|12 Months Ended|
Dec. 31, 2021
|Income Tax Disclosure [Abstract]|
Note 12. Income Taxes
The domestic and foreign components of net income (loss) before income tax expense were as follows (in thousands):
The provision (benefit) for income tax consists of the following (in thousands):
A reconciliation of income taxes at the statutory federal income tax rate to income tax expense (benefit) included in the accompanying consolidated statements of operations is as follows (in thousands):
Temporary differences that gave rise to significant portions of the Company’s deferred tax assets and liabilities as of December 31, 2021 and 2020 were as follows (in thousands):
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The Company regularly assesses the likelihood that the deferred tax assets will be recovered from future taxable income. The Company considers projected future taxable income and ongoing tax planning strategies, then records a valuation allowance to reduce the carrying value of the net deferred taxes to an amount that is more likely than not able to be realized. Based upon the Company’s assessment of all available evidence, including the previous three years of U.S.-based taxable income and loss after permanent items, estimates of future profitability, and the Company’s overall prospects of future business, the Company determined that it is more likely than not that the Company will not be able to realize a portion of the deferred tax assets in the future. The Company will continue to assess the potential realization of deferred tax assets on an annual basis, or an interim basis if circumstances warrant. If the Company’s actual results and updated projections vary significantly from the projections used as a basis for this determination, the Company may need to change the valuation allowance against the gross deferred tax assets. Management determined that a valuation allowance of $25.0 million and $23.7 million was required as of December 31, 2021 and 2020, respectively.
The federal and state loss carryforwards begin to expire in 2027 and 2022, respectively, unless previously utilized. At December 31, 2021 and 2020, the Company had available net operating loss carryforwards of approximately $78.4 million and $80.4 million, respectively, for federal income tax purposes, of which $73.5 million were generated before 2018 and will begin to expire in 2027. The remaining net operating losses of $4.9 million can be carried forward indefinitely under the Tax Cuts and Jobs Act. The Company continually monitors all positive and negative evidence regarding the realization of its deferred tax assets and may record assets when it becomes more likely than not, than they will be realized, which may impact the expense or benefit from income taxes.
At December 31, 2021 and 2020, the net operating losses for state purposes are $50.1 million and $51.1 million, respectively, and will begin to expire in 2022 if not utilized.
As of December 31, 2021, the Company had available for carryover, research and experimental credits of approximately $1.4 million for federal income tax purposes and $1.4 million for state income tax purposes, which are available to reduce future income taxes. The federal research and experimental tax credits will begin to expire, if not utilized, in 2027. The California research and experimental tax credits carry forward indefinitely until utilized.
Section 382 of the Internal Revenue Code of 1986 (the “Code”), as amended, and similar California regulations impose substantial restrictions on the utilization of net operating losses and tax credits in the event of an “ownership change” of a corporation. Accordingly, the Company’s ability to utilize net operating losses and credit carryforwards may be limited as the result of such an “ownership change” as defined in the Code.
Uncertain Tax Positions
The Company applied FASB ASC 740-10-50, Accounting for Uncertainty in Income Tax, which prescribes a recognition threshold and measurement attributes for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained.
A reconciliation of the beginning and ending amounts of unrecognized uncertain tax positions is as follows (in thousands):
Of the total unrecognized tax benefits at December 31, 2021, no amount will impact the Company's effective tax rate. The Company does not anticipate that there will be a substantial change in unrecognized tax benefits within the next 12 months.
The Company recognizes interest and penalties related to unrecognized tax positions within the income tax expense line in the accompanying consolidated statements of operations. There were no accrued interest and penalties associated with uncertain tax positions as of December 31, 2021 or December 31, 2020.
The Company files federal and state income tax returns in the U.S, certain U.S. territories, and certain foreign jurisdictions. The statues of limitations remain open for 2006 through 2021 in U.S. for federal and state purposes in the U.S. and certain U.S. territories. Years beyond the normal statutes of limitations remain open to audit by tax authorities due to tax attributes generated in earlier years which are being carried forward and may be audited in subsequent years when utilized.
The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.
Reference 1: http://www.xbrl.org/2003/role/disclosureRef