Tellurian Inc. Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

Income Taxes

Income Taxes

12 Months Ended

Dec. 31, 2018

Income Tax Disclosure [Abstract]

Income Taxes

NOTE 11 — INCOME TAXES

Income tax benefit (provision) included in our reported net loss consisted of the following (in thousands):



	Year Ended December 31,
	2018		2017			2016
Current:
Federal	$	—	$	—		$	—
State	—		—			(4		)
Foreign	190		(185		)	—
Total Current	190		(185		)	(4		)
Deferred:
Federal	—		—			170
State	—		—			—
Foreign	—		—			—
Total Deferred	—		—			170
Total income tax benefit (provision)	$	190	$	(185	)	$	166

The sources of loss from operations before income taxes were as follows (in thousands):



	Year Ended December 31,
	2018			2017			2016
Domestic	$	(115,137	)	$	(223,991	)	$	(95,739	)
Foreign	(10,798		)	(7,283		)	(1,082		)
Total loss before income taxes	$	(125,935	)	$	(231,274	)	$	(96,821	)

The reconciliation of the federal statutory income tax rate to our effective income tax rate is as follows:



	Year Ended December 31,
	2018			2017			2016
Income tax benefit (provision) at U.S. statutory rate	$	26,446		$	80,946		$	33,887
Share-based compensation	—			—			(5,911		)
Impairment	—			(27,969		)	—
Change in U.S. tax rate	—			(30,562		)	—
Change in valuation allowance due to change in U.S. tax rate	—			30,562			—
U.S. state tax	7,955			—			—
Change in valuation allowance	(32,086		)	(51,030		)	(26,398		)
Other	(2,125		)	(2,132		)	(1,412		)
Total income tax benefit (provision)	$	190		$	(185	)	$	166

Significant components of our deferred tax assets and liabilities are as follows (in thousands):



	December 31,
	2018			2017
Deferred tax assets:
Capitalized engineering costs	$	6,353		$	2,812
Capitalized start-up costs	19,290			17,881
Compensation and benefits	3,862			5,465
Net operating loss carryforwards and credits:
Federal	37,822			19,423
State	4,979			522
Foreign	2,392			1,694
Other, net	8,328			3,541
Deferred tax assets	83,026			51,338
Less valuation allowance	(83,026		)	(50,942		)
Deferred tax assets, net of valuation allowance	—			396

Deferred tax liabilities	—			(396		)
Net deferred tax assets	$	—		$	—

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. 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. We incorporated the impact of the Tax Act in our results of operations and calculated provisional amounts for the tax effects of the Tax Act that could be reasonably estimated. At December 31, 2017, we recorded a $30.6 million unfavorable impact on the Company’s gross U.S. deferred tax assets and a corresponding $30.6 million favorable impact to the valuation allowance. We have not recorded an adjustment to these amounts. As of December 31, 2018, our accounting for the impact of the Tax Act was complete.

As of December 31, 2018, we had federal, state and international net operating loss (“NOL”) carryforwards of $180.1 million, $113.7 million and $13.6 million, respectively. Approximately $88.4 million of these NOLs have an indefinite carryforward period. All other NOLs will expire between 2036 and 2037.

Due to our historical losses and other available evidence related to our ability to generate taxable income, we have established a valuation allowance to fully offset our federal, state and international deferred tax assets as of December 31, 2018, and 2017. We will continue to evaluate the realizability of our deferred tax assets in the future. The increase in the valuation allowance was $32.1 million for the year ended December 31, 2018.

In addition, we experienced a Section 382 ownership change in April 2017. An analysis of the annual limitation on the utilization of our NOLs was performed in accordance with IRC Section 382. It was determined that IRC Section 382 will not materially limit the use of our NOLs over the carryover period. We will continue to monitor trading activity in our shares which could cause an additional ownership change. If the Company experiences a Section 382 ownership change, it could further affect our ability to utilize our existing NOL carryforwards.

As of December 31, 2018, 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.

We are subject to tax in the U.S. and various state and foreign jurisdictions. We are not currently under audit by any taxing authority. Federal and state 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, 2018, 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.