QUANTA SERVICES INC

12. INCOME TAXES:

The components of income before income taxes were as follows (in thousands):

The components of the provision for income taxes were as follows (in thousands):

Income taxes related to other income (loss) within other comprehensive income (loss) was an expense of $0.4 million, a benefit of $0.2 million and an expense of $0.4 million for the years ended December 31, 2023, 2022 and 2021. There wasno tax on foreign currency translation adjustment within other comprehensive income (loss) for the years ended December 31,

2023, 2022 and 2021.

The actual income tax provision differed from the income tax provision computed by applying the U.S. federal statutory corporate rate to income before provision for income taxes as follows (in thousands):

Deferred income taxes result from temporary differences in the recognition of income and expenses for financial reporting purposes and tax purposes. The tax effects of these temporary differences, representing deferred tax assets and liabilities, result principally from the following (in thousands):

The net deferred income tax assets and liabilities comprised the following in the accompanying consolidated balance sheets (in thousands):

The valuation allowances for deferred income tax assets at December 31, 2023, 2022 and 2021 were $40.0 million, $58.5 million and $41.3 million. These valuation allowances relate to state and foreign net operating loss carryforwards and foreign tax credits. The valuation allowances were established primarily as a result of uncertainty in Quanta’s outlook as to the amount and character of future taxable income in particular tax jurisdictions. Quanta believes it is more likely than not that it will realize the benefit of its deferred tax assets net of existing valuation allowances.

The net changes in the total valuation allowance for each of the years ended December 31, 2023, 2022 and 2021 were a decrease of $18.5 million, an increase of $17.2 million and a decrease of $1.9 million. The change in valuation allowance during the year ended December 31, 2023 resulted in a $20.2 million decrease in tax expense, primarily due to the release of the $22.7 million valuation allowance on Quanta’s investment in Starry, and a $2.9 million reduction due to utilization of certain foreign net operating losses. These decreases were partially offset by $5.6 million of new valuation allowances primarily placed on foreign net operating losses during the year. The total valuation allowance also increased by $1.7 million in currency translation adjustments on previously provided valuation allowances. During the year ended December 31, 2022, Quanta recognized $91.5 million of unrealized losses on its investment in Starry and recorded a valuation allowance against such unrealized losses. During the three months ended March 31, 2023, Starry filed for bankruptcy under Chapter 11 of the U.S. Bankruptcy Code, as amended. On August 31, 2023, the equity securities held by Quanta were cancelled pursuant to an approved plan of reorganization in such bankruptcy proceeding. As a result, Quanta’s cumulative $91.5 million loss on its investment in Starry was realized during the year ended December 31, 2023. This realized loss can be utilized to offset gains from tax years 2020 through 2023, and can be carried forward to offset future capital gains realized in tax years 2024 through 2028. Quanta has identified sufficient sources of capital loss carry backs and forecasted capital gain income in these periods such that the full $22.7 million valuation allowance on the Starry capital loss was released during the year ended December 31, 2023.

The change in valuation allowance during the year ended December 31, 2022 resulted in a $23.3 million increase in tax expense due primarily to $22.7 million in new valuation allowances recorded on unrealized losses on Quanta’s investment in Starry as further described above and in Note 8. The total valuation allowance increased by $17.2 million from December 31, 2021 to December 31, 2022 primarily as a result of the $22.7 million valuation allowance related to Starry mentioned above, partially offset by a reduction of $4.8 million due to the removal of deferred tax assets that were no longer available to be carried forward to future years for which a valuation allowance had been provided in prior years, as well as currency translation adjustments on previously provided valuation allowances.

The change in valuation allowance during the year ended December 31, 2021 resulted in a $6.1 million increase in tax expense due to approximately $8.5 million of new valuation allowances primarily recorded on foreign net operating losses, which was partially offset by a $2.4 million valuation allowance release recorded due to the completion of certain internal restructuring efforts that increased management’s visibility into future utilization of certain state net operation losses.

At December 31, 2023, Quanta had state and foreign net operating loss carryforwards, the tax effect of which was $63.9 million. These carryforwards will expire as follows: 2024, $0.1 million; 2025, $5.7 million; 2026, $1.1 million; 2027, $1.1 million; and $55.9 million after 2028. A valuation allowance of $30.4 million has been recorded against certain foreign and state net operating loss carryforwards.

Quanta generally does not provide for taxes related to undistributed earnings of its foreign subsidiaries because such earnings either would not be taxable when remitted or they are considered to be indefinitely reinvested. Quanta could also be subject to additional foreign withholding taxes if it were to repatriate cash that is indefinitely reinvested outside the United States, but it does not expect such amount to be material.

A reconciliation of unrecognized tax benefit balances is as follows (in thousands):

The balances of unrecognized tax benefits, the amount of related interest and penalties and what Quanta believes to be the range of reasonably possible changes in the next 12 months are as follows (in thousands):

Quanta classifies interest and penalties within the provision for income taxes. Quanta recognized interest expense of $0.5 million, interest expense of $0.5 million and interest income of $0.8 million in the provision for income taxes for the years ended December 31, 2023, 2022 and 2021.

Quanta’s consolidated federal income tax returns for tax years 2017, 2018, 2020, and 2021 remain open to examination by the IRS, as the applicable statute of limitations periods have not yet expired. Additionally, various state and foreign tax returns filed by Quanta and certain subsidiaries for multiple periods remain under examination by various U.S. state and foreign tax authorities. Quanta does not consider any U.S. state in which it does business to be a major tax jurisdiction.