|12 Months Ended|
Dec. 31, 2019
|Income Tax Disclosure [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.
We have retained full valuation allowances of $4.7 million and $6.9 million against the deferred tax assets of our United States, Australian, Canadian, U.K. (excluding Elite Legacy Education UK), Hong Kong, and South Africa subsidiaries as of December 31, 2019 and December 31, 2018, respectively. The most significant negative factor that was considered in determining whether a valuation allowance was required is a cumulative recent history of losses in all jurisdictions for the entities mentioned above.
As of December 31, 2019 and 2018, the valuation allowance against the U.S. deferred taxes was $1.8 million and $1.9 million, respectively. We assessed the weight of all available positive and negative evidence and determined it was not more likely than not that future earnings will be sufficient to realize the deferred tax assets in the U.S.
As of December 31, 2019, and 2018, we had approximately $4.8 million and $8.4 million of federal net operating loss carryforwards, approximately $19.7 million and $25.0 million of foreign net operating loss carryforwards, respectively, and approximately $8.9 million and $14.3 million of state net operating loss carryforwards, respectively. 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):
During the year ended December 31, 2019, we decreased the valuation allowance by $0.6 million. During the year ended December 31, 2018, we increased the valuation allowance by $2.2 million.
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):
We recorded income tax benefit of $1.3 million and income tax expense of $0.5 million for the years ended December 31, 2019 and 2018, respectively, a $1.8 million decrease in income tax expense.
Our effective tax rate was (60.3)% and (5.5)% for the year ended December 31, 2019 and 2018, respectively. Our effective tax rates differed from the U.S. statutory corporate tax rate of 21%, for the same periods, primarily because of the mix of pre-tax income or loss earned in certain jurisdictions.
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 years ended December 31, 2019 and 2018 was $0 million and $0.4 million, respectively, and was fully offset by a corresponding change in the valuation allowance. The deferred tax assets presented above for net operating losses and credits have been reduced by liabilities for unrecognized tax benefits.
We do not expect to repatriate earnings from its foreign subsidiaries because the cumulative earnings and profits of the foreign subsidiaries as of December 31, 2019 and 2018 are negative. Accordingly, no U.S. federal or state income taxes have been provided thereon.
The liability pertaining to uncertain tax positions was $0.3 million and $1.6 million at December 31, 2019 and 2018, respectively. 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 $0.04 million at December 31, 2019 and 2018, for each year, and is included in other liabilities in the accompanying Consolidated Balance Sheets. 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:
The total liability for unrecognized tax benefits at December 31, 2019 and 2018, is netted against deferred tax assets related to net operating loss carryforwards in the Consolidated Balance Sheets. The total liability for unrecognized tax benefits at December 31, 2019 and 2018, are as follows:
We do not expect any significant changes to unrecognized tax benefits in the next year. We estimate $0.3 million and $1.6 million, of the unrecognized tax benefits, if recognized, would impact the effective tax rate at December 31, 2019 and 2018, respectively.
Our federal income tax returns for the years subsequent to 2016 are subject to examination by the Internal Revenue Service. Our state tax returns for all years after 2016 or 2015, depending on each state's jurisdiction, are subject to examination. In addition, our Canadian tax returns and United Kingdom tax returns for all years after 2012 are subject to examination.
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://fasb.org/us-gaap/role/ref/legacyRef