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

Annual report pursuant to Section 13 and 15(d)

Income Taxes

Income Taxes

12 Months Ended

Dec. 31, 2015

Income Taxes

The benefit from income taxes on continuing operations for the years ended December 31, 2015 and 2014 is comprised of the following:



	2015			2014
Current:
Federal	$	(11,244	)	$	—
State	(725		)	5
Total current	(11,969		)	5
Deferred:
Federal	—			(4,686		)
State	(1,167		)	(349		)
Total deferred	(1,167		)	(5,035		)
Benefit from income taxes	$	(13,136	)	$	(5,030	)

In February 2015, the Company completed the sale of Group DCA. Group DCA is classified as discontinued operations for reporting purposes. For tax purposes, since the company was sold off in the current year, any existing cumulative differences were reduced to zero. For financial statement purpose the Company had previously (prior to FY 2015) impaired certain intangible assets and goodwill associated with the DCA business.

In December 2015, the Company completed the sale of its CSO business to Publicis Healthcare Communications Group under a definitive asset purchase agreement for a total aggregate cash payment of $28.5 million. The Company prior to the sale of the CSO Business operated under two segments: Commercial Services and Interpace Diagnostics. The CSO Business is reported under discontinued operations and the Diagnostics segment is reported on continuing operations.

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, 2015 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 had sufficient deferred tax assets to absorb the $1.1 million of deferred tax liability previously recorded and as a result, there will be a full Valuation Allowance in consolidation and no separate company deferred tax liability recorded.

The tax effects of significant items comprising the Company’s deferred tax assets and (liabilities) as of December 31, 2015 and 2014 are as follows:



	2015			2014
Deferred tax assets included in other current assets:
Allowances and reserves	$	8,458		$	4,769
Compensation	2,176			3,637
Valuation allowance on deferred tax assets	(10,634		)	(7,046		)
Current deferred tax assets	$	—		$	1,360
Noncurrent deferred tax assets and liabilities:
State net operating loss carryforwards	$	7,126		$	5,534
Federal net operating loss carryforwards	46,166			41,466
Credit carryforward	248			150
State taxes	1,124			1,124
Self insurance and other reserves	—			509
Property, plant and equipment	2,350			2,332
Intangible assets	(10,992		)	(5,746		)
Other reserves - restructuring	208			181
Deferred revenue	4			5
Valuation allowance on deferred tax assets	(46,234		)	(48,080		)
Noncurrent deferred tax liabilities, net	$	—		$	(2,525	)

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, 2014. Federal tax attribute carryforwards at December 31, 2015, consist primarily of approximately $132.0 million of federal net operating losses. In addition, the Company has approximately $132.2 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.

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



	2015		2014
Federal statutory rate	35.0	%	35.0	%
State income tax rate, net of Federal tax benefit	2.1	%	2.7	%
Meals and entertainment	(0.1	)%	—	%
Contingent consideration	6.2	%	—	%
Goodwill impairment	(12.4	)%	—	%
Valuation allowance	(27.7	)%	(10.3	)%
Other non-deductible	(0.6	)%	(0.2	)%
Discontinued operations allocation	27.1	%	—	%
Net change in Federal and state reserves	—	%	—	%
Effective tax rate	29.6	%	27.2	%

The following table summarizes the change in uncertain tax benefit reserves for the two years ended December 31, 2015:



	Unrecognized
	Tax Benefits
Balance of unrecognized benefits as of January 1, 2014	$	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, 2014	$	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

As of December 31, 2015 and 2014, 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, 2015 and 2014 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, 2015 and 2014. At December 31, 2015 and 2014, accrued interest and penalties, net were $2.4 million and $2.2 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, 2015:



Jurisdiction	Tax Years
Federal	2012 - 2015
State and Local	2011 - 2015

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, 2015. In 2014, the Company was selected for examination by the Internal Revenue Service for the tax periods ending December 31, 2012 and December 31, 2011.