Income Taxes

12 Months Ended

Jul. 31, 2023

Income Tax Disclosure [Abstract]

Income Taxes

Note 19—Income Taxes

The components of income before income taxes are as follows:

Year ended July 31 (in thousands)	2023		2022		2021
Domestic	$	48,036	$	25,025	$	60,969
Foreign		12,771		9,858		4,255
INCOME BEFORE INCOME TAXES	$	60,807	$	34,883	$	65,224

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

July 31 (in thousands)	2023			2022
Deferred income tax assets:
Bad debt reserve	$	1,117		$	959
Accrued expenses		4,825			3,570
Stock options and restricted stock		361			42
Charitable contributions		724			730
Depreciation		(585	)		(640	)
Unrealized gain		4,407			2,895
Net operating loss		23,870			40,733
Total deferred income tax assets		34,719			48,289
Valuation allowance		(10,618	)		(11,588	)
NET DEFERRED INCOME TAX ASSETS	$	24,101		$	36,701

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)	2023			2022			2021
Current:
Federal	$	(47	)	$	(45	)	$	—
State and local		(1,511	)		(863	)		(512	)
Foreign		(1,275	)		(729	)		(811	)
		(2,833	)		(1,637	)		(1,323	)
Deferred:
Federal		(14,340	)		(2,596	)		26,408
State and local		16			(19	)		(57	)
Foreign		716			(1,626	)		6,639
		(13,608	)		(4,241	)		32,990
(PROVISION FOR) BENEFIT FROM INCOME TAXES	$	(16,441	)	$	(5,878	)	$	31,667

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)	2023			2022			2021
U.S. federal income tax at statutory rate	$	(12,770	)	$	(7,325	)	$	(13,697	)
Valuation allowance		970			1,147			47,862
Foreign tax rate differential		(1,068	)		(1,059	)		(190	)
Nondeductible expenses		(1,767	)		2,044			(636	)
Other		(625	)		1			299
Foreign restructuring		—			—			(1,510	)
State and local income tax, net of federal benefit		(1,181	)		(686	)		(461	)
(PROVISION FOR) BENEFIT FROM INCOME TAXES	$	(16,441	)	$	(5,878	)	$	31,667

The Company’s cumulative undistributed foreign earnings are included in retained earnings in the Company’s consolidated balance sheets and consisted of approximately $302 million at July 31, 2023. The Company has concluded that the earnings remain permanently reinvested.

At July 31, 2023, the Company had U.S. federal net operating loss carryforwards of approximately $37 million. These loss carryforwards are available to offset future U.S. federal taxable income. U.S. federal net operating loss carryforwards of $34 million expire in fiscal 2028 through fiscal 2038, and $3 million do not expire. The Company has foreign net operating loss carryforwards of approximately $77 million, of which approximately $65 million does not expire, approximately $11 million expires in two to ten years and approximately $1 million expires in twenty years. These foreign loss carryforwards are available to offset future taxable income in the countries in which the losses were incurred. The Company’s subsidiary, net2phone, has additional U.S. federal net operating loss carryforwards of approximately $7 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 loss carryforwards 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
2023
Reserves deducted from deferred income taxes, net:
Valuation allowance	$	11,588	$	2,537	$	(3,507	)	$	10,618
2022
Reserves deducted from deferred income taxes, net:
Valuation allowance	$	11,540	$	48	$	—		$	11,588
2021
Reserves deducted from deferred income taxes, net:
Valuation allowance	$	58,700	$	835	$	(47,995	)	$	11,540

In fiscal 2023, the Company decreased the valuation allowance by $1.0 million, which included a decrease of $2.8 million due to the utilization or disposal of previously valued deferred income tax assets and a release of $0.7 million for profitability in the United Kingdom, net of an establishment of $2.5 million for deferred income tax assets that were not more likely than not going to be utilized prior to expiration.

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 Accounting Standards Codification 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.

At July 31, 2023 and 2022, the Company did not have any unrecognized income tax benefits. There were no changes in the balance of unrecognized income tax benefits in fiscal 2023, fiscal 2022, and fiscal 2021. At July 31, 2023, the Company did not expect any changes in unrecognized income tax benefits during the next twelve months. In fiscal 2023, fiscal 2022, and fiscal 2021, the Company did not record any interest and penalties on income taxes. At July 31, 2023 and 2022, there was no accrued interest included in current income taxes payable.

The Company currently remains subject to examinations of its tax returns as follows: U.S. federal tax returns for fiscal 2020 to fiscal 2023, state and local tax returns generally for fiscal 2019 to fiscal 2023, and foreign tax returns generally for fiscal 2019 to fiscal 2023.