|12 Months Ended|
Dec. 31, 2014
|Income Taxes [Abstract]|
Note 9—Income Taxes
We recognize deferred tax assets and liabilities, at enacted income tax rates, based on the temporary differences between the financial reporting basis and the tax basis of our assets and liabilities. We include any effects of changes in income tax rates or tax laws in the provision for income taxes in the period of enactment. When it is more likely than not that a portion or all of a deferred tax asset will not be realized in the future, we provide a corresponding valuation allowance against the deferred tax asset. In 2014 and 2013, we recorded a full valuation allowance against all net deferred tax assets because there was not sufficient evidence to conclude that we would more likely than not realize those assets prior to expiration.
As of December 31, 2014, we had approximately $3.6 million of federal net operating loss carryforwards, approximately $21.7 million of foreign net operating loss carryforwards and approximately $9.3 million of state net operating loss carryforwards. The federal loss carryforwards will begin to expire in 2032, the foreign loss carryforwards begin to expire in 2027 and the state net operating loss carryforwards begin to expire in 2024.
Our sources of income (loss) and income tax provision (benefit) are as follows (in thousands):
As a result of the Merger discussed in Note 1, and the subsequent issuance of 3,000 shares of Legacy Education Alliance, Inc. common stock, as of December 31, 2014, Tigrent Inc. owned slightly less than 80% of the Company. Tigrent Inc. is, therefore, no longer considered part of the affiliated group as defined in IRC §1504 and can no longer be included in the Company’s consolidated income tax returns filed for subsequent tax years. At December 31, 2014, the tax attributes of Tigrent Inc., including its attributable portion of the consolidated net operating loss carryovers determined pursuant to Reg. §1.1502-21, were separate attributes realizable only by Tigrent Inc. The value of these tax attributes and the corresponding valuation allowance were approximately $1.3 million. The applicable 2013 amounts presented in the following tables have been adjusted retroactively to reflect the Merger and subsequent share issuance, discussed above.
During the year ended December 31, 2014, we decreased the valuation allowance by $4.3.
The difference between the tax provision at the statutory federal income tax rate and the tax provision attributable to income (loss) from continuing operations before income taxes is as follows (in thousands):
Deferred income tax assets and liabilities reflect the net tax effects of (i) temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts for income tax purposes and (ii) operating loss carryforwards. The tax effects of significant components of our deferred tax assets and liabilities are as follows (in thousands):
Deferred tax expense related to the foreign currency translation adjustment for the year ended December 31, 2014 was $0.4 million and was fully offset by a corresponding decrease in the valuation allowance. These amounts, which net to zero, are reported in other comprehensive income. The deferred tax assets presented above for net operating losses and credits have been reduced by liabilities for unrecognized tax benefits.
The Company does not expect to repatriate earnings from its foreign subsidiaries because the cumulative earnings and profits of the foreign subsidiaries as of December 31, 2014 and 2013 are negative. Accordingly, no U.S. federal or state income taxes have been provided thereon.
During 2014, the amount of the liability pertaining to uncertain tax positions decreased by $0.2 million, from a total liability of $1.9 million at December 31, 2013 to a total liability of $1.7 million at December 31, 2014. In accordance with GAAP, we recorded expense that increased the total liability pertaining to uncertain tax positions which was more than offset by a decrease in the total liability attributable to foreign currency fluctuations and tax rate adjustments. A significant portion of the liability pertaining to uncertain tax positions is recorded as a reduction of the value of net operating loss carryovers.
We include interest and penalties in the liability for uncertain tax positions. Accrued interest and penalties on uncertain tax positions were approximately $0.1 million at December 31, 2014 and 2013, respectively and is included in other liabilities in the accompanying Consolidated Balance Sheets. There was no penalty and interest expense accrued related to uncertain tax positions for the years ended December 31, 2014 and 2013. If applicable, we recognize interest and penalties related to uncertain tax positions as tax expense.
The following is a tabular reconciliation of the total amounts of unrecognized tax benefits:
During the year ended December 31, 2013, the Canada Revenue Agency concluded their audit of the international transactions of Rich Dad Education Ltd, a Canadian subsidiary of Legacy Education Alliance, Inc., for the years ended December 31, 2007, 2008 and 2009 with no material adjustments. The $1.1 million reduction during 2013 for the settlement of prior year tax positions is due to the resolution of this Canadian transfer pricing audit.
The total liability for unrecognized tax benefits at December 31, 2014 is reflected in the Consolidated Balance Sheets as follows:
We do not expect any significant changes to unrecognized tax benefits in the next year.
At December 31, 2014 and 2013, the Company estimated that $0.1 million and $0.1 million, respectively, of the unrecognized tax benefits, if recognized, would impact the effective tax rate. A substantial portion of our liability for uncertain tax benefits is recorded as a reduction of net operating losses and tax credit carryforwards.
On April 12, 2013, we were notified by the Canadian revenue Agency of their intent to audit the income tax returns of Rich Dad Education Ltd. for the years ended December 31, 2010 and 2011. This audit is currently in process and we believe that our accruals included in our 2013 consolidated financial statements are adequate.
Our federal and the majority of our state income tax returns for all years after 2010 are subject to examination by tax authorities. Some 2010 state tax returns remain subject to examination by tax authorities. Our Canadian tax returns for all years after 2009 are subject to examination, as are our United Kingdom tax returns for all years after 2010.
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