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INCOME TAXES
 12 Months Ended
Dec. 31, 2022
Income Tax Disclosure [Abstract]  
INCOME TAXES INCOME TAXES
For the year ended December 31, 2022, our income tax provision resulted in an effective tax rate of 2.3%. For the year ended December 31, 2021, our income tax provision resulted in an effective tax rate of 5.0%. Our income tax provision for the year ended December 31, 2022 was $3.3 million, our income tax provision for December 31, 2021 was $8.8 million and includes federal, state and foreign taxes.
The substantial doubt about the Company’s ability to continue as a going concern basis casts doubt on our ability to estimate and generate future income. The lack of going concern basis applicable for our financial statements for the year ended December 31, 2022, generally requires a valuation allowance for all deferred tax assets that are not realizable through the reversal of existing timing differences or taxable income in carryback years. While several subsidiaries have historically been profitable and for which future income was a material factor in assessing the realizability of their deferred tax assets, the substantial doubt about the Company’s ability to continue on a going concern basis casts doubt on our ability to generate future income. As a result, the Company included a charge of $2.2 million in income tax expense for the valuation allowance required to offset the remaining net deferred tax assets. The $2.2 million charge is primarily attributable to our German and Canadian subsidiaries. Refer to Note 1 - Summary of Significant Accounting Policies and Practices for additional liquidity and going concern discussion.
The components of our tax provision and benefit on continuing operations were as follows (in thousands):
 
CurrentDeferredTotal
Twelve months ended December 31, 2022:
U.S. Federal$(211)$— $(211)
State & local513 — 513 
Foreign jurisdictions1,319 1,685 3,004 
Tax provision$1,621 $1,685 $3,306 
Twelve months ended December 31, 2021:
U.S. Federal$938 $(1,115)$(177)
State & local590 150 740 
Foreign jurisdictions2,494 5,716 8,210 
Tax provision$4,022 $4,751 $8,773 
The components of pre-tax income (loss) from continuing operations for the years ended December 31, 2022 and 2021 were as follows (in thousands):
 Twelve Months Ended
December 31,
 20222021
Domestic$(156,001)$(171,299)
Foreign9,220 (4,773)
Pre-tax income (loss) from continuing operations$(146,781)$(176,072)
The income tax provision in 2022 and provision in 2021 attributable to the loss from continuing operations, respectively, differed from the amounts computed by applying the U.S. federal income tax rate 21% in 2022, (21% in 2021) to pre-tax loss from continuing operations as a result of the following (in thousands):
 Twelve Months Ended
December 31,
 20222021
Pre-tax loss from continuing operations$(146,781)$(176,072)
Computed income taxes at statutory rate(30,824)(36,975)
State income taxes, net of federal benefit395 561 
Foreign tax rate differential701 1,380 
Non-cash compensation228 320 
Deferred taxes on investment in foreign subsidiaries— (1,939)
Non-deductible expenses118 229 
Foreign withholding 693 1,078 
Prior year tax adjustments7 141 
Goodwill impairment— 9,399 
Valuation allowance31,430 34,284 
Rate change— (140)
Other558 435 
Total expense (benefit) for income tax on continuing operations$3,306 $8,773 

        The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities are presented below (in thousands): 
 December 31,
 20222021
Deferred tax assets:
Accrued compensation and benefits$7,630 $7,831 
Receivables552 1,345 
Inventory296 316 
Share based compensation258 271 
Other accrued liabilities2,940 3,467 
Tax credit carry forward2,314 3,613 
Interest expense limitation28,137 22,312 
Goodwill and intangible costs10,143 9,221 
Convertible debt1,780 — 
Net operating loss carry forwards38,860 68,972 
Other1,770 2,428 
Deferred tax assets94,680 119,776 
Less: Valuation allowance(73,483)(89,191)
Deferred tax assets, net$21,197 $30,585 
Deferred tax liabilities:
Property, plant and equipment(17,642)(20,267)
Unremitted earnings of foreign subsidiaries(3,581)(3,944)
Convertible debt— (7,359)
Other(3,260)(2,408)
Deferred tax liabilities(24,483)(33,978)
Net deferred tax asset (liability) 1
$(3,286)$(3,393)
________________
1 As of December 31, 2021, certain deferred tax balances associated with discontinued operations remain on the balance sheet and in the inventory of deferred taxes but are presented within current assets and current liabilities associated with discontinued operations.
Management evaluates all available evidence, both positive and negative, to determine whether sufficient future taxable income will be generated to allow for the realization of the existing deferred tax assets. A valuation allowance is recognized if, based on the weight of available evidence, it is more likely than not that some portion of the deferred tax asset will not be realized. A significant factor of negative evidence evaluated was the cumulative pre-tax loss incurred over the two-year period ended December 31, 2022. This objective evidence limits the ability to consider other subjective positive evidence, such as our projections for future pre-tax income.
On the basis of this evaluation, as of December 31, 2022, a valuation allowance of $73.5 million has been recorded to recognize only the portion of the deferred tax asset that is more likely than not to be realized. This valuation allowance relates primarily to the deferred tax assets for federal, foreign and state tax net operating loss carryforwards. The amount of deferred tax asset considered realizable could be adjusted if there are changes to net operating loss carryforward periods or there is a change to the weight assessed on various sources of positive and negative evidence.
The current year increase in the valuation allowance is primarily attributable to our foreign operations. In the current quarter, we were able to release $11.5 million of valuation allowance resulting from the realization of deferred tax assets for our U.S. operations.
As of December 31, 2022, we had net operating loss carryforwards for U.S. federal income tax purposes of $104.2 million. Of this amount, $3.7 million expires in various dates through 2037, which is subject to limitations under Section 382 of the U.S. Internal Revenue Code of 1986 as a result of stock ownership changes from Quest Integrity business sale, and $100.5 million has an indefinite carryforward period. These carryforwards are available, subject to certain limitations such as mentioned above, to offset future taxable income. Further, we have state net operating loss carryforwards of $178.6 million with $156.5 million expiring on various dates through 2041 and $22.1 million with an indefinite carryforward period.
As of December 31, 2022, we had interest expense carryforward for U.S. income tax purposes of $120.6 million. The entire $120.6 million has an indefinite carryforward period. These carryforwards are available, subject to certain limitations, to offset future taxable income.
As of December 31, 2022, the Company had $2.2 million of tax credits that will expire on various dates through 2037 if not utilized.
As of December 31, 2022, we had foreign net operating loss carryforwards totaling $25.1 million. Of this amount, $1.8 million will expire in various dates through 2031 and $23.3 million has an unlimited carryforward period.
As of December 31, 2022, none of our undistributed earnings of foreign operations were considered to be permanently reinvested overseas. As of December 31, 2022, the deferred tax liability related to undistributed earnings of foreign subsidiaries was $2.6 million.
As of December 31, 2022, $1.7 million of unrecognized tax benefits would affect our effective tax rate. We estimate the uncertain tax benefits that may be recognized within the next twelve months will not be material. Our policy is to recognize interest and penalties related to unrecognized tax benefits in income tax expense.
We file income tax returns in the U.S. federal and state jurisdictions as well as various foreign jurisdictions. With few exceptions, we are no longer subject to U.S. federal, state and local or non-U.S. income tax examinations by tax authorities for years prior to 2016. We are currently under audit in one of the states in which we do substantial business. As of December 31, 2022, we recorded a $0.5 million tax liability in our uncertain positions related to this audit due to retroactive changes included in final regulations issued by the state. Certain Dutch entities were also under audit. We did not anticipate any material adjustments related to these examinations.
Periodic examinations of our tax filings occur by the taxing authorities for the jurisdictions in which we conduct business. These examinations review the significant positions taken on our returns, including the timing and amount of income and deductions reported, as well as the allocation of income among multiple taxing jurisdictions. We do not expect any material adjustments to result from positions taken on our income tax returns.
The following table summarizes the Company’s reconciliation of gross unrecognized tax benefits, excluding penalties and interest, for the year ended December 31, 2022 and 2021 (in thousands):
 Twelve Months Ended
December 31,
 20222021
Unrecognized tax benefits - January 1$1,285 $1,610 
Additions based on current year tax positions— — 
Additions based on tax positions related to prior years350 543 
Reductions based on tax positions related to prior years— — 
Disposition of uncertain tax positions of discontinued operations(426)— 
Settlements— — 
Reductions resulting from a lapse of the applicable statute of limitations(112)(868)
Unrecognized tax benefits - December 31$1,097 $1,285 
We have recorded the unrecognized tax benefits in other long-term liabilities in the consolidated balance sheets. As of December 31, 2022 and 2021, the total amount of accrued interest and penalties related to unrecognized tax benefits was $0.6 million and $0.6 million, respectively. There was approximately $0.0 million and $0.2 million, respectively, of interest and penalties related to unrecognized tax benefits that was recorded in income tax expense for the period ended December 31, 2022 and 2021