Income Taxes

12 Months Ended

Dec. 31, 2021

Income Tax Disclosure [Abstract]

Income Taxes

Note 13. Income Taxes

Components of income (loss) from continuing operations before income taxes (in thousands):

	Years ended December 31,
	2021		2020
United States operations	$	(17,998)	$	(8,241)
Foreign operations	(3,015)		3,182
Loss before income taxes	$	(21,013)	$	(5,059)

Components of income tax expense (benefit) (in thousands):

	Years ended December 31,
	2021		2020
Current:
United States federal	$	117	$	202
State and local	54		20
Foreign	125		530
Total current	296		752
Deferred:
United States federal	9		(495)
Foreign	174		(202)
Total deferred	183		(697)
Total income tax expense	$	479	$	55

Income tax expense differs from “expected” income tax expense (computed by applying the U.S. federal income tax rate of 21% in 2021 and 2020) from continuing operations before income taxes due to the following (in thousands):

	Years ended December 31,
	2021		2020
United States federal tax benefit at statutory rate	$	(4,413)	$	(1,062)
State taxes, net of United States federal tax expense (benefit)	599		(807)
Change in valuation allowance	5,383		2,545
Non-deductible stock compensation	585		1,406
Impact of non-U.S. jurisdictional tax rate difference	(188)		(169)
Research and development tax credit	(156)		(183)
Non-U.S. withholding tax	93		229
Change in indefinite reinvestment assertion	76		(8)
Contingent consideration	(218)		(1,806)
PPP Loan Forgiveness	(608)		—
Other	(674)		(90)
Total income tax expense	$	479	$	55

Net deferred tax assets, which are recorded at December 31, 2021 and December 31, 2020 using a 21% tax rate, are comprised of the following (in thousands):

	December 31,
	2021		2020
Deferred tax assets:
United States federal net operating loss carryforwards	$	70,564	$	67,451
Deferred expenses	297		314
Research and development tax credit carryforwards	13,025		13,350
Right of use asset	771		2,103
Stock-based compensation	1,547		1,498
State net operating loss carryforwards	9,611		8,516
Foreign net operating loss carryforwards	27,433		27,589
Deferred revenue	36		27
Equipment, software, and leasehold improvements	1,402		1,841
Intangibles	6,066		7,392
Other	2,770		1,370
Gross deferred tax assets	133,522		131,451
Less valuation allowance	(131,522)		(128,314)
Gross deferred tax assets, net of valuation allowance	$	2,000	$	3,137
Deferred tax liabilities:
Other intangible assets	$	(146)	$	(158)
Lease liability	(668)		(1,579)
Undistributed foreign earnings	(954)		(937)
Other	(637)		(683)
Gross deferred tax liabilities	(2,405)		(3,357)
Net deferred tax liabilities	$	(405)	$	(220)

As of December 31, 2021, we maintained a valuation allowance of $131.5 million for our deferred tax assets that we believe are not more likely than not to be realized. The net change in valuation allowance was a $3.2 million increase and a $32.5 million decrease during the years ended December 31, 2021 and 2020, respectively. The net increase in the valuation allowance since December 31, 2020 of $3.2 million was primarily the result of an increase in current year deferred tax assets for which the Company maintains a valuation allowance.

RealNetworks' U.S. federal net operating loss carryforwards totaled $336.0 million and $321.2 million at December 31, 2021 and 2020, respectively. The increase is mainly due to net operating loss carryforwards from the current year U.S. taxable loss. The remaining net operating loss carryforwards as of December 31, 2021 are from prior U.S. taxable losses and from acquired subsidiaries. These net operating loss carryforwards expire between 2024 and 2037.

Income tax receivables were $0.0 million and $0.1 million at December 31, 2021 and 2020.

RealNetworks' U.S. federal research and development tax credit carryforward totaled $13.0 million and $13.4 million at December 31, 2021 and 2020. The research and development credit carryforwards expire between 2022 and 2041.

As of December 31, 2018, the Company no longer intends to indefinitely reinvest substantially all of the Company's foreign earnings outside of the U.S. We have a recorded deferred tax liability of $1.0 million and $0.9 million as of December 31, 2021 and 2020, respectively, for local country and foreign withholding taxes associated with the repatriation of such foreign earnings.

In both of the years ended December 31, 2021 and 2020, RealNetworks had $0.7 million in uncertain tax positions. The unrecognized tax benefits are due to federal research and development tax credit carryforward risks. We do not anticipate that the total amount of unrecognized tax benefits will significantly change within the next twelve months.

We recognize interest and penalties related to unrecognized tax benefits within the provision for income taxes. As of December 31, 2021, we have no accrued interest or penalties related to uncertain tax positions.

Reconciliation of the beginning and ending balances of the total amounts of unrecognized tax benefits (in thousands):

	Years ended December 31,
	2021		2020
Balance, beginning of year	$	655	$	5,020
Increases related to prior year tax positions	—		77
Decreases related to prior year tax positions	(18)		(4,564)
Increases related to current year tax positions	104		122
Balance, end of year	$	741	$	655