Overstock.com 2015 Annual Report Download - page 47

that it is unlikely that our deferred tax asset arising from unrealized capital losses will be realized in the future. Therefore, it is appropriate to record a
valuation allowance related to the deferred tax assets for net operating losses generated in domestic and foreign separate filing jurisdictions, unrealized
capital losses, and foreign deferred tax assets recorded as part of an acquisition. In reaching these conclusions we considered, among other things, our recent
financial and operating results (three years of cumulative income and revenue growth during those periods), along with our forecasted growth rates, projected
future taxable income, including the impact of any costs associated with our recent acquisition, and tax planning strategies. We perform multiple sensitivity
analyses to address how potential changes in significant assumptions would impact our ability to generate the minimum amount of taxable income required.
We give the most weight to objective evidence related to our more recent financial results. Based upon the level of historical taxable income and projections
for future taxable income, including the impact of any acquisition costs, and planned tax strategies over the periods in which the deferred tax assets are
deductible, we believe it is more likely than not that we will realize the benefits of these deduction differences, net of existing valuation allowances.
However, it is possible that certain state tax credits could ultimately expire unused if estimates of future apportioned taxable income during the carryforward
period are reduced. We will continue to monitor the need for a valuation allowance against our federal and state deferred tax assets on a quarterly basis.
ASC 740 clarifies the accounting for uncertainty in income taxes recognized in an enterprise's financial statements in accordance with GAAP. ASC
740 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected
to be taken in a tax return. This statement also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, and
disclosure.
The calculation of our tax liabilities is subject to legal and factual interpretation, judgment, and uncertainty in a multitude of jurisdictions.
This includes addressing uncertainties in the application of complex tax regulations. We recognize liabilities for uncertain tax positions in the U.S. and other
tax jurisdictions based on recognition and measurement criteria prescribed by ASC 740. The liabilities are periodically reviewed for their adequacy and
appropriateness. Changes to our assumptions could cause us to find a revision of estimates appropriate. Such a change in measurement would result in the
recognition of a tax benefit or an additional charge to the tax provision.
Tax laws and regulations themselves are subject to change as a result of changes in fiscal policy, changes in legislation, the evolution of regulations,
and court rulings. We recognize potential liabilities for anticipated tax audit issues in the U.S. and other tax jurisdictions based on our estimate of whether,
and the extent to which, additional taxes and interest will be due. We record an amount as an estimate of probable additional income tax liability at the
largest amount that we determine is more likely than not, based upon the technical merits of the position, to be sustained upon audit by the relevant tax
authority.
As of December 31, 2015, we were under audit by the Internal Revenue Service for our 2013 federal income tax return. The IRS has not indicated or
communicated any deficiencies. We expect the audit to conclude in 2016. Tax periods within the statutory period of limitations not previously audited are
potentially open for examination by the tax authorities. Potential liabilities associated with these years will be resolved when an event occurs to warrant
closure, primarily through the completion of audits by the tax jurisdictions and/or the expiration of the statutes of limitation. To the extent audits or other
events result in a material adjustment to the accrued estimates, the effect would be recognized during the period of the event. We believe that an appropriate
estimated liability has been established for potential exposures.
Our uncertain tax positions related to state income taxes represent a cash settlement contingency and are recorded as a liability in our consolidated
balance sheets. To the extent interest and penalties would be assessed by taxing authorities on any underpayment of income taxes, such amounts are accrued
and classified as a component of income tax expense on our consolidated statement of operations and comprehensive income (loss). Realization of the
unrecognized tax benefits results in a favorable impact to the effective tax rate.
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Goodwill represents the excess of the purchase price paid over the fair value of the net assets acquired in business combinations.
Goodwill is not amortized but is tested for impairment at least annually. When evaluating whether goodwill is impaired, we make a qualitative
assessment to determine if it is more likely than not that its fair value is less than its carrying amount. If the qualitative assessment determines that it is more
likely than not that its fair value is less than its carrying amount, we compare the fair value of the reporting unit to which the goodwill is assigned to its
carrying amount. If the carrying amount exceeds its fair value, then the amount of the impairment loss must be measured. The impairment loss, if any, is
calculated by comparing the implied fair value of the goodwill to its carrying amount. In calculating the implied fair value of goodwill, the
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