FutureFuel Corp. - 10-K filing on 2016-03-10

Note 14 - Provision for Income Taxes

12 Months Ended

Dec. 31, 2015

14)	Provision for income taxes

The following table summarizes the provision for income taxes:

	2015			2014		2013
Income before taxes - U.S.	$	51,869		$	67,345	$	97,351
Provision for income taxes:
Current		7,475			8,455		22,933
Deferred		(2,283	)		3,858		(2,200	)
State and other
Current		487			1,306		2,829
Deferred		(231	)		526		(245	)
Total	$	5,448		$	14,145	$	23,317

Differences between the provision for income taxes computed using the U.S. federal statutory income tax rate were as follows:

	2015			2014			2013
Amount computed using the statutory rate of 35%	$	18,154		$	23,571		$	34,072
Section 199 manufacturing deduction		(163	)		-			(2,092	)
Agri-biodiesel production credit		(975	)		(975	)		(1,950	)
Federal excise tax benefit		(9,958	)		(10,344	)		(9,566	)
State excise tax benefit		(792	)		(2,409	)		(2,067	)
Credit for increasing research activities		(51	)		(80	)		(180	)
Alternative fueling equipment credit		-			(2	)		(23	)
Tax exempt interest income		-			-			(2	)
State income taxes, net		695			3,189			3,983
Tax (benefit)/expense recorded as a decrease/increase in unrecognized tax benefit		(747	)		1,309			1,718
Other		(715	)		(114	)		(576	)
Provision for income taxes	$	5,448		$	14,145		$	23,317

The effective tax rates for the years December 31, 2015 and 2014 reflect FutureFuel’s expected tax rate on reported operating earnings before income tax. In 2015, the biodiesel BTC formed a larger proportion of FutureFuel’s net income than in prior years. This increase in proportion combined with the income tax treatment of the BTC served to reduce FutureFuel’s effective income tax rate in 2015 relative to prior years.

The significant components of deferred tax assets and liabilities were as follows as of December 31:

	2015			2014
Deferred tax assets
Compensation	$	249		$	1,005
Inventory reserves		1,244			628
Self insurance		111			88
Asset retirement obligation		299			289
Deferred revenue		9,993			10,110
Stock based compensation		144			244
Other		-			81
Total deferred tax assets		12,040			12,445
Deferred tax liabilities
Available for sale securities		(1,075	)		(2,618	)
Derivative instruments		(1,348	)		(488	)
Accrued expenses		(656	)		(592	)
LIFO inventory		(5,163	)		(6,062	)
Depreciation		(39,930	)		(41,520	)
Other		(45	)		(2,609	)
Total deferred tax liabilities		(48,217	)		(53,889	)
Valuation allowance		-			-
Net deferred tax liabilities	$	(36,177	)	$	(41,444	)

	2015			2014
As recorded in the consolidated balance sheet
Current deferred tax liability	$	(7,060	)	$	(11,003	)
Noncurrent deferred tax liability		(29,117	)		(30,441	)
Net deferred tax liabilities	$	(36,177	)	$	(41,444	)

In 2013, as a result of then recently issued technical guidance from the U.S. Internal Revenue Service, FutureFuel changed its position related to the benefit from the biodiesel BTC to exclude this credit from taxable income for the years 2010 through 2013. This change had a significant impact on FutureFuel’s provision for income taxes in the fourth quarter of 2013. This benefit reduced FutureFuel’s provision for income taxes by $11,633 in 2013, with $7,755 related to the years 2010 through 2012 and $3,878 related to 2013. This same treatment was followed in 2014 and 2015 when the biodiesel BTC was retroactively reinstated for 2014 and 2015 in December of 2014 and 2015, respectively. The biodiesel BTC was extended through the end of 2016 as part of the 2015 tax extenders package.

FutureFuel’s unrecognized tax benefits totaled $4,588 and $2,981 at December 31, 2015 and 2014, respectively.

The following table summarizes FutureFuel’s unrecognized tax benefits activity.

	2015			2014		2013
Beginning balance	$	2,981		$	1,718	$	-
Increases to tax positions taken in the current year		1,471			1,255		917
Increases to tax positions taken in a prior year		3,117			8		801
Decrease due to resolution of tax positions taken in a prior year		(2,981	)		-		-
Balance at December 31	$	4,588		$	2,981	$	1,718

FutureFuel does not expect its unrecognized tax benefits to change significantly over the next 12 months.

FutureFuel records interest and penalties net as a component of income tax expense. FutureFuel accrued balances of $61 and $46 at December 31, 2015 and 2014, respectively, for interest or tax penalties.

FutureFuel and its subsidiaries file tax returns in the U.S. federal jurisdiction and with various state jurisdictions. In general, FutureFuel is subject to U.S., state, and local examinations by tax authorities from 2012 forward. In the second quarter of 2015, the IRS completed its audit of FutureFuel’s 2010 through 2012 amended federal income tax returns. FutureFuel was successful in recovering the benefits previously unrecorded in its financial statements. Also during the second quarter of 2015, FutureFuel received notice of rejection from an administrative law judge in The Arkansas Office of Hearings and Appeals regarding FutureFuel’s 2010 through 2012 amended state income tax returns.