INCOME TAXES

12 Months Ended

Dec. 31, 2021

Income Tax Disclosure [Abstract]

INCOME TAXES

Income tax benefit from (provision for) the years ended December 31, 2021 and 2020 consisted of the following (in thousands):

	For the Year Ended December 31,
	2021			2020
Income before benefit from (provision for) income taxes	$	17,290		$	3,159
Benefit from (provision for) income taxes	(4,806)			2,242
Effective tax rate	27.8		%	(71.0)		%

Provision for income taxes for the years ended December 31, 2021 primarily consisted of estimated U.S. taxes, adjustments to uncertain tax positions withholding tax reserve, foreign taxes and foreign withholding taxes. Benefit for income taxes for the year ended December 31, 2020 resulted primarily from estimated foreign taxes, foreign withholding tax expense and the release of a $2.2 million valuation allowance from one of our foreign entities.

The components of our income before benefit from (provision for) income taxes were as follows (in thousands):

	For the Year Ended December 31,
	2021		2020
Domestic	$	5,893	$	(4,602)
Foreign	11,397		7,761
Total	$	17,290	$	3,159

The benefit from (provision for) income taxes consisted of the following (in thousands):

	For the Year Ended December 31,
	2021		2020
Current:
U.S, federal	3,285		$	—
States and local	2		(3)
Foreign	934		(114)
Total current	$	4,221	$	(117)
Deferred:
U.S, federal	—		—
States and local	—		—
Foreign	585		2,359
Total deferred	585		2,359
Total benefit from (provision for) income taxes	$	4,806	$	2,242

Deferred tax assets and liabilities are recognized for the temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, tax losses, and credit carryforwards.

Significant components of the net deferred tax assets and liabilities consisted of (in thousands):

	December 31,
	2021		2020
Deferred tax assets:
Net operating loss carryforwards	$	7,638	$	9,239
State income taxes	1		1
Deferred revenue	4,502		5,426
Research and development and other credits	10,493		8,638
Reserve and accruals recognized in different periods	395		1,027
Capitalized research and development expenses	3,333		3,318
Depreciation and amortization	2,492		3,134
Lease liability	339		351
Total deferred tax assets	29,193		31,134
Valuation allowance	(27,239)		(28,475)
Net deferred tax assets	1,954		2,659
Deferred tax liabilities:
Right of use lease assets	(185)		(344)
Foreign credits	—		(14)
Other deferred tax liabilities	—		—
Total deferred tax liabilities	(185)		(358)
Net deferred taxes	$	1,769	$	2,301

We account for deferred taxes under ASC 740 which requires a reduction of the carrying amounts of deferred tax assets by a valuation allowance if, based on available evidence, it is more likely than not that such assets will not be realized. Accordingly, the need to establish valuation allowances for deferred tax assets is assessed periodically based on the ASC 740 more-likely-than-not realization ("MLTN") threshold criterion. This assessment considers matters such as future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. The evaluation of the recoverability of the deferred tax assets requires that we weigh all positive and negative evidence to reach a conclusion that it is more likely than not that all or some portion of the deferred tax assets will not be realized. The weight given to the evidence is commensurate with the extent to which it can be objectively verified. As of December 31, 2021, based on our assessment of the realizability of our deferred tax assets, we continued to maintain a full valuation allowance against all of our federal and state net deferred tax assets in the U.S and Canada and certain deferred taxes. The valuation allowance for Ireland subsidiary was released in 2020 based on the profitability analysis of the cumulative 12-quarter actual and the projection for the next 3-year.

As of December 31, 2021, the net operating loss carryforwards for federal and state income tax purposes were approximately $14.0 million and $53.0 million, respectively. The state net operating losses begin to expire in 2029. The federal net operating losses for tax years after 2017 can be carried forward indefinitely. We have no net operating loss carryforward from foreign jurisdictions. As of December 31, 2021, we had federal and state tax credit carryforwards of approximately $4.5 million and $2.5 million, respectively, available to offset future tax liabilities. The federal credit carryforwards will expire between 2022 and 2039 and the California tax credits will carryforward indefinitely. In addition, as of December 31, 2021, we have Canadian research and development credit carryforwards of $1.9 million, which will expire at various dates through 2040. These operating losses and credit carryforwards have not been reviewed by the relevant tax authorities and could be subject to adjustment upon examinations.

Section 382 of the Internal Revenue Code (“IRC Section 382”) imposes limitations on a corporation’s ability to utilize its net operating losses and credit carryforwards if it experiences an “ownership change” as defined by IRC Section 382. Utilization of a portion of our federal net operating loss carryforward was limited in accordance with IRC Section 382, due to an ownership change that occurred during 1999. This limitation has fully lapsed as of December 31, 2010. As of December 31, 2021, we conducted an IRC Section 382 analysis with respect to our net operating loss and credit carryforwards and determined there was no limitation. There can be no assurance that future issuances of our securities will not trigger limitations under IRC Section 382 which could limit utilization of these tax attributes.

The reconciliation between the 21.0% U.S. effective federal statutory rate and our effective tax rates are as follows:

	For the Year Ended December 31,
	2021		2020
Federal statutory rate	21.0	%	21.0	%
Foreign withholding	0.4	%	2.0	%
Stock-based compensation expense	0.6	%	12.9	%
Foreign rate differential	(7.9)	%	(33.0)	%
Prior year true-up items	0.1	%	1.1	%
Tax reserves	(2.3)	%	(4.0)	%
Other	2.7	%	0.1	%
FTC conversion true up	(11.1)	%	(10.3)	%
State taxes, net of federal benefit	—	%	0.1	%
Global intangible low-taxed income	9.7	%	21.0	%
Nondeductible officers compensation	—	%	3.5	%
Irish corporation restructure	—	%	(169.2)	%
Valuation allowance	14.6	%	83.8	%
Effective tax rate	27.8	%	(71.0)	%

Undistributed earnings of our foreign subsidiaries are considered to be indefinitely reinvested and accordingly, no provision for applicable income taxes has been provided thereon. Upon distribution of those earnings, we are subject to withholding taxes payable to various foreign countries. As of December 31, 2021, any foreign withholding taxes on the undistributed earnings of our foreign subsidiaries were immaterial.

We maintain liabilities for uncertain tax positions. These liabilities involve considerable judgment and estimation and are continuously monitored by management based on the best information available, including changes in tax regulations, the outcome of relevant court cases, and other information. A reconciliation of the beginning and ending amount of gross unrecognized tax benefits is as follows (in thousands):

	For the Year Ended December 31,
	2021		2020
Balance at beginning of year	$	4,525	$	4,826
Gross increases for tax positions of prior years	1		—
Gross increases for tax positions of current year	3,296		10
Lapse of statute of limitations	(253)		(311)
Balance at end of year	$	7,569	$	4,525

The unrecognized tax benefits relate primarily to federal and state research and development credits, intercompany profit on the transfer of certain IP rights to one of our foreign subsidiaries as part of our tax reorganization completed in 2015 and withholding tax reserve. Based on our assessment of the developments in the Samsung case (South Korea withholding taxes) in October of 2021, we provided for an additional income tax expense of $3.3 million in the fourth quarter of 2021. Of this amount, $2.2 million was recorded as an impairment to the Long-term deposits and $1.1 million was accrued as an Other current liability on our Consolidated Statements Balance Sheet at December 31, 2021. The $2.2 million impairment charge is comprised of $1.4 million and $0.8 million for Samsung and LGE litigations, respectively.

We account for interest and penalties related to uncertain tax positions as a component of income tax expense. As of December 31, 2021, we accrued $0.1 million interest or penalties related to uncertain tax positions. As of December 31, 2021, the total amount of unrecognized tax benefits that would affect our effective tax rate, if recognized, was $0.

Because we have net operating loss and credit carryforwards, there are open statutes of limitations in which federal, state and foreign taxing authorities may examine our tax returns for all years from 2002 through the current period.