Income Taxes

12 Months Ended

Dec. 31, 2022

Income Taxes [Abstract]

Income Taxes

19. Income Taxes

In August 2022, the Inflation Reduction Act (“IRA”) and CHIPS and Science Act (“CHIPS Act”) were both enacted. This new legislation includes the implementation of a new corporate alternative minimum tax, an excise tax on stock buybacks, and tax incentives for energy and climate initiatives, among other provisions. The income tax provisions of the IRA or the CHIPS Act had limited applicability to the Company and did not have a material impact on the Company’s financial statements.

The Company’s provision for (benefit from) income taxes is comprised of the following:

	Year Ending December 31,
	2022			2021
Current
Federal	$	(749,000	)	$	1,084,000
State and local		104,000			114,000
Total Current		(645,000	)		1,198,000
Deferred
Federal	$	(305,000	)		96,000
State and local		(350,000	)		427,000
Total Deferred		(655,000	)		523,000
Total Provision for (benefit from) income taxes	$	(1,300,000	)	$	1,721,000

The Company’s effective tax rate differs from the U.S. federal statutory income tax rate of 21% for the periods indicated are as follows:

	Year Ending December 31,
	2022			2021
Federal statutory income tax rate		21.0	%		21.0	%
Tax amortization of intangible assets		6.5	%		(4.1	%)
Non-deductible fines and penalties		—	%		0.8	%
Share based compensation		—	%		1.0	%
Permanent differences		(6.1	%)		0.8	%
State and local taxes, net of federal benefit		9.4	%		5.6	%
Change in valuation allowance		2.0	%		(—	%)
Other		(2.5	%)		(0.4	%)
Effective tax rate		30.3	%		25.5	%

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,
	2022			2021
Deferred tax assets:
Net operating losses	$	5,023,000		$	5,437,000
Lease liabilities		648,000			749,000
Share-based compensation		—			—
Investment in Tigress		775,000			—
Investment in RISE		10,000			140,000
Accrued compensation		—			62,000
Other		45,000			13,000
Subtotal		6,501,000			6,401,000
Less: valuation allowance		(978,000	)		(1,070,000	)
Total Deferred tax assets	$	5,523,000		$	5,331,000
Deferred tax liabilities:
Fixed assets	$	(1,126,000	)	$	(892,000	)
Share-based compensation		—			(145,000	)
Total Deferred tax liabilities		(1,126,000	)		(1,037,000	)
Net Deferred tax assets	$	4,397,000		$	4,294,000

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, 2022 that its U.S. deferred tax assets are realizable on a more-likely-than-not basis with the exception of certain investments that will result in future capital losses which are only available to offset capital gain income and certain state net operating losses. The amount of the Company’s valuation allowance decreased $92,000 during 2022. 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 $8.2 million of which $6.4 million expires in varying amounts in 2035 and 2036 if not utilized but available to offset 100% of future taxable income and $1.8 million which is permitted to be carried forward indefinitely but only available to offset 80% of future taxable income. Approximately $6.4 million of 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, 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
Additions for tax positions taken during current year		—
Additions for tax positions taken during prior year		12,000
Reductions for tax positions taken during prior years		(834,000	)
Settlements		—
Expirations of statutes of limitations		—
Balance as of December 31, 2022	$	1,596,000

Of the amounts reflected above as of December 31, 2022, 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 years ended December 31, 2022 and 2021, the Company recognized expense related to interest and penalties on unrecognized tax benefits of $100,000 and $27,000, respectively. For the years ended December 31, 2022 and 2021, the accrued balance of interest and penalties on unrecognized tax benefits was $127,000 and $27,000, 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 2019 through 2022.