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Income Taxes
 12 Months Ended
Dec. 31, 2023
Income Tax Disclosure [Abstract]  
Income Taxes
8. Income Taxes
We are domiciled in the USVI and are obligated to pay taxes to the USVI on our income. We applied for tax benefits from the USVI Economic Development Commission (“EDC”) and received our certificate of benefits (“the EDC Certificate”), effective as of February 1, 2013. Pursuant to the Certificate, so long as we comply its provisions, we will receive a 90% tax reduction on our USVI-sourced income until 2043. By letter dated April 13, 2023, the EDC approved an extension of the temporary full-time employment waiver (the "Waiver") of the Company's minimum employment requirements to five full-time USVI employees for the period from January 1, 2023 to June 30, 2023. By letter dated February 19, 2024, the EDC approved an additional extension for the period July 1, 2023 to December 31, 2024. At December 31, 2023, the Company met the minimum employment requirements required under the provisions of the Waiver.

Beginning on January 1, 2017, AAMC US, Inc., a domestic U.S. corporation and wholly-owned subsidiary, began operations. This entity is based entirely in the mainland U.S. and is subject to U.S. federal and state corporate income tax.

The following table sets forth the components of loss from operations before income taxes ($ in thousands):
Year ended December 31,
20232022
AAMC$(31,973)$(15,584)
The provision for income taxes from operations is summarized as follows ($ in thousands):
Year ended December 31,
20232022
Current
Federal $437 $195 
State— 4 
International73 55 
Total current tax expense
510 254 
Deferred
Federal54 94 
State9 2 
Total deferred tax expense
63 96 
Total tax expense
$573 $350 

The following table sets forth the components of our total deferred tax assets ($ in thousands):
December 31, 2023December 31, 2022
Deferred tax assets:
Stock compensation$6 $2 
Accrued expenses53 84 
Net operating losses (1)
4,506 1,109 
Lease liabilities10 54 
Other4 76 
Total gross deferred tax assets4,579 1,325 
Less: Valuation allowance(4,313)(1,266)
Total net deferred tax assets266 59 
Deferred tax liabilities:
Right-of-use assets9 53 
Investments— 6 
Unrealized gains320 — 
Total gross deferred tax liabilities329 59 
Deferred tax assets, net$(63)$— 
_____________
(1)Net operating loss (“NOL”) carry-forwards for tax years prior to 2018 expire in 2037. Beginning with 2018, NOLs are carried forward indefinitely.

The change in deferred tax assets is included in changes in other assets and liabilities in the Consolidated Statement of Cash Flows. The significant factors contributing to the increase in our valuation allowance in 2023 are due to increases in the temporary differences attributable to net operating losses, accrued compensation, and unrealized gains.

ASC 740 requires that the tax benefit of net operating losses, temporary differences and credit carryforwards be recorded as an asset to the extent that management assesses that realization is "more likely than not." Realization of the future tax benefits is dependent on the Company's ability to generate sufficient taxable income within the carryforward period. AAMC has historically been in a three-year cumulative loss position with the exception of 2020 due to the recognition of the Termination Fee payments as income that year. Removing this income from the analysis results in cumulative three-year book losses as of December 31, 2023. The Company believes that it is more likely than not that the Company will not realize the benefit of its net deferred tax assets. As such, the Company has recorded a full valuation allowance in 2022 against its net deferred tax assets. The valuation allowance increased by approximately $3.0 million during the year ended December 31, 2023.
The following table sets forth the reconciliation of the statutory USVI income tax rate from operations to our effective income tax rate:
Year ended December 31,
20232022
U.S. Virgin Islands income tax rate23.1 %23.1 %
State and local income tax rates— — 
EDC benefits in the USVI(14.2)(19.5)
Foreign tax rate differential(0.6)(0.2)
Permanent and other(0.2)(0.5)
Valuation allowance(9.5)(4.9)
Other adjustments(0.4)(0.3)
Effective income tax rate(1.8)%(2.3)%

During the tax years ended December 31, 2023 and 2022, we recognized no interest or penalties associated with unrecognized tax benefits.

We recorded $0.4 million as of December 31, 2023, excluding interest and penalties, as a liability for unrecognized tax benefits in Accrued expenses and other liabilities in the consolidated balance sheet. Had we recognized $0.4 million, along with related interest and penalties, it would have favorably impacted the annual effective tax rate. We do not anticipate any significant increases or decreases in our unrecognized tax benefits within the next 12 months.

The following table presents a reconciliation of the beginning and ending amount of unrecognized tax benefits for the years ended December 31, 2023 and 2022 ($ in thousands):
December 31, 2023December 31, 2022
Unrecognized tax benefits at the beginning of the year— — 
Current period tax position increases— — 
Prior period tax position increases437 — 
Decreases due to lapse in applicable statute of limitations— — 
Unrecognized tax benefits at the end of the year437 — 

AAMC believes that the tax positions taken in the AAMC tax returns satisfy the more-likely-than-not threshold for benefit recognition. Furthermore, a review of the AAMC entity trial balances suggests that AAMC has appropriately addressed the material book-tax differences. AAMC is confident that the amounts claimed (or expected to be claimed) in the tax returns reflect the largest amount of such benefits that are greater than fifty percent likely of being realized upon ultimate settlement. Accordingly, no ASC 740-10-25 liabilities except as noted above have been recorded by the Company as a result of ASC 740-10-25.

We remain subject to tax examination in the USVI for tax years 2020 to 2023 and in the United States for tax years 2020 to 2023.