Income Taxes

12 Months Ended

Jul. 31, 2021

Income Tax Disclosure [Abstract]

Income Taxes

Note 18—Income Taxes

The components of income before income taxes are as follows:

Year ended July 31 (in thousands)	2021		2020
Domestic	$	60,969	$	13,380
Foreign		4,255		4,338
INCOME BEFORE INCOME TAXES	$	65,224	$	17,718

Significant components of the Company’s deferred income tax assets consist of the following:

July 31 (in thousands)	2021			2020
Deferred income tax assets:
Bad debt reserve	$	1,011		$	854
Accrued expenses		3,456			2,963
Stock options and restricted stock		980			1,226
Charitable contributions		778			659
Depreciation		(373	)		(71	)
Unrealized gain		(1,826	)		(302	)
Net operating loss		49,368			62,588
Deferred revenue		(352	)		(705	)
Total deferred income tax assets		53,042			67,212
Valuation allowance		(11,540	)		(58,700	)
NET DEFERRED INCOME TAX ASSETS	$	41,502		$	8,512

IDT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The (provision for) benefit from income taxes consist of the following:

Year ended July 31 (in thousands)	2021			2020
Current:
Federal	$	—		$	—
State and local		(512	)		(46	)
Foreign		(811	)		(177	)
		(1,323	)		(223	)
Deferred:
Federal		26,408			8,345
State and local		(57	)		12
Foreign		6,639			(4,434	)
		32,990			3,923
BENEFIT FROM INCOME TAXES	$	31,667		$	3,700

The differences between income taxes expected at the U.S. federal statutory income tax rate and income taxes provided are as follows:

Year ended July 31 (in thousands)	2021			2020
U.S. federal income tax at statutory rate	$	(13,697	)	$	(3,721	)
Valuation allowance		47,862			15,470
Foreign tax rate differential		(190	)		(3,702	)
Nondeductible expenses		(636	)		(813	)
Other		299			88
Foreign restructuring		(1,510	)		(3,266	)
State and local income tax, net of federal benefit		(461	)		(356	)
BENEFIT FROM INCOME TAXES	$	31,667		$	3,700

The Company’s cumulative undistributed foreign earnings are included in accumulated deficit in the Company’s consolidated balance sheets and consisted of approximately $351 million at July 31, 2021. The Company has concluded that the earnings remain permanently reinvested.

At July 31, 2021, the Company had federal net operating loss carryforwards of approximately $104 million. These carry-forward losses are available to offset future U.S. federal taxable income. Federal net operating loss carryforwards of $101 million expire in fiscal 2027 through fiscal 2038. The Company has foreign net operating losses of approximately $82 million, of which approximately $77 million does not expire, approximately $4 million expires in two to ten years and $1 million expires in twenty years. These foreign net operating losses are available to offset future taxable income in the countries in which the losses were incurred. The Company’s subsidiary, net2phone, has additional federal net operating losses of approximately $42 million, which will expire through fiscal 2027. With the reacquisition of net2phone by the Company in March 2006, its losses were limited under Internal Revenue Code Section 382 to approximately $7 million per year. The net operating losses do not include any excess benefits related to stock options or restricted stock.

IDT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The change in the valuation allowance is as follows:

Year ended July 31 (in thousands)	Balance at beginning of year		Additions charged to costs and expenses		Deductions			Balance at end of year
2021
Reserves deducted from deferred income taxes, net:
Valuation allowance	$	58,700	$	835	$	(47,995	)	$	11,540
2020
Reserves deducted from deferred income taxes, net:
Valuation allowance	$	74,170	$	—	$	(15,470	)	$	58,700

In fiscal 2021, the Company released $46.5 million of its valuation allowance on the portion of the deferred income tax assets that it is more likely than not going to utilize. This release was mostly related to domestic deferred income tax assets. The Company used the framework of ASC Income Taxes (Topic 740) to determine whether the valuation allowance should be maintained or reversed. The Company considered the scheduled expiration of its net operating losses included in its deferred tax assets, projected future taxable income, and tax planning strategies in its assessment of the valuation allowance. The primary factors that resulted in the valuation allowance release were the three consecutive years of profitability in the United States and expected future profitability in both the United States and the United Kingdom that will utilize a significant portion of the net operating losses. The Company’s tax planning strategies were not a significant factor in the analysis.

In fiscal 2020, due to taxable income in the United States, the Company utilized deferred tax assets and released the corresponding valuation allowance to offset income tax expense of $3.5 million. In addition, in fiscal 2020, the Company released an additional $8.4 million of the valuation allowance on the portion of the deferred tax assets that it is more likely than not going to utilize because the Company forecasted future profitability in the United States.

At July 31, 2021 and 2020, the Company did not have any unrecognized income tax benefits. There were no changes in the balance of unrecognized income tax benefits in fiscal 2021 and fiscal 2020. At July 31, 2021, the Company did not expect any changes in unrecognized income tax benefits during the next twelve months. In fiscal 2021 and fiscal 2020, the Company did not record any interest and penalties on income taxes. At July 31, 2021 and 2020, there was no accrued interest included in current income taxes payable.

In September 2017, the Company, IDT DT, and certain other affiliates were certified by the New Jersey Economic Development Authority as having met all of the requirements of the Grow New Jersey Assistance Act Tax Credit Program. The program provides for credits against a corporation’s New Jersey corporate business tax liability and that, tax credits may be sold subject to certain conditions. The tax credits are dependent on the corporation maintaining a minimum number of employees in New Jersey. The Company has applied for several years of credits but has not yet received any credits and the Company is not assured of receiving any credits.

The Company currently remains subject to examinations of its tax returns as follows: U.S. federal tax returns for fiscal 2018 to fiscal 2021, state and local tax returns generally for fiscal 2017 to fiscal 2021, and foreign tax returns generally for fiscal 2017 to fiscal 2021.