INCOME TAXES

12 Months Ended

Dec. 31, 2020

During the year ended December 31, 2020, the Company recognized income tax expense of $25 thousand from continuing operations and the effective tax rate was 0.45%. During the year ended December 31, 2019, the Company recognized income tax expense of $2 thousand and the effective tax rate was 0.29%.

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The Company assesses available positive and negative evidence to estimate whether sufficient future taxable income will be generated to permit use of existing deferred tax assets. The cumulative loss incurred by the Company over the three-year period ended December 31, 2020 constitutes a significant piece of objective negative evidence. Such objective negative evidence limits the ability to consider other subjective evidence, such as our projections for future profitability and growth. Based on this evaluation, as of December 31, 2020, the Company maintained a full valuation allowance against net deferred tax assets as their realization did not meet the more-likely-than-not criterion. The amount of deferred tax assets considered realizable, however, could be adjusted in the future if objective negative evidence in the form of cumulative losses is no longer present and additional weight is given to subjective evidence such as our projections for future profitability and growth. With a full valuation allowance, any change in the deferred tax asset or liability is fully offset by a corresponding change in the valuation allowance.

The Company currently has approximately $146 million in Net Operating Losses (“NOLs), which is based on current statutory tax rates, including the lower corporate tax rate enacted by the Tax Act. If unused, these NOLs will begin expiring in 2027. Under Code Section 382 (“Section 382”) rules, if a change of ownership is triggered, the Company’s NOL assets and possibly certain other deferred tax assets may be impaired. We estimate that as of December 31, 2020, the three-year cumulative shift in ownership of the Company’s stock has not triggered a limitation in the use of our NOL asset. However, if an ownership change were to occur, the Section 382 limitation would not be expected to materially impact the Company’s financial position or results of operations as of December 31, 2020, because the Company has recorded a full valuation allowance on substantially all of its net deferred tax assets.

The Company’s ability to use its NOLs (and in certain circumstances, future built-in losses and depreciation deductions) can be negatively affected if there is an “ownership change” as defined under Section 382. In general, an ownership change occurs whenever there is a shift in ownership by more than 50 percentage points by one or more 5% stockholders over a specified time period (generally three years). Given Section 382’s broad definition, an ownership change could be the unintended consequence of otherwise normal market trading in the Company’s stock that is outside of the Company’s control. In an effort to preserve the availability of these NOLs, Comstock adopted a Section 382 rights agreement, which expired in May 2014. In June 2015, at the 2015 Annual Meeting of Stockholders, the Company’s stockholders approved a new Internal Revenue Code Section 382 Rights Agreement (the “Rights Agreement”) to protect stockholder value. The Rights Agreement expires on March 27, 2025. The Rights Agreement was adopted to reduce the likelihood of such an unintended “ownership change”, thus preserving the value of these tax benefits. Similar plans have been adopted by a number of companies holding similar significant tax assets over the past several years.

The Company has not recorded any accruals related to uncertain tax positions as of December 31, 2020 and 2019, respectively. We file U.S. and state income tax returns in jurisdictions with varying statutes of limitations. The 2017 through 2019 tax years remain subject to examination by federal and most state tax authorities. The income tax provision for continuing operations consists of the following as of December 31:


	2020		2019
Deferred:
Federal	$	(143)	$	178
State	(26)		32
	(169)		210
Valuation allowance	194		(208)
Total income tax expense	$	25	$	2

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Components of the Company’s deferred tax assets and liabilities at December 31, 2020 and 2019 are as follows:


	2020		2019
Deferred tax assets:


Net operating loss and tax credit carryforwards	$	37,899	$	37,440

Stock based compensation	648		502
Investment in affiliates	264		482
Deferred Revenue - Advance payment	—		64
Other	14		213
Depreciation and amortization	37		—
	38,862		38,701
Less - valuation allowance	(38,780)		(38,601)
Net deferred tax assets	82		100
Deferred tax liabilities:
Depreciation and amortization	—		(55)
Goodwill amortization	(103)		(56)
Net deferred tax liabilities	(103)		(111)
Net deferred tax assets (liabilities)	$	(21)	$	(11)

A reconciliation of the statutory rate and the effective tax rate after adjustments for non-includable partnership income arising from non-controlling interest follows:


	2020		2019
Federal statutory rate	(21.00	%)	(21.00	%)
State income taxes - net of federal benefit	(4.93	%)	(4.74	%)
Permanent differences	22.77	%	(0.44	%)
Return to provision adjustments	(0.81)	%	0.42	%
Change in valuation allowance	(8.48)	%	25.47	%
Current state income tax	—	%	—	%
Change in enacted state rates	13.53	%	—	%
Other, net	(1.53)	%	—	%
Effective tax rate	(0.45	%)	(0.29	%)

- Definition

The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.

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