|12 Months Ended|
Dec. 31, 2021
Note 7 – Income Taxes
The components of income before provision (benefit) for income taxes were as follows (in thousands):
The components of the Company’s provision (benefit) for income taxes were as follows (in thousands):
The Company’s effective tax rate differs from the statutory rates as follows:
The income tax effects of temporary differences that give rise to significant portions of deferred tax assets and liabilities are as follows (in thousands):
Correction of the Prior Period
Subsequent to the issuance of the December 31, 2020 consolidated financial statements, management determined that the deferred tax assets and deferred tax liabilities related to the right-of-use asset and lease liabilities were incorrectly presented on a net basis as deferred rent liabilities and lease incentives for the year ended December 31, 2020. To correct for the classification on a gross basis, the Company presented the operating lease liabilities line item of $15.3 million as a deferred tax asset and operating lease right-of-use assets line item of $10.4 million as a deferred tax liability. Management also determined that the deferred tax liability line item for the ASC 740-10 liability of $0.1 million for the year ended December 31, 2020 should have been netted against the deferred tax asset line item for net operating loss. Net operating loss is the tax attribute for which the ASC 740-10 liability reduces the amount that is more-likely-than-not to be realized. To correct for the misclassification of the uncertain tax position, the Company removed the ASC 740-10 liability line item from Deferred tax liabilities and netted it against the net operating loss line item, resulting in $6.0 million net operating loss as of December 31, 2020. Management has evaluated the materiality of these corrections and concluded that they are not material to the prior periods.
As of December 31, 2021, the Company has federal net operating loss (“NOL”) carryforwards of $13.7 million which have no expiration date. The Company has various state NOL carryforwards. The determination of the state NOL carryforwards is dependent upon apportionment percentages and state laws that can change from year to year and impact the amount of such carryforwards. The state NOLs expire at various dates fromto . The state and local tax credit carryforwards expire at various dates from 2022 through 2028.
In assessing the realizability of deferred tax assets, the Company evaluates whether it is more likely than not that the deferred tax assets will be realized. In the assessment of the valuation allowance, appropriate consideration was given to all positive and negative evidence including current operating results, tax planning strategies and forecasts of future earnings. As of December 31, 2021 and December 31, 2020, the Company has valuation allowance of $0.3 million and $0.3 million, respectively, related to foreign tax credits the Company does not expect to utilize as a result of generating income in a jurisdiction with a higher income tax rate than the U.S.
Uncertain tax positions
The following table summarizes the activity related to the Company’s uncertain tax positions (in thousands):
Included in the balance of unrecognized tax benefits as of December 31, 2021 and December 31, 2020, are $0.1 million and $0.1 million, respectively, of tax benefits that, if recognized, would result in adjustments to deferred taxes. Management believes it is reasonably possible that a nominal amount of the uncertain tax position as of December 31, 2021 will decrease within the next twelve months.
The Company is subject to income taxes in the U.S. federal jurisdiction, and the various states and local jurisdictions in which it operates. Tax regulations within each jurisdiction are subject to the interpretation of the related tax laws and regulations and require significant judgment to apply. The Company’s federal tax filings remain subject to examination for federal tax years 2018 through 2020. The Company’s state and local tax filings remain subject to examination for tax years 2018 through 2020. NOL carryforwards are subject to examination regardless of whether the tax year in which they are generated has been closed by statute. The amount subject to disallowance is limited to the NOL utilized. Accordingly, the Company may be subject to examination for prior NOLs generated as such NOLs are utilized.
The Company’s foreign income tax returns prior to fiscal year 2018 are closed and management continually evaluates expiring statutes of limitations, audits, proposed settlements, changes in tax law and new authoritative rulings.
The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.
Reference 1: http://www.xbrl.org/2003/role/disclosureRef