|9 Months Ended|
Sep. 30, 2020
|Income Tax Disclosure [Abstract]|
|Income Taxes||Income Taxes
The provision for income taxes primarily relates to projected federal, state, and foreign income taxes. To determine the quarterly provision for income taxes, the Company uses an estimated annual effective tax rate, which is generally based on expected annual income and statutory tax rates in the various jurisdictions in which the Company operates. In addition, the tax effects of certain significant or unusual items are recognized discretely in the quarter during which they occur and can be a source of variability in the effective tax rates from quarter to quarter.
The Company utilizes the asset and liability method of accounting for income taxes, under which deferred taxes are determined based on temporary differences between the financial statement and tax basis of assets and liabilities using tax rates expected to be in effect during the years in which the temporary differences reverse. The Company records a valuation allowance to reduce its deferred taxes to the amount it believes is more likely than not to be realized. In making such determination, the Company considers all available positive and negative evidence quarterly, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies, and recent financial performance. Forming a conclusion that a valuation allowance is not required is difficult when there is negative evidence such as cumulative losses in recent years. Based upon the Company’s review of all positive and negative evidence, the Company continues to have a valuation allowance on its state deferred tax assets, certain of its federal deferred tax assets, and certain foreign deferred tax assets in jurisdictions where the Company has cumulative losses or otherwise is not expected to utilize certain tax attributes. The Company does not incur expense or benefit in certain tax free jurisdictions in which it operates.
The Company recorded an income tax benefit of $2.2 million in the three months ended September 30, 2020 and an income tax benefit of $0.03 million in the three months ended September 30, 2019. The Company recorded an income tax benefit of $12.1 million in the nine months ended September 30, 2020 and an income tax benefit of $9.9 million in the nine months ended September 30, 2019.
The income tax benefit in the three and nine months ended September 30, 2020 and 2019, each primarily related to the mix of pre-tax income among jurisdictions, excess tax benefits related to stock-based compensation, and release of certain reserves for uncertain tax positions under ASC 740-10. Also included in income tax benefit for the nine months ended September 30, 2020 was a tax benefit related to the Coronavirus Aid, Relief and Economic Security Act, or CARES Act, enacted effective March 27, 2020, and a tax provision related to a change in judgment regarding the final outcome of the Altera tax case discussed below. The CARES Act tax benefit relates to the Company’s ability to carry back its 2019 net operating loss, originally valued at a 21% federal tax rate, to offset income taxes paid in prior periods at the 35% federal tax rate in effect at that time.
Income tax positions must meet a more-likely-than-not threshold to be recognized. Income tax positions that previously failed to meet the more-likely-than-not threshold are recognized in the first subsequent financial reporting period in which that threshold is met. Previously recognized tax positions that no longer meet the more-likely-than-not threshold are derecognized in the first financial reporting period in which that threshold is no longer met. The Company records potential penalties and interest accrued related to unrecognized tax benefits within the consolidated statements of operations as income tax expense.
During the nine months ended September 30, 2020, the Company’s unrecognized tax benefits increased by $0.1 million. The Company does not expect its unrecognized tax benefits to change significantly over the next 12 months. Accrued interest and penalties associated with uncertain tax positions as of September 30, 2020 were approximately $0.6 million and $0.1 million, respectively.
The Company is subject to federal and state income tax in the United States and is also subject to income tax in certain other foreign tax jurisdictions. At September 30, 2020, the statutes of limitations for the assessment of federal, state, and foreign income taxes are closed for the years before 2016, 2015, and 2014, respectively.
The Company’s subsidiary in Singapore operates under certain tax incentives in Singapore, which are generally effective through March 2022 and may be extended through March 2027, and are conditional upon meeting certain employment and investment thresholds in Singapore. Under the incentives, qualifying income derived from certain sales of the Company’s integrated circuits is taxed at a concessionary rate over the incentive period, and there are reduced Singapore withholding taxes on certain intercompany royalties during the incentive period. Primarily because of the Company's Singapore net operating losses and a full valuation allowance in Singapore, the incentives did not have a material impact on the Company's income tax benefit in the nine months ended September 30, 2020 and 2019.
On March 27, 2020, the U.S. government enacted the Coronavirus Aid, Relief, and Economic Security Act, or the CARES Act, a $2 trillion relief package comprising a combination of tax provisions and other stimulus measures. The CARES Act broadly provides entities tax payment relief and significant business incentives and makes certain technical corrections to the 2017 Tax Cuts and Jobs Act, or the Tax Act. The tax relief measures for entities include a five-year net operating loss carry back, increases interest expense deduction limits, acceleration of alternative minimum tax credit refunds, payroll tax relief, and a technical correction to allow accelerated deductions for qualified improvement property. The Act also provides other non-income tax benefits, including federal funding for a range of stabilization measures and emergency funding to assist those impacted by the COVID-19 pandemic. Similar legislation is being enacted in other jurisdictions in which the Company operates. ASC Topic 740, Income Taxes, requires the effect of changes in tax rates and laws on deferred tax balances to be recognized in the period in which new legislation is enacted. The enactment of the CARES Act and similar legislation in other jurisdictions in which the Company operates was not material to the Company’s income tax benefit for the nine months ended September 30, 2020 and is not expected to have a material impact on its consolidated financial position and results of operations as of and for the full year ending December 31, 2020.
On July 27, 2015, the US Tax Court decided on behalf of Altera Corporation, or Altera US, that certain 2003 Internal Revenue Service, or IRS regulations underpinning the transfer pricing between related parties for shared costs were invalid. The case involved the cost-sharing arrangement, or CSA entered into by Altera US with an international subsidiary. Pursuant to the terms of the CSA, the parties agreed to share the risks and costs of research and development, or R&D activities, including granted stock options and other stock-based compensation, or SBC, to certain of its employees responsible for conducting the R&D activities. In allocating the costs to be shared pursuant to that CSA, Altera US included the cash compensation of its employees engaged in R&D in the shared cost pool but excluded their SBC. The IRS had imposed transfer pricing adjustments in each of the tax years 2004 through 2007 on the basis of Altera US’ failure to include SBC costs in its CSA cost pool. On June 7, 2019, in a 2-1 ruling, a panel of the Ninth Circuit Court of Appeals reversed the Tax Court’s holding and upheld a 2003 IRS regulation that requires participants in a CSA to share SBC costs. After the Ninth Circuit Court’s reversal, Altera filed a petition for en banc review of the decision by Ninth Circuit judges. The petition was denied, and the taxpayer decided to appeal to the Supreme Court. On June 22, 2020, the Supreme Court of the United States announced that it was denying the petition for certiorari and will not review an appeals court decision in the case of Altera Corporation & Subsidiaries v. Commissioner (Altera v. Comm). The announcement represented new information that the Company considered in its second quarter tax provision for the six months ended June 30, 2020. The evaluation of this ruling for all open tax periods was not material to the Company’s income tax benefit for the nine months ended September 30, 2020 and is not expected to have a material impact on its consolidated financial position and results of operations as of and for the year ending December 31, 2020.
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