be exempt from income tax through 2023. The impact of the tax holiday on a per share basis for the year ended December 31, 2023 was a benefit of $0.00 per share.

The following table reconciles our income (loss) before income taxes between U.S. and foreign jurisdictions:

	For the years ended December 31,
(In thousands)	2023			2022			2021
Pre-tax income (loss):
U.S.	$	(198,394	)	$	(389,439	)	$	(2,965	)
Foreign		13,968			(2,465	)		(11,689	)
Total	$	(184,426	)	$	(391,904	)	$	(14,654	)

In 2021, we revised our position regarding unrepatriated foreign earnings to a partially reinvested assertion. We assert that all foreign earnings will be indefinitely reinvested, with the exception of certain foreign investments in which earnings and cash generation are in excess of local needs. With the passage of the Tax Act, dividends of earnings from non-U.S. operations are generally no longer subject to U.S. income tax. We continue to analyze and adjust the estimated impact of the non-U.S. income and withholding tax liabilities based on the source of these earnings, as well as the expected means through which those earnings may be taxed. We maintain an accrued withholding tax estimate of $1.1 million related to earnings that are not deemed to be permanently reinvested.