|9 Months Ended|
Sep. 30, 2017
|Income Tax Disclosure [Abstract]|
The provision for income taxes primarily related to projected current federal, state, and foreign income taxes. To determine the quarterly provision for income taxes, the Company used 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 item 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 released the valuation allowance against certain of its federal deferred tax assets during the three months ended June 30, 2017. Of the federal valuation allowance of $61.6 million as of December 31, 2016, the Company released $50.1 million during the three months ended June 30, 2017. The ending federal valuation allowance as of September 30, 2017 was $11.5 million. The Company continues to have a valuation allowance on its state deferred tax assets as well as certain foreign jurisdictions where the Company has cumulative losses or otherwise is not expected to utilize certain tax attributes.
The Company recorded a benefit for income taxes of $6.3 million and $33.8 million in the three and nine months ended September 30, 2017, respectively, and a provision for income taxes of $1.1 million and $2.2 million for the three and nine months ended September 30, 2016, respectively. The benefit from income taxes in the three and nine months ended September 30, 2017 primarily relates to the release of the U.S. federal valuation allowance during the three months ended June 30, 2017, offset by certain discrete tax effects related to initial intercompany royalties from our Singapore subsidiary to our U.S. parent during the three months ended June 30, 2017. The provision for income taxes in the three and nine months ended September 30, 2016 primarily relates to federal alternative minimum tax due to the Company's limitation on use of net operating losses, credit carryforwards, state income taxes, and income taxes in certain foreign jurisdictions.
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 income as income tax expense. During the nine months ended September 30, 2017, the Company’s unrecognized tax benefits increased by $37.2 million. Of this amount, $35.8 million of the increase relates to the acquisition of Exar and $35.1 million of such increase is offset against the Company's deferred taxes. Other than as related to purchase accounting for Exar, 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, 2017 were $1.2 million and $0.3 million, respectively.
The Company files federal, state, and foreign income tax returns in jurisdictions with varying statutes of limitations. For federal income taxes, years prior to 2013 are closed. For state income taxes, years prior to 2012 are closed. In most foreign jurisdictions, years prior to 2009 are closed.
Singapore Tax Incentives
In April 2017, through its subsidiary in Singapore, the Company began operating under certain tax incentives in Singapore, which are generally effective through March 2022 and may be extended through March 2027. Under these incentives, qualifying income derived from certain sales of the Company's integrated circuits is taxed at a concessionary rate over the incentive period. The Company also receives a reduced withholding tax rate on certain intercompany royalty payments made by the Company's Singapore subsidiary during the incentive period. Such incentives are conditional upon our meeting certain minimum employment and investment thresholds within Singapore over time, and the Company may be required to return certain tax benefits in the event the Company does not achieve compliance related to that incentive period. The Company currently believes that it will be able to satisfy these conditions without material risk.
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/presentationRef