Income Taxes

12 Months Ended

Dec. 31, 2021

Income Tax Disclosure [Abstract]

Income Taxes

19. Income Taxes

On March 27, 2020, the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) was enacted in response to COVID-19 pandemic. Under ASC 740, the effects of changes in tax rates and laws are recognized in the period which the new legislation is enacted. The CARES Act made various tax law changes including among other things (i) increased the limitation under IRC Section 163(j) for 2019 and 2020 to permit additional expensing of interest (ii) enacted a technical correction so that qualified improvement property can be immediately expensed under IRC Section 168(k) and (iii) made modifications to the federal net operating loss rules including permitting federal net operating losses incurred in 2018, 2019, and 2020 to be carried back to the five preceding taxable years in order to generate a refund of previously paid income taxes and (iv) enhanced recoverability of AMT tax credits. The CARES Act did not have a significant impact on the Company’s financial statements.

The Company’s provision for income taxes is comprised of the following:

	Year Ending December 31,
	2021		2020
Current
Federal	$	1,084,000	$	(176,000	)
State and local		114,000		(82,000	)
Total Current		1,198,000		(258,000	)
Deferred
Federal	$	96,000	$	161,000
State and local		427,000		318,000
Total Deferred		523,000		479,000
Total Provision for income taxes	$	1,721,000	$	221,000

The Company’s effective tax rate differs from the U.S. federal statutory income tax rate of 21% for 2021 and 2020 as follows:

	Year Ending December 31,
	2021			2020
Federal statutory income tax rate		21.0	%		21.0	%
Tax amortization of intangible assets		(4.1	%)		(8.8	%)
Non-deductible fines and penalties		0.8	%		—
Share based compensation		1.0	%		—
Permanent differences		0.8	%		1.5	%
State and local taxes, net of federal benefit		5.6	%		2.5	%
Change in valuation allowance		—			(5.2	%)
Other		0.4	%		(4.1	%)
Effective tax rate		25.5	%		6.9	%

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. Significant components of the Company’s deferred tax assets and liabilities are as follows:

	As of December 31,
	2021			2020
Deferred tax assets:
Net operating losses	$	5,437,000		$	6,043,000
Lease liabilities		749,000			722,000
Share-based compensation		—			61,000
Intangible assets		—			2,000
Investment in RISE		140,000			—
Accrued compensation		62,000			—
Other		13,000			—
Subtotal		6,401,000			6,828,000
Less: valuation allowance		(1,070,000	)		(1,070,000	)
Total Deferred tax assets	$	5,331,000		$	5,758,000
Deferred tax liabilities:
Fixed assets	$	(892,000	)	$	(901,000	)
Share-based compensation		(145,000	)		—
Total Deferred tax liabilities		(1,037,000	)		(901,000	)
Net Deferred tax assets	$	4,294,000		$	4,857,000

Siebert 2021 Form-10K 66

In assessing the Company’s ability to recover its deferred tax assets, the Company evaluated whether it is more likely than not that some portion or the entire deferred tax asset will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income in those periods in which temporary differences become deductible and/or net operating losses can be utilized. The Company considered all positive and negative evidence when determining the amount of the net deferred tax assets that are more likely than not to be realized. This evidence includes, but is not limited to, historical earnings, scheduled reversal of taxable temporary differences, tax planning strategies and projected future taxable income.

Based on historical operating profitability, positive trend of earnings and projected future taxable income, the Company concluded as of December 31, 2021 that its U.S. deferred tax assets are realizable on a more-likely-than-not basis with the exception of certain federal net operating losses that are expected to expire unutilized as a result of limitations imposed by Section 382 of the Internal Revenue Code and certain state net operating losses. The amount of the Company’s valuation allowance did not change during 2021. The Company will continue to evaluate its deferred tax assets to determine whether any changes in circumstances could affect the realization of their future benefit. If it is determined in future periods that portions of the Company’s deferred income tax assets satisfy the realization standards, the valuation allowance will be reduced accordingly.

As of December 31, 2021, the Company had U.S. federal net operating loss carryforwards of approximately $6.4 million which expire in varying amounts in 2035 and 2036 if not utilized. The U.S. federal net operating loss carryforwards are subject to annual limitation under Section 382.

A reconciliation of the beginning and ending amount of unrecognized tax benefits, excluding interest and penalties, is as follows:

	Amount
Balance as of December 31, 2019	$	—
Additions for tax positions taken during current year		1,105,000
Additions for tax positions taken during prior year		—
Reductions for tax positions taken during prior years		—
Settlements		—
Expirations of statutes of limitations		—
Balance as of December 31, 2020	$	1,105,000
Additions for tax positions taken during current year		1,315,000
Additions for tax positions taken during prior year		—
Reductions for tax positions taken during prior years		(2,000	)
Settlements		—
Expirations of statutes of limitations		—
Balance as of December 31, 2021	$	2,418,000

Of the amounts reflected above as of December 31, 2021, the entire amount would reduce the Company’s effective tax rate if recognized. The Company records accrued interest and penalties related to income tax matters as part of the provision for income taxes. For the year ended December 31, 2021 and 2020, the Company recognized expense related to interest and penalties on unrecognized tax benefits of $27,000 and $0, respectively. For the year ended December 31, 2021 and 2020, the accrued balance of interest and penalties on unrecognized tax benefits was $27,000 and $0, respectively. The Company does not believe that the amount of unrecognized tax benefits will significantly increase or decrease within the next 12 months.

The Company files a federal income tax return and income tax returns in various state tax jurisdictions. The Company is not currently under examination by the IRS or any state or local taxing authority for any tax year. The open tax years for the federal and state income tax filings is generally 2018 through 2021.