|12 Months Ended|
Dec. 31, 2021
8. Income Taxes
There was no income tax expense for the years ended December 31, 2021 and 2020 due to the Company’s net losses. The Company’s tax expense differs from the “expected” tax expense for the years ended December 31, 2021 and 2020. For 2021, 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 6.46% (state blended rate was 8.18%) to loss before taxes. 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 8.17.%) 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, 2021 and 2020 are as follows (in thousands):
8. Income Taxes – (continued)
At December 31, 2021, the Company has a gross Federal net operating loss carry-forward of approximately $58.3 million available to offset future taxable income. The Company’s pre-2018 net operating losses expire on various dates through 2037. In addition, it was determined that the utilization of gross Federal net operating losses of approximately $198.8 million was limited by $155.6 million. due to change of control ownership changes that occurred under Section 382 of the Internal Revenue Code. State NOL’s are also limited by Section 382 of the Internal Revenue Code and were limited accordingly.
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 limited by $155.6 million. The decrease in the prior year net operating loss 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.
An updated section 382 analysis was performed in 2021 to identify if any additional ownership shifts occurred in the current year. It was determined that an ownership shift occurred on January 20, 2021. The result of the updated 2021 analysis produced an IRC 382 limit due to the 2021 ownership shift. However, all previously limited net operating losses remain available for use in future periods. 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.
In December 2019, the FASB issued ASU 20109-12, “Income Taxes Topic 740-Simplifying the Accounting for Income Taxes” (“ASU 2019-12”), which 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. The Company adopted ASU 2019-12 in the current period.
The valuation allowance at December 31, 2021 was approximately $21.5 million. The net change in valuation allowance during the year ended December 31, 2021, was an increase of approximately $4.2 million primarily due to increases in gross federal and state deferred tax assets in 2021. 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, 2021.
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