Income Taxes

12 Months Ended

Dec. 31, 2021

Income Taxes [Abstract]

Income Taxes

Note 7 - Income Taxes

The components of income tax expense (benefit) are as follows:

(in thousands)	Year Ended December 31, 2021			Year Ended December 31, 2020
Federal - current	$	-		$	(30	)
State - current		1			2
Total current		1			(28	)
Federal - deferred		(1,106	)		(1,171	)
State - deferred		(434	)		(1,524	)
Change in valuation allowance		1,540			2,695
Total deferred		-			-
Income tax expense (benefit)	$	1		$	(28	)

The components of pretax income (loss) and the difference between income taxes computed at the statutory federal rate and the provision for income taxes are as follows:

(in thousands)	Year Ended December 31, 2021			Year Ended December 31, 2020
Income (loss) before income taxes	$	(5,207	)	$	(5,632	)
Tax expense (benefit) :
Tax at statutory federal rate	$	(1,094	)	$	(1,182	)
State income taxes		(445	)		(1,511	)
Permanent items, tax credits and other adjustments		-			(30	)
Deferred true-ups		-			-
Change in valuation allowance		1,540			2,695
Income tax expense (benefit)	$	1		$	(28	)

A reconciliation of the United States federal statutory rate to the Company’s effective income tax rate is as follows:

	Year Ended December 31, 2021			Year Ended December 31, 2020
Tax at statutory federal rate		21.0	%		21.0	%
State income taxes		8.5			27.0
Permanent difference, tax credits and other adjustments		-			0.5
Change in valuation allowance		(29.5	)%		(48.0	)%
Effective income tax rate		0.0			0.5

For the year ended December 31, 2021, the Company recorded an income tax expense of $1,000, attributable to a provision for a tax on capital imposed by the state jurisdictions.

For the year ended December 31, 2020, the Company recorded an income tax benefit of $28,000.  This amount includes an additional refund of $30,000 received in 2020 relating to the AMT credit carryforwards partially offset by a $2,000 state tax expense, attributable to a provision for a tax on capital imposed by the state jurisdictions.

The Company has not been notified of any potential tax audits by any federal, state or local tax authorities. As such, the Company believes the statutes of limitations for the assessment of additional federal and state tax liabilities are generally closed for tax years prior to 2018.  Interest and/or penalties related to uncertain tax positions, if applicable, would be included as a component of income tax expense (benefit).  The accompanying financial statements do not include any amounts for interest and/or penalties.

The utilization of net operating loss (“NOL”) carryforwards are subject to limitations under U.S. federal income tax and various state tax laws. Based on the Company’s federal tax returns as filed, the Company estimates it has approximately $124 million of federal NOL carryforwards available to reduce future federal taxable income which if not utilized will begin to expire in 2026 and continue to expire at various dates thereafter. Additionally, based on the Company’s state tax returns as filed and to be filed, the Company estimates that it has approximately $231 million of state NOL carryforwards to reduce future state taxable income which if not utilized will begin to expire in 2030 and continue to expire at various dates thereafter.

In 2020, the Company received AMT credit carryforwards as provided for in the 2017 Tax Cuts and Jobs Act (the “2017 Tax Act”), based on the Company’s 2019 federal income tax returns as filed.

The Company’s management is continuing to work closely with outside advisors on the Company’s various federal tax return matters for the numerous interrelated tax years.  The IRS typically has broad discretion to examine taxpayer tax returns, even after refunds have been paid to taxpayers, which could result in adjustments to AMT credit carryforward amounts refunded. The AMT credit carryforward amounts from prior tax years and related refund(s) received could potentially be subject to IRS or other tax authority audits. The Company cannot predict whether or not the IRS and/or other tax authorities will review the Company’s tax returns filed, to be filed and/or as filed in prior years, and/or if they will seek repayment from the Company of any amounts already refunded as a result of an IRS review, if any.  Moreover, applicable provisions of the Code and IRS regulations permit the IRS to challenge Company tax positions and filed returns and seek recovery of refunded amounts or of additional taxes for an extended period of time after such returns are filed.

There is risk relating to assumptions regarding the outcome of tax matters, based in whole or in part upon consultation with outside advisors; risk relating to potential unfavorable decisions in tax proceedings; and risks regarding changes in, and/or interpretations of federal and state income tax laws. The Company can give no assurances as to the final outcome of any IRS review, if any, of the AMT credit carryforward refunds received.

The Company was a plaintiff in a legal proceeding seeking recovery of damages from the United States Government for the loss of the Company’s wholly-owned subsidiary, Carteret Savings Bank, F.A. (the “SGW Legal Proceedings”).  A settlement agreement in the SGW Legal Proceedings between the Company, the Federal Deposit Insurance Corporation-Receiver (“FDIC-R”) and the Department of Justice (“DOJ”) on behalf of the United States of America (the “United States”), was executed (the “SGW 2012 Settlement Agreement”) which was approved by the United States Court of Federal Claims (the “Court of Federal Claims”) in October 2012.  On August 6, 2013, Senior Judge Smith issued an opinion which addressed the relief sought by AmBase. In summary, the court held that the Settlement Agreement is a contract and that it entitles the Company to receive both “(1) the amount of the tax consequences resulting from taxation of the damages award plus (2) the tax consequences of receiving the first component.”  But the Court of Federal Claims did not award an additional amount for the second component at that time given the remaining uncertainty surrounding the ultimate tax treatment of the settlement proceeds and the gross-up, as well as uncertainty relating to the Company’s future income.  The Court of Federal Claims indicated that either the Company or the government is entitled to seek further relief “if, and when, the facts justify it.”

As part of the SGW 2012 Settlement Agreement, the Company is entitled to a tax gross-up when any federal taxes are imposed on the settlement amount.  Based on the Company’s 2012 federal income tax return as filed, in March 2013, the Company paid approximately $501,000 of federal income taxes attributable to AMT rate calculations (the “2012 Tax Amount”) resulting from the SGW 2012 Settlement Agreement. In September 2013, the Company received reimbursement for the 2012 Tax Amount. In 2019, the Company received a letter from the Federal Deposit Insurance Corporation (“FDIC”), requesting the Company reimburse the FDIC for the 2012 Tax Amount that the FDIC had previously reimbursed the Company. The Company is currently reviewing the FDIC request, along with the SGW 2012 Settlement Agreement and Court of Federal Claims August 2013 ruling, with its outside legal and tax advisors. The Company is unable to predict at this time whether the 2012 Tax Amount is refundable back to the FDIC in current and/or future years.

The Company’s deferred tax asset, arising primarily from NOL carryforwards, is as follows:

(in thousands)	December 31, 2021			December 31, 2020
Deferred tax asset	$	39,680		$	38,140
Valuation allowance		(39,680	)		(38,140	)
Net deferred tax asset recognized	$	-		$	-

A full valuation allowance remains on the remaining deferred tax asset amounts, as management has no basis to conclude that realization is more likely than not.  Management does not believe that any significant changes in unrecognized income tax benefits are expected to occur over the next year.