INCOME TAXES

3 Months Ended

Mar. 31, 2022

Income Tax Disclosure [Abstract]

INCOME TAXES

9. INCOME TAXES

Our effective income tax rate is the ratio of income tax expense (benefit) over our income (loss) before income taxes. The effective income tax rate was 2.3% and 20.2% for the three months ended March 31, 2022 and 2021, respectively. Differences in the effective tax and the statutory Federal income tax rate of 21% are driven by state income taxes and anticipated annual permanent differences, including estimates for tax-exempt interest, dividends received deduction, executive compensation as well as the net operating loss ("NOL") provision and change in the valuation allowance in the current year.

The application of GAAP requires us to evaluate the recoverability of our net deferred income tax assets, including those associated with NOL carryforwards, and establish a valuation allowance, if necessary, to reduce our deferred income tax asset to an amount that is more likely than not to be realizable. Considerable judgment and the use of estimates are required in determining whether a valuation allowance is necessary, and if so, the amount of such valuation allowance. In evaluating the need for a valuation allowance, we consider many factors, including: the nature and character of the deferred income tax assets and liabilities; taxable income in prior carryback years, if any; future reversals of existing temporary differences; the length of time carryovers can be utilized; and any tax planning strategies we would employ to avoid a tax benefit from expiring unused. Realization is never assured and based on available information, including the financial performance of the Company, and determined that it was more likely than not that the net deferred income tax asset would not be realized. Therefore, as of March 31, 2022 and December 31, 2021, we have established a full valuation allowance and no deferred income tax were reflected in net income (loss) for the three months ended March 31, 2022. For additional information, refer to Note 11 of our 2021 Form 10-K.

The Company had an uncertain tax position of $0.2 million and $0.2 million as of March 31, 2022 and December 31, 2021, respectively. The Company has a valuation allowance of $26.0 million and $30.5 million on its deferred income tax asset as of March 31, 2022 and December 31, 2021, respectively.

We recognize accrued interest and penalties related to unrecognized tax benefits in income tax expense (benefit) in the consolidated statements of operations and statements of comprehensive income (loss). For the three months ended March 31, 2022 and 2021, the Company recognized no benefit related to an uncertain tax position and our associated accrued interest and penalties was less than $0.1 million.