Note 7 - Income Taxes

As a result of the IPO and related reorganization transactions completed in July 2017, the Company held an economic interest of approximately 62% in Holdco and consolidates the financial position and results of Holdco. The ownership of Holdco not held by the Company is considered non-controlling interest, which, through exchanges that have occurred since the IPO, totaled approximately 17% of the ownership of Holdco as of December 31, 2019. See Note 11 – Non-controlling interests for more information. Holdco is treated as a partnership for income tax reporting. HoldCo’s members, including the Company, are liable for federal, state, and local income taxes based on their share of HoldCo’s taxable income. Prior to the IPO in 2017, the Company’s predecessor for financial reporting purposes was Opco, which is a limited liability company, and the majority of Opco’s businesses and assets are held and operated by limited liability companies, which are not subject to entity-level federal or state income taxation.

Holdco makes cash distributions to members to pay taxes attributable to their allocable share of income earned. In the years ended December 31, 2019 and 2018, the Company made cash distributions of $1.7 million and $1.5 million, respectively. Additionally, Holdco accrues for distributions required to be made related to estimated income taxes. During the years ended December 31, 2019 and 2018, the Company accrued $0.8 million and $2.1 million, respectively. This liability is included in accounts payable on the consolidated balance sheet.

The components of earnings before net (loss) income taxes, determined by tax jurisdiction, are as follows:


	Years Ended December 31
$'s in 000's	2019		2018		2017
United States	$	(17,953)	$	(1,116)	$	11,479
Foreign		342		542		308
Total	$	(17,611)	$	(574)	$	11,787

The provision for income taxes for 2019, 2018, and 2017 consisted of the following:


	Years Ended December 31
$'s in 000's	2019		2018		2017
Current:
Federal	$	—	$	—	$	(10)
State		317		148		63
Foreign		17		—		—
	$	334	$	148	$	53
Deferred and other:
Federal		(2,146)		(751)		3,708
State		(1,336)		(135)		19
Foreign		(161)		77		190
		(3,643)		(809)		3,917
Total income tax expense (benefit)	$	(3,309)	$	(661)	$	3,970

Reconciliation between the effective tax rate on income from continuing operations and the statutory tax rate is as follows:


	Years Ended December 31
$'s in 000's		2019		2018		2017
Income tax expense (benefit) at federal statutory rate		21.0	%	21.0	%	35.0	%
State and local income taxes net of federal tax benefit		1.3		(5.7)		—
Non-controlling interest and nontaxable income		(4.0)		54.7		(33.2)
Deferred tax rate changes		(0.4)		37.2		—
Share-based compensation		0.1		18.3		—
Tax Cuts and Jobs Act of 2017		—		(7.3)		30.7
Other		0.8		(3.0)		1.2
Effective income tax rate		18.8	%	115.2	%	33.7	%

Our tax rate is affected by the lower pre-tax loss in the current year, recurring items, such as the portion of income and expense allocated to the noncontrolling interest, and tax rates in foreign jurisdictions relative to the amounts of income we earn in those jurisdictions. It is also affected by discrete items that may occur in any given year such as stock based compensation, but are not consistent from year to year. Our effective income tax rate prior to the IPO differed from statutory rates primarily due to our pass-through entity structure for U.S. income tax purposes.

As a result of the IPO and reorganization transactions, the Company has recorded deferred tax assets and liabilities based on the differences between the book value of assets and liabilities for financial reporting purposes and those amounts applicable for income tax purposes. Deferred tax assets have been recorded for the basis differences resulting from the purchase of LLC Interests from existing members and newly issued LLC Interests acquired directly from Holdco. The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities at December 31, 2019 and 2018 are as follows:


$'s in 000's	2019		2018
Deferred tax assets
Investment in partnership	$	53,303	$	41,658
Fixed assets		29		41
Net operating loss carryforwards and tax credits		6,775		2,538
Other accruals and reversals		5		2
Subtotal		60,112		44,239
Less: valuation allowance		(143)		(206)
Net deferred tax assets		59,969		44,033

Deferred tax liabilities
Intangible assets	$	(293)	$	(350)
Other		(5)		(5)
Net deferred tax liabilities	$	(298)	$	(355)

At December 31, 2019, the Company has federal net operating loss (“NOL”) carryforwards of $4.9 million, of which $0.4 million, generated in 2017 and prior, will expire in 2037. The NOL generated in 2018 and 2019 of $4.5 million will have an indefinite carryforward period but can generally only be used to offset 80% of taxable income in any particular year. The Company has a federal business interest expense carryover totaling $0.6 million as of December 31, 2019, which has an indefinite carryforward period but is limited in any particular year based on certain provisions. As of December 31, 2019, the Company has charitable contribution carryforwards of $0.2 million, which if unused will expire between 2020 and 2024. The Company has state NOL carryforwards of $0.9 million as of December 31, 2019 which expire between 2022 and 2037 and others that have an indefinite carryforward period. At December 31, 2019 the Company had foreign NOL carryforwards of $0.2 million which do not expire. The above carryforward amounts are shown after-tax.

The Company has assessed the realizability of the net deferred tax assets as of December 31, 2019 and in that analysis has considered the relevant positive and negative evidence available to determine whether it is more likely than not that some portion or all of the deferred income tax assets will not be realized. The realization of the gross deferred tax assets is dependent on several factors, including the generation of sufficient taxable income prior to the expiration of certain carryforwards. The Company believes that there will be sufficient taxable income in the future that the Company’s deferred tax assets will be realized except for the following. The Company has a valuation allowance for certain deferred tax assets of $0.1 million and $0.2 million as of December 31, 2019 and 2018, respectively. The valuation allowance pertains to certain charitable contribution carryforwards as of December 31, 2019, and international loss carryforwards as of December 31, 2018, some of which have no expiration and others that would expire beginning in 2020.

The Company has not recognized any uncertain tax positions, penalties or interest as we have concluded that no such positions exist. Accordingly, no unrecognized tax benefit would impact the effective tax rate. If interest and penalties were accrued, we would recognize interest and penalties as income tax expense. We are subject to taxation in the United States and various states and foreign jurisdictions. As of December 31, 2019, tax years from 2016 to present are subject to examination by the tax authorities.