INCOME TAXES

12 Months Ended

Dec. 31, 2021

INCOME TAXES

INCOME TAXES

10. INCOME TAXES:

A reconciliation of the statutory federal income taxes to the recorded provision for (benefit from) income taxes from continuing operations is as follows:

	For the Years Ended December 31,
	2021		2020
	(In thousands)
Statutory federal tax expense/(benefit)	$	11,391	$	(8,620)
Effect of state taxes, net of federal benefit		2,131		(1,205)
Effect of state rate and tax law changes		(1,201)		(599)
Return to provision adjustments		47		503
Other permanent items		(27)		(213)
Non-deductible meals and entertainment		65		96
Impairment of long-lived intangible assets		—		3,339
Non-deductible officer’s compensation		2,055		1,002
Change in valuation allowance		(13)		28
IRC Section 382 adjustments		(705)		(30,143)
NOL expirations		610		3,000
Stock-based compensation forfeitures and adjustments		—		216
Uncertain tax positions		(777)		(1,923)
Other		1		43
Provision for (benefit from) income taxes	$	13,577	$	(34,476)

The statutory federal tax rate used for the years ended December 31, 2021 and 2020 is 21.0%. Major components of the effective tax rate for the year ended December 31, 2021 and 2020 are related to net operating loss limitations, net operating loss expirations, impairments of long-lived assets, limitation of officer's compensation under IRC Section 162(m), uncertain tax positions and state income taxes.

The components of the provision for (benefit from) income taxes from continuing operations are as follows:

	For the Years Ended
	December 31,
	2021		2020
	(In thousands)
Federal:
Current	$	—	$	—
Deferred		13,395		(27,162)
State:
Current		1,063		552
Deferred		(881)		(7,866)
Provision for (benefit from) income taxes	$	13,577	$	(34,476)

Deferred Income Taxes

Deferred income taxes reflect the impact of temporary differences between the assets and liabilities recognized for financial reporting purposes and amounts recognized for tax purposes. Deferred taxes are based on tax laws as currently enacted. Deferred tax assets are reduced by a valuation allowance if, based upon the weight of available evidence, it is not more likely than not that we will realize some portion or all of the deferred tax assets. The significant components of the Company’s deferred tax assets and liabilities are as follows:

	As of December 31,
	2021		2020
	(In thousands)
Deferred tax assets:
Allowance for doubtful accounts	$	2,111	$	1,924
Accruals		465		2,358
Fixed assets		486		453
Stock-based compensation		163		290
Deferred financing costs		—		1,475
Net operating loss carryforwards		114,217		128,023
Lease liability		10,022		11,592
Interest expense carryforward		15,506		11,934
Other		—		(200)
Total deferred tax assets		142,970		157,849
Valuation allowance for deferred tax assets		(264)		(277)
Total deferred tax asset, net of valuation allowance		142,706		157,572
Deferred tax liabilities:
Intangible assets		(132,586)		(135,848)
Right of use asset		(9,232)		(10,336)
Partnership interests		(1,964)		(1,347)
Deferred financing costs		(1,196)		—
Other		(201)		—
Total deferred tax liabilities		(145,179)		(147,531)
Net deferred tax (liability) asset	$	(2,473)	$	10,041

As of December 31, 2021, the Company had federal and state NOL carryforward amounts of approximately $637.0 million and $410.2 million, respectively. The state NOLs are applied separately from the federal NOLs as the Company generally files separate state returns for each subsidiary. Additionally, the amount of the state NOLs may change if future apportionment factors differ from current factors. During 2016, the Company performed an Internal Revenue Code (“IRC”) Section 382 study (“the study”) and concluded that there was an ownership shift during calendar year 2009 that resulted in an estimated limitation on our federal and state NOLs for approximately $361.1 million and $262.7 million, respectively. During 2018, the Company updated the study for additional information based on additional technical insight into the application of the tax law, which resulted in a decrease to the initial estimated limitation. In 2018, the Company identified certain assets with net unrealized built-in gain that reduced the estimated federal and state limitation by approximately $65.6 million and $52.9 million, respectively. During 2020, the Company further reduced the federal and state limitation by approximately $109.2 million and $93.6 million, respectively. The 2020 reductions of the IRC Section 382 limitation were related to receiving approval from the Internal Revenue Service to retroactively apply a consolidated tax return election to the 2009 income tax return and identifying additional assets with net unrealized built-in gains. The Company continues to assess other potential tax strategies, which if successful, may reduce the impact of the annual limitations and potentially recover NOLs that otherwise would expire before being applied to reduce future income tax liabilities. If successful, the Company may be able to recover additional federal and state NOLs in future periods, which could be material. If we conclude that it is more likely than not that we will be able to realize additional federal and state NOLs, the tax benefit could materially impact future quarterly and annual periods. The federal and state NOLs expire in various years from 2022 to 2039.

As of December 31, 2021, the gross deferred tax assets of approximately $143.0 million were primarily the result of federal and state net operating losses and the IRC Section 163(j) interest expense carryforward. A valuation allowance of $264,000 and $277,000 was recorded against our gross deferred tax asset balance as of December 31, 2021 and December 31, 2020, respectively and is related to state jurisdictions where it is not more likely than not the deferred tax assets will be realized.

The assessment to determine the value of the deferred tax assets to be realized under ASC 740 is highly judgmental and requires the consideration of all available positive and negative evidence in evaluating the likelihood of realizing the tax benefit of the deferred tax assets in a future period. Circumstances may change over time such that previous negative evidence no longer exists, and new conditions should be evaluated as positive or negative evidence that could affect the realization of the deferred tax assets. Since the evaluation requires consideration of events that may occur in some years in the future, significant judgment is required, and our conclusion could be materially different if certain expectations do not materialize.

In the assessment of all available evidence, an important piece of objective verifiable evidence is evaluating a cumulative income or loss position over the most recent three-year period. Historically, the Company has maintained a full valuation against the net deferred tax assets, principally due to a cumulative loss over the most recent three-year period. During the quarter ended December 31, 2018, the Company achieved three years of cumulative income, which removed the most heavily weighed piece of objective verifiable negative evidence from our evaluation of the realizability of deferred tax assets. The Company continues to maintain three years of rolling cumulative income as of December 31, 2021.

Additionally, the Company is projecting forecasts of taxable income to utilize our federal and state NOLs as part of our evaluation of positive evidence. As part of the 2017 Tax Act, IRC Section 163(j) limited the deduction of interest expense. In conjunction with evaluating and weighing the aforementioned negative and positive evidence from the Company’s historical cumulative income or loss position, management also evaluated the impact that interest expense has had on our cumulative income or loss position over the most recent three-year period. A material component of the Company’s expenses is interest, and has been the primary driver of historical pre-tax losses. Adjusting for the IRC Section 163(j) interest expense limitation on projected taxable income, we estimate utilization of federal and state net operating losses that are not subject to annual limitations as a result of the 2009 ownership shift as defined under IRC Section 382.

Realization of the Company’s federal and state net operating losses is dependent on generating sufficient taxable income in future periods, and although the Company believes it is more likely than not future taxable income will be sufficient to utilize the net operating losses, realization is not assured and future events may cause a change to the judgment of the realizability of these deferred tax assets. If a future event causes the Company to re-evaluate and conclude that it is not more likely than not, that all or a portion of the deferred tax assets are realizable, the Company would be required to establish a valuation allowance against the assets at that time which would result in a charge to income tax expense and a decrease to net income in the period which the change of judgment is concluded.

Unrecognized Tax Benefits

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:

	2021		2020
	(In thousands)
Balance as of January 1	$	2,299	$	4,733
Additions for tax positions related to current years		—		—
Additions (deductions) for tax positions related to prior years		8		(2,434)
Deductions for tax positions as a result of the lapse of applicable statutes of limitation		(992)		—
Balance as of December 31	$	1,315	$	2,299

The nature of the uncertainties pertaining to the Company’s income taxes is primarily due to various state income tax positions that affect the amount of state NOLs available to be applied to reduce future state income tax liabilities. The

unrecognized tax benefits liability accrued on our balance sheet decreased by approximately $1.0 million and decreased by approximately $2.4 million during the years ended December 31, 2021 and December 31, 2020, respectively, primarily as a result of state NOL utilizations and expirations, and applicable tax rate changes. As of December 31, 2021, the Company had unrecognized tax benefits of approximately $1.3 million, which if recognized, would impact the effective tax rate.

The Company recognizes accrued interest and penalties related to unrecognized tax benefits as a component of tax expense. There is no material amount of interest and penalties recognized in the statement of operations and the balance sheet for the year ended December 31, 2021. The Company believes that it is reasonably possible that a decrease of up to $680,000 of unrecognized tax benefits related to state tax exposures may be necessary within the coming year.

The Company files income tax returns in the U.S. federal jurisdiction, various state and local jurisdictions and is subject to examination by the various taxing authorities. The Company’s open tax years for federal income tax examinations include the tax years ended December 31, 2018 through 2021. For state and local purposes, the open years for tax examinations include the tax years ended December 31, 2017 through 2021. To the extent that net operating losses are utilized, the year of the loss may be subject to examination.