|12 Months Ended|
Dec. 31, 2021
|Income Tax Disclosure [Abstract]|
|INCOME TAXES||INCOME TAXES
Details of income tax provisions and deferred income taxes from continuing operations are provided in the following tables.
The components of income tax benefits and expense were as follows (in thousands):
A reconciliation of the statutory federal income tax amount to the recorded expense follows (in thousands):
For the Predecessor period ending May 17, 2021, the Company has an effective tax rate of (3.3)% and an income tax benefit of $8.0 million. The tax benefit is entirely attributable to an Oklahoma refund claim associated with an examination relating to historical tax returns. The effective tax rate differs from the statutory tax rate due to the Company’s valuation allowance position and the permanent adjustments relating to the Chapter 11 Emergence. For the Successor Period, the Company has an effective tax rate of 0.03% and tax expense of $39 thousand. The tax expense is entirely attributable to the Oklahoma refund claim that was filed during the third quarter, resulting in an adjustment to the benefit recorded during the Predecessor Period. We did not record any additional income tax expense for the Successor Period as a result of maintaining a full valuation allowance against our net deferred tax asset.
The tax effects of temporary differences and net operating loss carryforwards, which give rise to deferred tax assets and liabilities at December 31, 2021, and 2020 are estimated as follows (in thousands):
Management assesses the available positive and negative evidence to estimate whether sufficient future taxable income will be generated to permit use of the existing deferred tax assets. A significant piece of objective negative evidence evaluated was the cumulative loss incurred over the three-year period ended December 31, 2021. Such objective evidence limits the ability to consider other subjective evidence, such as our projections for future growth. On the basis of this evaluation, as of December 31, 2021, a valuation allowance of $907.4 million has been recorded. The amount of the DTA considered realizable, however, could be adjusted if estimates of future taxable income during the carryforward period are reduced or increased or if objective negative evidence in the form of cumulative losses is no longer present and additional weight is given to subjective evidence such as our projections for growth.
As discussed in Note 2, elements of the Plan provided that the Company’s indebtedness related to Predecessor Senior Notes and certain general unsecured claims were exchanged for New Common Stock in settlement of those claims. Absent an exception, a debtor recognizes CODI upon discharge of its outstanding indebtedness for an amount of consideration that is less than its adjusted issue price. The IRC provides that a debtor in a Chapter 11 bankruptcy case may exclude CODI from taxable income, but must reduce certain of its tax attributes by the amount of any CODI realized as a result of the consummation of a plan of reorganization. The amount of CODI realized by a taxpayer is determined based on the fair market value of the consideration received by the creditors in settlement of outstanding indebtedness. As a result of the market value of equity upon emergence from Chapter 11 bankruptcy proceedings, the estimated amount of CODI and historical interest expense haircut is approximately $661 million, which will reduce the value of the Company’s net operating losses. The actual reduction in tax attributes does not occur until the first day of the Company’s tax year subsequent to the date of emergence, or January 1, 2022. The reduction of net operating losses is expected to be fully offset by a corresponding decrease in valuation allowance. As of December 31, 2021, the Company had an estimated federal net operating loss carryforward of approximately $1.4 billion after giving effect to the estimated reduction in tax attributes as discussed above.
Emergence from Chapter 11 bankruptcy proceedings resulted in a change in ownership for purposes of IRC Section 382. The Company currently expects to apply rules under IRC Section 382(l)(5) that would allow the Company to mitigate the limitations imposed under the regulations with respect to the Company’s remaining tax attributes. The Company’s deferred tax
assets and liabilities, prior to the valuation allowance, have been computed on such basis. Taxpayers who qualify for this provision may, at their option, elect not to apply the election. If the provision does not apply, the Company’s ability to realize the value of its tax attributes would be subject to limitation and the amount of deferred tax assets and liabilities, prior to the valuation allowance, may differ. Additionally, under IRC Section 382(l)(5), an ownership change subsequent to the Company’s emergence could severely limit or effectively eliminate its ability to realize the value of its tax attributes.
The Company has an available federal tax net operating loss carryforward estimated at approximately $1.4 billion as of December 31, 2021. These federal net operating loss carryforwards of approximately $278 million generated in tax years prior to 2018 will begin to expire in 2036. As a result of the Tax Cuts and Jobs Act, the 2018 through 2021 federal NOL carryforwards of $1.1 billion have no expiration. The Company also has state net operating loss carryovers of approximately $199 million that began to expire in 2022.
As of December 31, 2021, we had no liability for uncertain tax positions. As of December 31, 2020, the Company recorded a liability associated with uncertain tax positions of $3.8 million, which was settled in 2021. We recognize interest and penalties related to unrecognized tax benefits in the income tax expense line in the accompanying consolidated statement of operations, which are not material.
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/disclosureRef