Note 12. Income Taxes

For the third fiscal quarter ended July 31, 2020, the Company recorded an income tax benefit of $0.5 million on pretax income of $2.5 million. For the same quarter a year ago, the Company recorded an income tax benefit of $1.9 million on pretax income of $0.8 million.

For the first nine months of fiscal 2020, the Company recorded an income tax benefit of $3.8 million on a pretax loss of $62.6 million. For the Successor period from December 6, 2018 to July 31, 2019, the Company recorded an income tax benefit of $3.1 million on a pretax loss of $13.6 million. For the Predecessor period from November 1, 2018 to December 5, 2018, the Company recorded an income tax benefit of $4.2 million on a pretax loss of $26.8 million. The effective tax rates for the periods presented were not meaningful.

The factors impacting comparability between our effective tax rates for the periods discussed above are as follows:

At July 31, 2020 and October 31, 2019, we had deferred tax liabilities, net of deferred tax assets, of $69.3 million and $69.0 million, respectively. The Company has a valuation allowance of $0.1 million as of both July 31, 2020 and October 31, 2019 related to foreign tax credit carryforwards where realization is more uncertain at this time due to the limited carryforward periods that exist.

The Company had unrecognized tax benefits of $1.6 million and $1.7 million as of July 31, 2020 and October 31, 2019, respectively. If recognized, none of these benefits would favorably impact the Company's income tax expense.

On March 17, 2020, the House of Commons in the U.K. passed a Budget Resolution under the Provisional Collection of Taxes Act of 1968 (the “Budget Resolution”). The Budget Resolution substantively enacted an increase in the U.K. corporate tax rate for tax periods after March 31, 2020 from 17% to 19%. As a result of the Budget Resolution, the Company recorded tax expense of $0.9 million related to the remeasurement of deferred tax assets and liabilities to reflect the increase in the U.K. corporate tax rate.

On March 27, 2020, President Trump signed the Coronavirus Aid, Relief, and Economic Security “CARES” Act into law. The CARES Act includes several significant business tax provisions that, among other things, would eliminate the taxable income limit for certain net operating losses (“NOL”) and allow businesses to carry back NOLs arising in 2018, 2019 and 2020 to the five prior years, accelerate refunds of previously generated corporate alternative minimum tax credits, generally loosen the business interest limitation under IRC section 163(j) from 30 percent to 50 percent among other technical corrections included in the Tax Cuts and Jobs Act tax provisions. The Company has performed the analysis of the CARES Act and with the exception of carrying back certain NOLs discussed in the paragraph below, the Company has concluded that there is no impact as of July 31, 2020. The Company will continue to evaluate how the CARES Act may impact future periods. Also, refer to Note 13.

During fiscal years 2016 and 2017, the Company paid federal income taxes totaling $4.3 million (at a federal income tax rate of 34%). As the Company generated NOL carryforwards during fiscal 2018 and 2019, the CARES Act allowed the Company to carry back those NOLs to the fiscal 2016 and 2017 tax returns. On March 31, 2020, the Company received a demand letter alleging that the Company is required to apply for and remit to the Predecessor’s shareholders certain tax refunds from carrying back certain tax net operating loss carryforwards that were made available as a result of the recent passage of the CARES Act. In the fiscal 2020 third quarter, the Company carried back all NOLs that were generated in fiscal year 2018. Furthermore, in August 2020, the Company carried back a portion of the NOLs accumulated during the fiscal 2019 year. As of the date of filing, no agreement has been reached between the Company and the Predecessor’s shareholders. However, the Company has recorded a $2.0 million estimated loss related to this contingent liability that is included in general and administrative expenses in the accompanying consolidated statements of operations. Following the $1.4 million write-up in the carrying value of the NOL’s as a result of the carryback benefit at a higher tax rate, the net estimated financial impact to the Company is a $0.6 million loss. The corresponding due to related party is included in accrued expenses and other current liabilities in the accompanying consolidated balance sheets.