Maximus, 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

Sep. 30, 2017

The components of income before income taxes and the corresponding provision for income taxes are as follows (in thousands):



	Year ended September 30,
	2017		2016		2015
Income before income taxes:
United States	$	257,910	$	238,871	$	232,359
Foreign	56,325		47,097		27,460
Income before income taxes	$	314,235	$	285,968	$	259,819



	Year ended September 30,
	2017			2016			2015
Current provision:
Federal	$	70,476		$	69,025		$	74,050
State and local	15,594			15,595			15,332
Foreign	11,221			15,536			9,581
Total current provision	97,291			100,156			98,963
Deferred tax expense (benefit):
Federal	5,490			7,778			2,233
State and local	643			902			403
Foreign	(1,371		)	(3,028		)	(1,829		)
Total deferred tax expense (benefit)	4,762			5,652			807
Provision for income taxes	$	102,053		$	105,808		$	99,770

The provision for income taxes differs from that which would have resulted from the use of the federal statutory income tax rate as follows (in thousands):



	Year ended September 30,
	2017			2016			2015
Federal income tax provision at statutory rate of 35%	$	109,982		$	100,089		$	90,937
State income taxes, net of federal benefit	10,554			10,723			9,847
Foreign taxation	(6,940		)	(3,976		)	(2,208		)
Permanent items	970			1,284			1,602
Tax credits	(4,851		)	(1,592		)	(961		)
Vesting of equity compensation	(6,569		)	—			—
Other	(1,093		)	(720		)	553
Provision for income taxes	$	102,053		$	105,808		$	99,770

The significant items comprising our deferred tax assets and liabilities as of September 30, 2017 and 2016 are as follows (in thousands):



	As of September 30,
	2017			2016
Net deferred tax assets/(liabilities)
Costs deductible in future periods	$	30,794		$	27,738
Deferred revenue	20,703			23,469
Stock compensation	4,976			5,085
Net operating loss carryforwards	360			1,291
Amortization of goodwill and intangible assets	(36,100		)	(34,484		)
Capitalized software	(9,197		)	(10,126		)
Accounts receivable - unbilled	(12,953		)	(13,810		)
Property and equipment	(3,924		)	(5,517		)
Prepaid expenses	(3,741		)	(1,296		)
Other	(3,333		)	(519		)
	$	(12,415	)	$	(8,169	)

Our deferred tax assets and liabilities are held in various national and international jurisdictions which do not allow right of offset. Accordingly, our presentation of deferred taxes on our consolidated balance sheet is split between jurisdictions which show a net deferred tax asset and a net deferred tax liability. Our net deferred tax position is summarized below (in thousands):



	As of September 30,
	2017			2016
Balance of tax jurisdictions with net deferred tax assets	$	7,691		$	8,644
Balance of tax jurisdictions with net deferred tax liabilities	(20,106		)	(16,813		)
Net deferred tax liabilities	$	(12,415	)	$	(8,169	)

At September 30, 2017, our foreign subsidiaries held approximately $219 million of cumulative earnings. We consider undistributed earnings of our foreign subsidiaries to be indefinitely reinvested outside of the U.S. and, accordingly, no U.S. deferred taxes have been recorded with respect to such earnings in accordance with the relevant accounting guidance for income taxes. Should the earnings be remitted as dividends, we may be subject to additional U.S. taxes, net of allowable foreign tax credits. It is not practicable to estimate the amount of any additional taxes which may be payable on the undistributed earnings given the various tax planning alternatives we could employ should we decide to repatriate these earnings in a tax-efficient manner.

Cash paid for income taxes during the years ended September 30, 2017, 2016, and 2015 was $87.8 million, $108.3 million and $81.3 million, respectively.

The provision for income taxes includes all provision to return adjustments included in the year recognized in the financial statements.

We account for uncertain tax positions by recognizing the financial statement effects of a tax position only when, based upon the technical merits, it is "more-likely-than-not" that the position will be sustained upon examination. The total amount of unrecognized tax benefits that, if recognized, would affect our annual effective income tax rate was $1.1 million and $1.1 million at September 30, 2017 and 2016, respectively.

We report interest and penalties as a component of income tax expense. In the fiscal years ending September 30, 2017, 2016 and 2015, we recognized interest expense relating to unrecognized tax benefits of less than $0.1 million in each year. The net liability balance at September 30, 2017 and 2016 includes approximately $0.6 million of interest and penalties.

We recognize and present uncertain tax positions on a gross basis (i.e., without regard to likely offsets for deferred tax assets, deductions and/or credits that would result from payment of uncertain tax amounts). The reconciliation of the beginning and ending amount of gross unrecognized tax benefits was as follows (in thousands):



	Year ended September 30,
	2017		2016			2015
Balance at beginning of year	$	448	$	529		$	812
Lapse of statute of limitation	—		—			(200		)
Increases for tax positions taken in current year	185		—			—
Reductions for tax positions of prior years	—		(81		)	(83		)
Balance at end of year	$	633	$	448		$	529

We file income tax returns in the U.S. federal jurisdiction and in various state and foreign jurisdictions. We are no longer subject to federal income tax examinations for years before 2013 and to state and local income tax examinations by tax authorities for years before 2012. In international jurisdictions, similar rules apply to filed income tax returns, although the tax examination limitations and requirements may vary. We are no longer subject to audit by tax authorities for foreign jurisdictions for years prior to 2012.