INCOME TAXES

12 Months Ended

Dec. 31, 2019

The provision (benefit) for income taxes consists of the following (in thousands):


	Successor Company								Predecessor Company
	Year Ended December 31, 2019		Year Ended December 31, 2018		Period from February 1, 2017 to December 31, 2017		Period from January 1, 2017 to January 31, 2017
Current tax provision:
Foreign	$	201	$	212	$	164	$	11
Federal	4,668		1,283		—		—
State	1,591		182		—		—
Total Current	6,460		1,677		164		11

Deferred tax provision (benefit):
Federal	1,290		93		596		(1,792)
State	573		98		(226)		(422)
Total deferred	1,863		191		370		(2,214)
Total tax provision (benefit):	$	8,323	$	1,868	$	534	$	(2,203)

A reconciliation between the income tax provision (benefit) at the U.S. statutory tax rate and the Company’s income tax provision (benefit) on the consolidated statements of operations and comprehensive income (loss) is below (in thousands):


	Successor Company												Predecessor Company
	Year Ended December 31, 2019			Year Ended December 31, 2018			Period from February 1, 2017 to December 31, 2017			Period from January 1, 2017 to January 31, 2017
Income (loss) before income taxes	$	27,932		$	(5,376)		$	(9,640)		$	(5,521)
US statutory tax rate	21		%	21		%	34		%	34		%
Income tax (benefit) expense at statutory rate	5,866			(1,129)			(3,277)			(1,877)

State tax expense (benefit), net of federal	1,639			145			(182)			(279)
Foreign tax rates different from U.S. statutory rate	260			146			95			(46)
Non-deductible expenses	374			1,978			3,309			1
Write-off of transaction costs	—			321			—			—
Write-off of net operating losses	—			314			—			—
Change in tax rate	71			76			604			—
Other	113			17			(15)			(2)
Total tax provision (benefit)	$	8,323		$	1,868		$	534		$	(2,203)

As presented in the income tax reconciliation above, the tax provision (benefit) recognized on the consolidated statements of operations and comprehensive income (loss) was impacted by state taxes, non-deductible expenses, such as offering costs, share-based compensation expense, transaction costs and foreign tax rates applicable to the Company’s foreign subsidiaries that are higher or lower than the U.S. statutory rate. The effective tax rate for the Successor period from February 1, 2017 through December 31, 2017 is also affected by a reduction in the corporate tax rate from 34% to 21% as a result of the Act. The Company is subject to tax in various U.S. state jurisdictions. Changes in the annual allocation and apportionment of the Company’s activity amongst these state jurisdictions results in changes to the blended state rate utilized to measure the Company’s deferred tax assets and liabilities.

Deferred tax assets and liabilities are recognized for the expected tax consequences of temporary differences between the book and tax bases of the Company's assets and liabilities. The following table outlines the principal components of the deferred tax assets and liabilities as of December 31 (in thousands):


	2019		2018
Deferred tax assets:
U.S. federal and state net operating losses	$	6,385	$	7,567
Foreign net operating losses	73		—
Allowance for doubtful accounts	275		287
Interest expense carryforwards	—		2,525
Share-based compensation	897		294
Accrued compensation	279		281
Deferred revenue	653		—
Accrued TCPA claim	880		—
Other	—		213
Total deferred tax assets	9,442		11,167

Deferred tax liabilities
Depreciation	(1,918)		(1,134)
Intangible amortization	(6,710)		(7,766)
Total deferred tax liabilities	(8,628)		(8,900)

Valuation allowance	(73)		—

Net deferred tax asset	$	741	$	2,267

At December 31, 2019, the Company had federal and state net operating loss carryforwards of approximately $25.9 million and $23.9 million, respectively, which are available to reduce future taxable income. With few exceptions, these net operating loss carryforwards will expire from 2029 through 2037. On February 1, 2017, the Company was acquired by Stella Point (see Note 3). On July 26, 2018, the Company consummated the Merger with FinTech (see Note 3). These transactions were considered changes of ownership under Internal Revenue Code Section 382. After the changes of ownership, utilization of the Company’s net operating loss carryforwards is now subject to an annual limitation. The Company has recorded a deferred tax asset for only the portion of its net operating loss carryforward that it expects to realize before expiration.

In 2018, FinTech Acquisition Corp II was notified by the IRS that its 2017 federal income tax return was selected for examination. In 2019, the exam was closed with no adjustments. In January 2020, Intermex was notified by the IRS that its 2017 federal income tax return was selected for examination. The Company has complied with all information requested to date. As of December 31, 2019 and 2018, no amounts for tax, interest, or penalties have been paid or accrued as a result of this examination.

In accordance with criteria under FASB guidance, Income Taxes, a valuation allowance is recorded to reduce the carrying amounts of deferred tax assets unless it is more likely than not that such assets will be realized. After consideration of all evidence, both positive and negative, management has determined that no valuation allowance is required at December 31, 2019 or December 31, 2018 on the Company's U.S. federal or state deferred tax assets. However, a valuation allowance of $73.3 thousand has been recorded on deferred tax assets associated with Canadian net operating loss carryforwards.

On December 22, 2017, the U.S. enacted tax reform legislation known as H.R. 1, commonly referred to as the “Tax Cuts and Jobs Act” (the “Act”), resulting in significant modifications to existing law. Due to the timing of the Act and the complexity involved in applying the provisions of the Act, the Company made a reasonable estimate of the effects and recorded provisional amounts in the fourth quarter of 2017, which primarily included the impact of the remeasurement of the Company’s deferred tax balances to reflect the change in the corporate tax rate. As a result of the changes to tax laws and tax rates under the Act, the Company reduced its deferred tax asset as of December 31, 2017 by $0.6 million. All changes to the tax code that are effective as of January 1, 2018 have been applied by the Company in computing its income tax expense for the years ended December 31, 2019 and 2018. Additional guidance issued by the U.S. Treasury Department, the IRS, and other standard-setting bodies may materially impact the provision for income taxes and effective tax rate in the period in which the guidance is issued.