INCOME TAXES

12 Months Ended

Dec. 31, 2022

INCOME TAXES

INCOME TAXES

12. INCOME TAXES:

A reconciliation of the statutory federal income taxes to the recorded provision for income taxes from continuing operations is as follows:

	For the Years Ended December 31,
	2022		2021
			(As Restated)
	(In thousands)
Statutory federal tax expense	$	11,905	$	10,949
Effect of state taxes, net of federal benefit		3,308		2,062
Effect of state rate and tax law changes		747		(1,232)
Impairment of long-lived intangible assets		908		—
Non-deductible officer’s compensation		1,985		2,055
PPP loan income forgiveness		(1,591)		—
Change in valuation allowance		(234)		(13)
IRC Section 382 adjustments		(334)		(705)
NOL expirations		268		610
Uncertain tax positions		(495)		(777)
Other		254		85
Provision for income taxes	$	16,721	$	13,034

The statutory federal tax rate used for the years ended December 31, 2022 and 2021 is 21.0%. Major components of the effective tax rate for the years ended December 31, 2022 and 2021 are related to net operating loss limitations, net operating loss expirations, impairments of long-lived assets, limitation of officer's compensation under IRC Section 162(m), uncertain tax positions, state income taxes, and non-taxable PPP Loan income forgiveness for the year ended December 31, 2022.

On August 16, 2022, the Inflation Reduction Act was signed into law. The tax provisions included within the Inflation Reduction Act did not materially affect the Company’s consolidated financial statements in the current year.

The components of the provision for income taxes from continuing operations are as follows:

	For the Years Ended
	December 31,
	2022		2021
			(As Restated)
	(In thousands)
Federal:
Current	$	—	$	—
Deferred		13,269		12,952
State:
Current		1,843		1,063
Deferred		1,609		(981)
Provision for income taxes	$	16,721	$	13,034

Deferred Income Taxes

Deferred income taxes reflect the impact of temporary differences between the assets and liabilities recognized for financial reporting purposes and amounts recognized for tax purposes. Deferred taxes are based on tax laws as currently enacted. Deferred tax assets are reduced by a valuation allowance if, based upon the weight of available evidence, it is not more likely than not that we will realize some portion or all of the deferred tax assets. The significant components of the Company’s deferred tax assets and liabilities are as follows:

	As of December 31,
	2022		2021
			(As Restated)
	(In thousands)
Deferred tax assets:
Allowance for doubtful accounts	$	2,149	$	2,111
Accruals		304		465
Fixed assets		488		486
Stock-based compensation		328		163
Net operating loss carryforwards		88,813		109,343
Lease liability		8,901		10,022
Interest expense carryforward		23,788		20,380
Total deferred tax assets		124,771		142,970
Valuation allowance for deferred tax assets		(30)		(264)
Total deferred tax asset, net of valuation allowance		124,741		142,706
Deferred tax liabilities:
Intangible assets		(129,026)		(131,682)
Available-for-sale securities		(23,779)		(17,618)
Right of use asset		(8,123)		(8,924)
Partnership interests		(2,412)		(1,964)
Deferred financing costs		(958)		(1,196)
Other		(147)		(199)
Total deferred tax liabilities		(164,445)		(161,583)
Net deferred tax liability	$	(39,704)	$	(18,877)

As of December 31, 2022, the Company had pre-tax federal and state NOL carryforward amounts of approximately $525.5 million and $330.5 million, respectively.  The amount of the state NOLs may change if future apportionment factors differ from current factors. Additionally, the Company continues to assess potential tax strategies, which if successful, may reduce the impact of the annual limitations and potentially recover NOLs that otherwise would expire before being applied to reduce future income tax liabilities. If successful, the Company may be able to recover additional federal and state NOLs in future periods, which could be material. If we conclude that it is more likely than not that we will be able to realize additional federal and state NOLs, the tax benefit could materially impact future quarterly and annual periods. However, if these potential tax strategies do not meet the more likely than not threshold, the Company may claim these additional NOLs as unrecognized tax benefits. The federal and state NOLs expire in various years from 2023 to 2039.

As of December 31, 2022, the gross deferred tax assets of approximately $124.7 million were primarily the result of federal and state net operating losses and the IRC Section 163(j) interest expense carryforward. A valuation allowance of $30,000 and $264,000 was recorded against our gross deferred tax asset balance as of December 31, 2022 and 2021, respectively, and is related to state jurisdictions where it is not more likely than not the deferred tax assets will be realized.

The assessment to determine the value of the deferred tax assets to be realized under ASC 740 is highly judgmental and requires the consideration of all available positive and negative evidence in evaluating the likelihood of realizing the tax benefit of the deferred tax assets in a future period. Circumstances may change over time such that previous negative evidence no longer exists, and new conditions should be evaluated as positive or negative evidence that could affect the realization of the deferred tax assets. Since the evaluation requires consideration of events that may occur in some years

in the future, significant judgment is required, and our conclusion could be materially different if certain expectations do not materialize.

In the assessment of all available evidence, an important piece of objective verifiable evidence is evaluating a cumulative income or loss position over the most recent three-year period. Historically, the Company has maintained a full valuation against the net deferred tax assets, principally due to a cumulative loss over the most recent three-year period. During the quarter ended December 31, 2018, the Company achieved three years of cumulative income, which removed the most heavily weighed piece of objective verifiable negative evidence from our evaluation of the realizability of deferred tax assets. The Company continues to maintain three years of rolling cumulative income as of December 31, 2022.

Additionally, the Company is projecting forecasts of taxable income to utilize our federal and state NOLs as part of our evaluation of positive evidence. As part of the 2017 Tax Act, IRC Section 163(j) limited the deduction of interest expense. In conjunction with evaluating and weighing the aforementioned negative and positive evidence from the Company’s historical cumulative income or loss position, management also evaluated the impact that interest expense has had on our cumulative income or loss position over the most recent three-year period. A material component of the Company’s expenses is interest, and has been the primary driver of historical pre-tax losses. Adjusting for the IRC Section 163(j) interest expense limitation on projected taxable income, we estimate utilization of federal and state net operating losses that are not subject to annual limitations as a result of the 2009 ownership shift as defined under IRC Section 382.

Realization of the Company’s federal and state net operating losses is dependent on generating sufficient taxable income in future periods, and although the Company believes it is more likely than not future taxable income will be sufficient to utilize the net operating losses, realization is not assured and future events may cause a change to the judgment of the realizability of these deferred tax assets. If a future event causes the Company to re-evaluate and conclude that it is not more likely than not, that all or a portion of the deferred tax assets are realizable, the Company would be required to establish a valuation allowance against the assets at that time which would result in a charge to income tax expense and a decrease to net income in the period which the change of judgment is concluded.

Unrecognized Tax Benefits

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:

	2022		2021
	(In thousands)
Balance as of January 1	$	1,315	$	2,299
Additions for tax positions related to current years		—		—
Additions (deductions) for tax positions related to prior years		8		8
Deductions for tax positions as a result of the lapse of applicable statutes of limitation		(635)		(992)
Balance as of December 31	$	688	$	1,315

The nature of the uncertainties pertaining to the Company’s income taxes is primarily due to various state income tax positions that affect the amount of state NOLs available to be applied to reduce future state income tax liabilities. The unrecognized tax benefits liability accrued on our balance sheet increased by $8,000 and decreased by $635,000 and $992,000 during the years ended December 31, 2022 and 2021, respectively, primarily as a result of state NOL utilizations and expirations, and applicable tax rate changes. As of December 31, 2022, the Company had unrecognized tax benefits of $688,000, which if recognized, would impact the effective tax rate.

The Company recognizes accrued interest and penalties related to unrecognized tax benefits as a component of tax expense. There is no material amount of interest and penalties recognized in the statement of operations and the balance sheet for the year ended December 31, 2022. The Company believes that it is reasonably possible that a decrease of up to $57,000 of unrecognized tax benefits related to state tax exposures may be necessary within the coming year.

The Company files income tax returns in the U.S. federal jurisdiction, various state and local jurisdictions and is subject to examination by the various taxing authorities. The Company’s open tax years for federal income tax examinations include the tax years ended December 31, 2019 through 2022. For state and local purposes, the open years for tax examinations include the tax years ended December 31, 2018 through 2022. To the extent that net operating losses are utilized, the year of the loss may be subject to examination.