|12 Months Ended|
Dec. 31, 2017
|Income Tax Disclosure [Abstract]|
NOTE 10 — INCOME TAXES
The Company calculates its provision for federal, state and international income taxes based on current tax law. The Tax Cuts and Jobs Act of 2017 (the “Act”) was enacted on December 22, 2017, and has several key provisions impacting the accounting for, and reporting of, income taxes. Although most provisions of the Act are not effective until 2018, we are required to record the effect of a change in tax law in the period of enactment.
The Act amended the Internal Revenue Code (the “Code”) in several areas; however, given the Company’s deferred tax position and full valuation allowance, the Act did not affect our results of operations and statement of financial position as of, and for, the year ended December 31, 2017.
As a result of the changes under the Act, our provision for income taxes and effective tax rate in 2017 included a $30.6 million unfavorable impact to the Company’s gross U.S. deferred tax assets and a corresponding $30.6 million favorable impact to the valuation allowance due to the remeasurement of our U.S. deferred tax assets and liabilities at the tax rate expected to apply when temporary differences are realized.
The other key provision that requires recognition in the period of enactment is the one-time toll charge resulting from the mandatory deemed repatriation of undistributed foreign earnings and profits. As it relates to our operations, there was no impact in 2017 from the mandatory deemed repatriation as we had no net undistributed foreign earnings and profits subject to the toll charge.
On December 22, 2017, the SEC issued Staff Accounting Bulletin No. 118, which allows companies to report the income tax effects of the Act as a provisional amount based on a reasonable estimate, which would be subject to adjustment during a reasonable measurement period, not to exceed twelve months, until the accounting and analysis under ASC 740 is complete. Due to the timing of the enactment of the Act, there continues to be a significant amount of uncertainty as to the appropriate application of several underlying provisions, pending further guidance and clarification from the relevant authorities. We will continue to monitor developments in this area and adjust our estimates throughout the year in 2018, as and if necessary, as additional guidance and clarification become available.
Income tax benefit (provision) included in our reported net loss consisted of the following (in thousands):
The sources of loss from operations before income taxes were as follows (in thousands):
The differences between income taxes expected at the U.S. federal statutory income tax rate of 35% and the reported income tax benefit are summarized as follows (in thousands):
Significant components of our deferred tax assets and liabilities are as follows (in thousands):
As of December 31, 2017, the Company had net operating loss (“NOL”) carryforwards for federal, state and international income tax reporting purposes of $19.4 million, $0.5 million and $1.7 million respectively. The majority of these NOL carryforwards will expire between 2036 and 2037.
Due to our history of NOLs, current year NOLs and significant risk factors related to our ability to generate taxable income, we have established a valuation allowance to offset our deferred tax assets as of December 31, 2017, and 2016. We will continue to evaluate our ability to release the valuation allowance in the future. The increase in the valuation allowance was $24.5 million for the year ended December 31, 2017. Deferred tax assets and deferred tax liabilities are classified as non-current in our Consolidated Balance Sheets.
The Company performed a Section 382 ownership change analysis for Magellan to determine if there were any Section 382 limitations on the utilization of Magellan’s pre-Merger NOLs. Based on this analysis, the Company has determined that the Magellan pre-Merger NOL carryforwards are subject to annual Section 382 limitations. Because of these limitations, it is expected that the clear majority of Magellan’s NOL carryforwards generated prior to the Merger will expire unused.
In addition, we experienced a Section 382 ownership change on April 20, 2017. An analysis of the annual limitation on the utilization of our NOLs was performed in accordance with the Code. It was determined that Section 382 will not materially limit the use of our NOLs over the carryover period. We will continue to monitor activity in the Company’s shares which could cause an ownership change. If the Company experiences a Section 382 ownership change, it could further affect our ability to utilize our existing NOL carryforwards.
The provision for income taxes recorded in the accompanying Consolidated Financial Statements is for foreign income taxes resulting from disposition proceeds on the Company’s sale of available-for-sale securities. The taxable gain on the disposition will be included in the Company’s total profits chargeable to U.K. corporation income tax.
As of December 31, 2017, the Company determined that it has no uncertain tax positions, interest or penalties as defined within ASC 740-10. The Company does not have unrecognized tax benefits. The Company does not believe that it is reasonably possible that the total unrecognized benefits will significantly increase within the next 12 months. The Company is not currently under audit by any taxing authority. Tax returns filed with each jurisdiction remain open to examination under the normal three-year statute of limitations.
Pursuant to ASC 740-30-25-17, the Company recognizes deferred tax liabilities associated with outside basis differences on investments in foreign subsidiaries unless the difference is considered essentially permanent in duration. As of December 31, 2017, the Company has not recorded any deferred taxes on unremitted earnings as the Company has no undistributed earnings and profits. If circumstances change in the foreseeable future and it becomes apparent that some or all of the undistributed earnings and profits will not be reinvested indefinitely, or will be remitted in the foreseeable future, a deferred tax liability will be recorded for some or all of the outside basis difference.
The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.
Reference 1: http://www.xbrl.org/2003/role/presentationRef