Annual report pursuant to Section 13 and 15(d)

Income Taxes

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Income Taxes
12 Months Ended
Dec. 31, 2019
Income Tax Disclosure [Abstract]  
Income Taxes Income Taxes
The Company accounts for income taxes using the asset and liability method. Under the asset and liability method, deferred taxes are determined based on differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax laws that will be in effect when the differences are expected to reverse.
 Significant components of the Company’s deferred tax assets and liabilities as of December 31, 2019 and 2018 were as follows (amounts in thousands):
 
 
2019
 
2018
Deferred tax assets:
 
 
 
 
Allowance for uncollectible accounts
 
$
8,181

 
$
8,645

Accrued employee benefits
 
7,404

 
6,038

Stock compensation
 
2,037

 
2,322

Accrued self-insurance
 
6,688

 
8,656

Acquisition costs
 
1,569

 
1,413

Net operating loss carry forward
 
6,661

 
9,147

Intangible asset impairment
 
14

 
18

Lease payable
 
24,751

 

Other
 
332

 
1,021

Gross deferred tax assets
 
57,637

 
37,260

Less: valuation allowance
 
(3,850
)
 
(3,574
)
Net deferred tax assets
 
$
53,787

 
$
33,686

Deferred tax liabilities:
 
 
 
 
Amortization of intangible assets
 
(73,512
)
 
(64,001
)
Tax depreciation in excess of book depreciation
 
(9,247
)
 
(7,693
)
Prepaid expenses
 
(1,287
)
 
(1,134
)
Non-accrual experience accounting method
 
(1,468
)
 
(602
)
Right of use asset
 
(24,044
)
 

Other
 
(4,727
)
 
(3,562
)
Deferred tax liabilities
 
(114,285
)
 
(76,992
)
Net deferred tax liability
 
$
(60,498
)
 
$
(43,306
)

Based on the Company’s historical pattern of taxable income, the Company believes it will produce sufficient income in the future to realize its deferred income tax assets. Management provides a valuation allowance for any net deferred tax assets when it is more likely than not that a portion of such net deferred tax assets will not be recovered.
The components of the Company’s income tax expense from continuing operations, less noncontrolling interest, were as follows (amounts in thousands):
 
 
2019
 
2018
 
2017
Current:
 
 
 
 
 
 
Federal
 
$
4,678

 
$
892

 
$
12,798

State
 
3,528

 
3,382

 
2,621

 
 
8,206

 
4,274

 
15,419

Deferred:
 
 
 
 
 
 
Federal
 
14,549

 
15,383

 
(6,273
)
State
 
3,852

 
2,742

 
1,798

 
 
18,401

 
18,125

 
(4,475
)
Total income tax expense
 
$
26,607

 
$
22,399

 
$
10,944



A reconciliation of the difference between the federal statutory tax rate and the Company's effective tax rate for income taxes for each period is as follows:
 
 
2019
 
2018
 
2017
Federal statutory tax rate
 
21.0
 %
 
21.0
 %
 
35.0
 %
State income taxes, net of federal benefit
 
4.8

 
5.7

 
4.4

Nondeductible expenses
 
1.8

 
2.6

 
3.2

Uncertain tax position
 
(0.9
)
 
(1.3
)
 

Tax Cut and Jobs Act Enactment
 

 

 
(22.9
)
Excess tax benefit
 
(2.5
)
 
(2.6
)
 
(1.6
)
Credits and other
 
(2.5
)
 
0.7

 
(0.1
)
Effective tax rate
 
21.7
 %
 
26.1
 %
 
18.0
 %

The Company is subject to both federal tax and state income tax for jurisdictions within which it operates. Within these jurisdictions, the Company is open to examination for tax years ended after December 31, 2014.
As of December 31, 2019, the Company has U.S. operating loss carry forwards of $6.2 million that are available to reduce future taxable income. If not used to offset taxable income, a portion of these losses will expire between 2031 and 2034. Losses generated in years ending after December 31, 2017 have an unlimited carryforward under the Tax Cut and Jobs Act. Due to U.S. limitations on acquired operating losses, a valuation allowance has been established on $1.6 million of these losses.
State operating loss carryforwards totaling $102.0 million at December 31, 2019 are being carried forward in jurisdictions where the Company is permitted to use tax losses from prior periods to reduce future taxable income. If not used to offset future taxable income, these losses will expire between 2020 and 2039. Due to uncertainty regarding the Company's ability to use some of the carryforwards, a valuation allowance has been established on $58.6 million of state net operating loss carryforwards. Based on the Company's historical record of producing taxable income and expectations for the future, the Company has concluded that future operating income will be sufficient to give rise to taxable income sufficient to utilize the remaining state net operating loss carryforwards.
US GAAP prescribes a recognition threshold and measurement attribute for the accounting and financial statement disclosure of tax positions taken or expected to be taken in a tax return. The evaluation of a tax position is a two-step process. The first step requires the Company to determine whether it is more likely than not that a tax position will be sustained upon examination based on the technical merits of the position. The second step requires the Company to recognize in the financial statements each tax position that meets the more likely than not criteria, measured at the amount of benefit that has a greater than 50% likelihood of being realized. The Company's unrecognized tax benefits would affect the tax rate, if recognized. The Company includes the full amount of unrecognized tax benefits in other noncurrent liabilities in the consolidated balance sheets. The Company anticipates it is reasonably possible an increase or decrease in the amount of unrecognized tax benefits could be made in the next twelve months. However, the Company does not presently anticipate that any increase or decrease in unrecognized tax benefits will be material to the consolidated financial statements. The amount recognized as of December 31, 2019 was $3.9 million.
A reconciliation of the total amounts of unrecognized tax benefits follows:
 
 
Unrecognized tax benefits
As of January 1, 2018
 
$

Acquired unrecognized tax position
 
3,786

Increased (decreases) in unrecognized tax benefits as a result of:
 
 
Tax positions taken in the current year
 
1,835

Lapse of statute of limitations
 
(1,324
)
As of December 31, 2018
 
$
4,297

Increased (decreases) in unrecognized tax benefits as a result of:
 
 
Tax positions taken in the current year
 
873

Lapse of statute of limitations
 
(1,303
)
As of December 31, 2019
 
$
3,867