|12 Months Ended|
Dec. 31, 2020
8. Income Taxes
There was no income tax expense for the years ended December 31, 2020 and 2019 due to the Company’s net losses. The Company’s tax expense differs from the “expected” tax expense for the years ended December 31, 2020 and 2019. For 2020, the “expected” tax expense is computed by applying the Federal corporate statutory tax rate of 21% and a net, after Federal benefit state tax rate of 6.45% (state blended rate was 27.45%) to loss before taxes. For 2019, the “expected” tax expense is computed by applying the Federal corporate statutory tax rate of 21% and a net, after Federal benefit state tax rate of 4.74% (state blended rate was 24.74.%) to loss before taxes. These results are as follows (in thousands):
The effects of temporary differences that gave rise to significant portions of deferred tax assets at December 31, 2020 and 2019 are as follows (in thousands):
At December 31, 2020, the Company has a gross Federal net operating loss carry-forward of approximately $43.3 million available to offset future taxable income. The Company’s pre-2018 net operating losses expire on various dates through 2037. In 2020, the Company completed an Internal Revenue Code Section 382 analysis of its historical net operating loss carry-forward amount. As a result, the prior year net operating loss carry-forward of $188.6 million was determined to be limited by $155.6 million. The decrease in the prior year net operating loss carry-forward is attributable to change of control ownership shifts which were determined for the years 2013 and 2018 which caused the reduction in the value of the historical net operating loss carry-forward amounts. Since the limitation affected the prior period, the Company has determined that its 2019 tax footnote presentation was incorrect by overstating the gross net operating loss deferred tax asset and corresponding valuation allowance. However, there was no net impact to the net deferred tax asset and tax expense as the decrease in the net operating loss carry-forward was offset completely by a corresponding adjustment to the Company’s overall valuation allowance. For comparative purposes, the Company’s prior year tax footnote has been revised to reflect the adjustment to the net operating losses and valuation allowance.
After the change noted above to the Company’s net operating loss carry-forward amounts, at December 31, 2020 the Company has a net operating loss carry-forward of approximately $43.3 million available to offset future taxable income. The December 31, 2020 net operating loss carry-forward consists of $33.0 million of pre-2020 net operating loss carry-forward and $10.3 million of current year net operating loss carry-forward. The Company’s pre-2018 net operating losses expire on various dates through 2037 while the net operating loss carry-forward originating in the 2018 year and later carry-forward indefinitely and are subject to additional limitations based on taxable income.
The Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act") was enacted in March 2020. The CARES Act includes several U.S. income tax provisions related to, among other things, net operating loss carrybacks, alternative minimum tax credits, modifications to the net interest deduction limitations, and technical amendments regarding the income tax depreciation of qualified improvement property placed in service after December 31, 2017. The CARES Act is not expected to have a material impact on the Company's financial results.
In December 2019, the FASB issued ASU 2019-12, “Income Taxes Topic 740-Simplifying the Accounting for Income Taxes” (“ASU 2019-12”), which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application of Topic 740. This guidance is effective for fiscal years beginning after December 15, 2020, including interim periods therein, and early adoption is permitted. Based on the Company’s preliminary analysis, adoption of Topic 740 in 2021 is not expected to have a material effect on the Company’s consolidated financial statements.
The valuation allowance at December 31, 2020 was approximately $17.3 million. The net change in valuation allowance during the year ended December 31, 2020 was an increase of approximately $3.9 million primarily due to increases in gross federal and state deferred tax assets in 2020 and state tax rate change from the previous period. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred income tax assets will not be realized. The ultimate realization of deferred income tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred income tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. Based on consideration of these items, management has determined that enough uncertainty exists relative to the realization of the deferred income tax asset balances to warrant the application of a full valuation allowance as of December 31, 2020.
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