INCOME TAXES

12 Months Ended

Jun. 30, 2023

Income Tax Disclosure [Abstract]

INCOME TAXES

NOTE 13 – INCOME TAXES

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

For the years ended June 30,	2023			2022
Federal
Current tax	$	(116,000	)	$	(113,000	)
Deferred tax		6,419,000			884,000
		6,303,000			771,000
State
Current tax		9,000			(330,000	)
Deferred tax		2,121,000			589,000
		2,130,000			259,000
Income Tax (expense) benefit	$	(8,433,000	)	$	1,030,000

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,	2023			2022
Statutory federal tax rate	$	(315,000	)	$	2,446,000
State income taxes, net of federal tax benefit		(375,000	)		204,000
Dividend received deduction		(18,000	)		103,000
PPP Loan forgiveness		-			1,391,000
Provision to return adjustment		(334,000	)		634,000
Deferral true up – Justice difference in basis of fixed assets		-			11,621,000
Net operating loss true up		(275,000	)		32,000
Valuation allowance		10,232,000			(15,201,000	)
Payable true up		(249,000	)		(311,000	)
State rate change impact		(352,000	)		-
Other		119,000			111,000
	$	(8,433,000	)	$	1,030,000

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

	June 30, 2023			June 30, 2022
Deferred tax assets:
Net operating loss carryforwards	$	13,187,000		$	11,075,000
Deferred gains on real estate sale and depreciation		15,054,000			10,418,000
Capital loss carryforwards		1,919,000			1,322,000
Accruals and reserves		843,000			831,000
Interest expense		3,185,000			2,231,000
Tax credits		566,000			566,000
State taxes		139,000			-
Other		204,000			247,000
Deferred Tax Asset before Valuation Allowance		35,097,000			26,690,000
Valuation Allowance		(33,784,000	)		(22,775,000	)
Deferred Tax Asset after Valuation Allowance		1,313,000			3,915,000
Deferred tax liabilities:
Deferred gains on real estate sale and depreciation		(4,796,000	)		-
Unrealized gain on marketable securities		(746,000	)		(9,000	)
Gain on insurance claim		(696,000	)		-
Other		-			-
State taxes		-			(294,000	)
Deferred Tax Liability		(6,238,000	)		(303,000	)
Net deferred tax (liability) asset	$	(4,925,000	)	$	3,612,000

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, 2023, it has been determined that it is more likely than not that the deferred tax asset will not be recognized. Thus, there is a valuation allowance of $33,784,000 as of June 30, 2023. This was an increase of $11,009,000 from June 30, 2022.

As of June 30, 2023, the Company had net operating loss carryforwards (“NOL”) available for carryforward of approximately $41,835,000 and $51,289,000 for federal and state purposes, respectively. Of the $41,835,000 federal NOL carryforwards, $14,707,000 expire in varying amounts through 2037 and $27,128,000 of post-2017 NOLs can be carried forward indefinitely. Note that the post-2017 NOLs may only offset 80% of future taxable income. The Company had capital loss carryforwards of $6,936,000 for federal and state purposes. The capital losses begin to expire in 2024 for both federal and state purposes. There are immaterial California state tax credits of $524,000 which expire in various years.

Below is the breakdown of the net operating losses for Intergroup and Portsmouth.

	Federal		State
InterGroup	$	-	$	2,789,000
Portsmouth		41,835,000		48,500,000
	$	41,835,000	$	51,289,000

As of June 30, 2022, the Company had net operating loss (“NOL”) carryforwards of approximately $35,483,000 and $41,238,000 for federal and state purposes, respectively. Of the $35,483,000 federal NOL’s carryforwards, $14,697,000 expire in varying amount through 2037 and $20,786,000 of post 2017 NOL’s can be carried forward indefinitely. Note that the post 2017 NOL’s may only offset 80% of future taxable income. The Company had federal and state capital loss carryforwards of $3,985,000 and $5,547,000, respectively. The capital losses begin to expire in 2024 for both federal and state purposes. There are immaterial California state tax credits of $524,000 which expire in various years.

Utilization of certain tax attributes 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 losses before utilization.

The corporation 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, 2023, tax years beginning in fiscal 2019 and 2018 remain open to examination by the federal and state tax jurisdictions, respectively, and are subject to the statute of limitations.

Uncertain Tax Positions

The Company regularly evaluates the likelihood of realizing the benefit from income tax positions that it has taken in various federal, state, and foreign filings by considering all relevant facts, circumstances and information available. If the Company determines it is more likely than not that the position will be sustained, a benefit will be recognized at the largest amount that it believes is cumulatively greater than 50% likely to be realized. The following table summarizes changes in the amount of the Company’s unrecognized tax benefits for uncertain tax positions:

Unrecognized Tax Benefits at June 30, 2022	$	-
Increase in tax positions taken		1,665,000
Decrease in tax positions taken		-
Unrecognized Tax Benefits at June 30, 2023	$	1,665,000

$0 and $1,665,000 of unrecognized tax benefits as of June 30, 2022 and June 30, 2023, respectively, would impact the effective tax rate if recognized. The unrecognized tax benefit is not expected to reverse in the next 12 months. Interest and penalties related to income tax matters are classified as a component of income tax expense. As of June 30, 2022 and June 30, 2023, no interest and penalties were recorded.