|9 Months Ended|
Sep. 30, 2019
|Income Tax Disclosure [Abstract]|
|INCOME TAXES||INCOME TAXES
The effective income tax rate for the three and nine months ended September 30, 2019 was impacted by recording the effect of the Tax Cuts and Jobs Act (the “Tax Act”) enacted on December 22, 2017 by the U.S. government, which makes broad and complex changes to the Internal Revenue Code of 1986, as amended.
On December 22, 2017, the Securities and Exchange Commission staff issued Staff Accounting Bulletin No. 118 (“SAB 118”), which provides guidance on accounting for tax effects of the Tax Act. SAB 118 provided a measurement period that should not extend beyond one year from the Tax Act enactment date for companies to complete the accounting under ASC 740, Income Taxes. In accordance with the expiration of the SAB 118 measurement period, we completed the assessment of the income tax effect of the Tax Act for the year ended December 31, 2017 in the fourth quarter of tax year 2018. All adjustments recorded to the provisional amounts have been included as an adjustment to income tax expense.
As a result of the Tax Act, the Company could be subject to additional income tax expense due to the Global Intangible Low Taxed Income inclusion on current net income of greater than 10% owned controlled foreign corporations (“GILTI”). To determine the amount of GILTI inclusion, the Company must determine, in addition to other factors, the current earnings of controlled foreign corporations, as well as the amount of foreign taxes paid by the foreign entities. The law provides that corporate taxpayers may benefit from a 50% reduction in the GILTI inclusion which effectively reduces the 21% U.S. corporate tax rate on the foreign income to an effective rate of 10.5%. The 50% reduction, however, is limited if the U.S. shareholder has current domestic losses or is utilizing net operating losses. The GILTI inclusion further provides for a foreign tax credit in connection with the foreign taxes paid. The Company is not expected to have any GILTI inclusion for the year ended December 31, 2019.
As of September 30, 2019, the Company does not have a valuation allowance against its U.S. deferred tax assets. The Company analyzed all sources of available income and determined that they are more likely than not to realize the tax benefits of their deferred assets. As of September 30, 2019, any attributes generated from a U.S. federal net operating loss for the year ended December 31, 2019 are expected to be fully utilized.
As of September 30, 2019, the Company has a valuation allowance against certain foreign deferred tax assets. The Company is recording a valuation allowance in foreign jurisdictions with an overall net operating loss. The valuation allowance will be reduced at such time as management believes it is more likely than not that the deferred tax assets will be realized. Any reductions in the valuation allowance will reduce future income tax provision. At December 31, 2018, the Company had foreign net operating loss carryforwards of approximately $1.2 million in various jurisdictions with various expirations.
As a result of capital return activities, the Company determined that a portion of its current undistributed foreign earnings is no longer deemed reinvested indefinitely by its non-U.S. subsidiaries. For state income tax purposes, the Company will continue to periodically reassess the needs of its foreign subsidiaries and update its indefinite reinvestment assertion as necessary. To the extent that additional foreign earnings are not deemed permanently reinvested, the Company expects to recognize additional income tax provision at the applicable state corporate income tax rate. As of September 30, 2019, the Company has recorded a state deferred tax liability for earnings that the Company plans to repatriate out of accumulated earnings in future periods. Due to the Tax Act, repatriation from foreign subsidiaries will be offset with a dividends received deduction, resulting in little to no impact on federal tax expense. All undistributed earnings in excess of 50% of current earnings on an annual basis are intended to be reinvested indefinitely as of September 30, 2019. During 2019, a loan was issued by the Company to one of its controlled foreign corporations that exceeded 50% of current earnings. This transaction is tax-free for federal income tax purposes and the state tax impact is insignificant to the consolidated financial statements.
The Company and its subsidiaries file tax returns in the United States, California, New Jersey and Texas and various foreign jurisdictions. During the fourth quarter of 2018, the Company was notified that it was selected for audit of the 2016 tax year by the U.S. Internal Revenue Service. For purposes of this audit, fiscal years 2007 through 2016 are open for examination by tax authorities as a result of net operating loss carryovers from older years being used to offset income in recent tax years. No adjustments have been proposed at this time. The Company is no longer subject to state income tax examinations for years prior to 2014. No other jurisdictions are currently examining any income tax returns of the Company.
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://fasb.org/us-gaap/role/ref/legacyRef