Interpace Biosciences®, Inc. Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

Note 14 - Income Taxes

Note 14 - Income Taxes

12 Months Ended

Dec. 31, 2016

14.	Income Taxes

The benefit from income taxes on continuing operations for the years ended

December

31,

2016

and

2015

is comprised of the following:

	2016			2015
Current:
Federal	$	(154	)	$	(11,244	)
State		(8	)		(725	)
Total current		(162	)		(11,969	)

Deferred:
Federal		-			-
State		-			(1,167	)
Total deferred		-			(1,167	)
Benefit for income taxes	$	(162	)	$	(13,136	)

The Company performs an analysis each year to determine whether the expected future income will more likely than not be sufficient to realize the deferred tax assets. The Company's recent operating results and projections of future income weighed heavily in the Company's overall assessment. As a result of this analysis, the Company continues to maintain a full valuation allowance against its federal and state net deferred tax assets at

December

31,

2016

as the Company believes that it is more likely than

not

that these assets will not be realized. A portion of the deferred tax liability that was recorded in purchase accounting in the prior year served a source of future income to support realization of some of its pre-acquisition deferred tax assets. In prior year, the valuation release associated with realization of the pre-acquisition deferred tax assets resulted in an income tax benefit of approximately

$1.1

million to be recorded in connection with purchase accounting as ASC

805.

In the current year, the company maintains a full Valuation Allowance in consolidation and no separate company deferred tax liability recorded will be recorded.

The tax effects of significant items comprising the Company’s deferred tax assets and (liabilities) as of

December

31,

2016

and

2015

are as follows:

	2016			2015
Deferred tax assets included in other current assets
Allowances and reserves	$	9,715		$	8,458
Compensation		1,292			2,176
Valuation allowance on deferred tax assets		(11,007	)		(10,634	)
		-			-
Noncurrent deferred tax assets (liabilities) included in other long-term assets:
State net operating loss carryforwards		7,338			7,126
Federal net operating loss carryforwards		51,685			46,166
Credit carryforward		250			248
State taxes		1,124			1,124
Property, plant and equipment		1,464			2,350
Intangible assets		(8,411	)		(10,992	)
Other reserves - restructuring		19			208
Deferred revenue		4			4
Valuation allowance on deferred tax assets		(53,473	)		(46,234	)
		-			-
Noncurrent deferred tax liabilities, net	$	-		$	-

The Company's current deferred tax asset and noncurrent deferred tax liability are included within

Other current assets and Other long-term liabilities

, respectively, within the consolidated balance sheet as of

December

31,

2016.

Federal tax attribute carryforwards at

December

31,

2016,

consist primarily of approximately

$147.7

million of federal net operating losses. In addition, the Company has approximately

$105.0

million of state net operating losses carryforwards. The utilization of the federal carryforwards as an available offset to future taxable income is subject to limitations under federal income tax laws. If the federal net operating losses are not utilized, they begin to expire in

2027,

and current state net operating losses not utilized begin to expire this year.

The NOL carry forwards are subject to review and possible adjustment by the Internal Revenue Service and state tax authorities. During

December

2016

through

February

2017,

the Company executed

four

equity offerings issuing approximately

3.1

million shares of common stock. NOL, and tax credit carry forwards

may

become subject to an annual limitation in the event of certain cumulative changes in the ownership interest of significant stockholders over a

three

year period in excess of

50%,

as defined under Sections

382

and

383

of the Internal Revenue Code of

1986,

as amended, or the Code, as well as similar state tax provisions. This could limit the amount of NOLs that we can utilize annually to offset future taxable income or tax liabilities. The amount of the annual limitation, if any, will be determined based on the value of our company immediately prior to an ownership change. Subsequent ownership changes

may

further affect the limitation in future years. Additionally, U.S. tax laws limit the time during which these carry forwards

may

be applied against future taxes, therefore, we

may

not be able to take full advantage of these carry forwards for federal income tax purposes. We are currently evaluating the ownership history of our company to determine if there were any ownership changes as defined under Section

382(g)

of the Code and the effects any ownership change

may

have had.

A reconciliation of the difference between the federal statutory tax rates and the Company's effective tax rate from continuing operations is as follows:

	2016			2015
Federal statutory rate		34.0	%		35.0	%
State income tax rate, net of Federal tax benefit		6.0	%		2.1	%
Meals and entertainment		(0.3	%)		(0.1	%)
Contingent consideration		42.4	%		6.2	%
Goodwill impairment		-			(12.4	%)
Valuation allowance		(78.8	%)		(27.7	%)
Other non-deductible		(3.3	%)		(0.6	%)
Discontinued operations allocation		1.9	%		27.1	%
Net change in Federal and state reserves		-			-
Effective tax rate		1.9	%		29.6	%

The following table summarizes the change in uncertain tax benefit reserves for the

two

years ended

December

31,

2016:

	Unrecognized
	Tax Benefits
Balance of unrecognized benefits as of January 1, 2015	$	1,117
Additions for tax positions related to the current year		—
Additions for tax positions of prior years		—
Reductions for tax positions of prior years		—
Balance as of December 31, 2015	$	1,117
Additions for tax positions related to the current year		—
Additions for tax positions of prior years		—
Reductions for tax positions of prior years		—
Balance as of December 31, 2016	$	1,117

As of

December

31,

2016

and

2015,

the total amount of gross unrecognized tax benefits was

$1.1

million in each year. The total amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate as of

December

31,

2016

and

2015

was

$1.1

million in each year.

The Company recognized interest and penalties of

$0.2

million related to uncertain tax positions in income tax expense during each of the years ended

December

31,

2016

and

2015.

December

31,

2016

and

2015,

accrued interest and penalties, net were

$2.6

million and

$2.4

million, respectively, and included in the

Other long-term liabilities

in the consolidated balance sheets.

The Company and its subsidiaries file a U.S. Federal consolidated income tax return and consolidated and separate income tax returns in numerous states and local tax jurisdictions. The following tax years remain subject to examination as of

December

31,

2016:

Jurisdiction	Tax Years
Federal		2013	-	2016
State and Local		2012	-	2016

To the extent there was a failure to file a tax return in a previous year; the statute of limitation will not begin until the return is filed. There were no examinations in process by the Internal Revenue Service as of

December

31,

2016.

2014,

the Company was selected for examination by the Internal Revenue Service for the tax periods ending

December

31,

2012

and

December

31,

2011

that concluded in

2015.