|6 Months Ended|
Jun. 30, 2022
7. INCOME TAXES
The Company’s effective income tax rates for the three and six months ended June 30, 2022 and 2021 were 459.3% and 1.0%, respectively, compared to effective income tax rates of 1.5% and 12.2% for the corresponding prior-year periods. The Company’s income tax expense or benefit for interim periods has historically been determined using an estimate of its annual effective tax rate (“AETR”), adjusted for discrete items. During the second quarter of 2022, it was determined that minor changes to the Company’s forecast caused significant changes to the AETR, resulting in tax expense that was incomparable, period-over-period. Specifically, a slight movement in year-to-date pretax book income would exaggerate the impact of items that drive tax expense, resulting in large fluctuations in AETR and the resultant tax expense/(benefit). As a result, the Company calculated the actual tax expense based on the results of operations during the three and six months ended June 30, 2022. This differs from the methodology used in the first quarter of 2022 to provide a more useful income tax expense for the current period.
The Company continues to assess the realizability of deferred tax assets (“DTAs”) and concluded that it has not met the “more likely than not” threshold. As of June 30, 2022, the Company continues to provide a valuation allowance against its DTAs that cannot be offset by existing deferred tax liabilities. In accordance with Accounting Standards Codification 740 (“ASC 740”), this assessment has taken into consideration the jurisdictions in which these DTAs reside. The valuation allowance against DTAs has no effect on the actual taxes paid or owed by the Company.
In the future, if it is determined that we meet the “more likely than not” threshold of utilizing our deferred tax assets, as required under ASC 740, then we may reverse some or all of our valuation allowance. We will continue to evaluate the need for the valuation allowance during each interim period in 2022. Absent any unforeseen impact to our operations, we expect that a continuing trend of net income improvements could result in the reversal of the valuation allowance by the end of 2022. Such valuation allowance and its potential reversal has no impact on the actual income taxes paid or the Company’s financial situation.
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/disclosureRef