Income Taxes

12 Months Ended

Jun. 30, 2021

Income Tax Disclosure [Abstract]

Income Taxes

NOTE 14 – INCOME TAXES

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

For the years ended June 30,	2021			2020
Federal
Current tax expense	$	(755,000	)	$	(57,000	)
Deferred tax (expense) benefit		(1,848,000	)		1,828,000
		(2,603,000	)		1,771,000
State
Current tax expense		(605,000	)		(64,000	)
Deferred tax (expense) benefit		(395,000	)		1,087,000
		(1,000,000	)		1,023,000
Income Tax (Expense) Benefit	$	(3,603,000	)	$	2,794,000

The provision for income taxes differs from the amount of income tax computed by applying the federal statutory income tax rate to income before taxes as a result of the following differences:

For the years ended June 30,	2021			2020
Statutory federal tax rate	$	(3,169,000	)	$	1,593,000
State income taxes, net of federal tax benefit		(834,000	)		812,000
Dividend received deduction		51,000			18,000
Disallowed interest		214,000			504,000
Net operating loss		105,000			-
Valuation allowance		(319,000	)		49,000
Basis difference in investments		-			39,000
Carryback claim refundable		304,000			-
Other		45,000			(221,000	)
	$	(3,603,000	)	$	2,794,000

The components of the deferred tax asset and liabilities are as follows:

	June 30, 2021			June 30, 2020
Deferred tax assets:
Net operating loss carryforwards	$	9,801,000		$	8,713,000
Capital loss carryforwards		614,000			1,074,000
Investment impairment reserve		671,000			1,156,000
Accruals and reserves		893,000			871,000
Interest expense		2,684,000			1,498,000
Tax credits		554,000			563,000
Unrealized loss on marketable securities		-			1,591,000
Other		225,000			221,000
Valuation allowance		(951,000	)		(497,000	)
		14,491,000			15,190,000
Deferred tax liabilities:
Equity earnings		(5,626,000	)		(4,306,000	)
Deferred gains on real estate sale and depreciation		(5,027,000	)		(6,249,000	)
Unrealized gain on marketable securities		(1,531,000	)		-
State taxes		(167,000	)		(252,000	)
		(12,351,000	)		(10,807,000	)
Net deferred tax asset	$	2,140,000		$	4,383,000

Management considers new evidence, both positive and negative, that could affect its view of the future realization of deferred tax assets. As of June 30, 2021, because of tax planning to generate taxable income in the future, management has determined that there is sufficient positive evidence to conclude that a significant portion of its deferred tax assets are realizable. As a result, only $951,000 valuation allowance is placed on tax credits and capital losses that may expire prior to utilization.

As of June 30, 2021, the Company had estimated net operating losses (NOLs) of $31,495,000 and $36,050,000 for federal and state purposes, respectively. Due to the California’s suspension of net operating losses, approximately $15.1M of the state net operating losses cannot be utilized in taxable years 2020, 2021 and 2022 if the company’s taxable income in each of those years is $1M or more.

Below is the break-down of the NOLs for InterGroup and Portsmouth. The carryforward expires in varying amounts through the year 2039.

	Federal		State
InterGroup	$	-	$	-
Portsmouth		31,495,000		36,050,000
	$	31,495,000	$	36,050,000

Utilization of the net operating loss carryover may be subject a substantial annual limitation if it should be determined that there has been a change in the ownership of more than 50 percent of the value of the Company’s stock, pursuant to Section 382 of the Internal Revenue Code of 1986 and similar state provisions. The annual limitation may result in the expiration of net operating loss carryovers before utilization.

Assets and liabilities are established for uncertain tax positions taken or positions expected to be taken in income tax returns when such positions are judged to not meet the “more-likely-than-not” threshold based on the technical merits of the positions. As of June 30, 2021, it has been determined there are no uncertain tax positions likely to impact the Company.

The Company files tax returns as prescribed by the tax laws of the jurisdictions in which it operates and is subject to examination by federal, state and local jurisdictions, where applicable.

As of June 30, 2021, tax years beginning in fiscal years 2016 and 2017 remain open to examination by the major tax jurisdictions and are subject to the statute of limitations.

The Company’s income tax expense for the fiscal year ended June 30, 2021 includes $3,382,000 of Santa Fe’s tax expense up to its liquidation on February 19, 2021.