Income Taxes

12 Months Ended

Dec. 31, 2021

Income Tax Disclosure [Abstract]

INCOME TAXES

NOTE 15 – INCOME TAXES

Following the consummation of the Atlas Business Combination, we are organized as an umbrella partnership C-Corporation structure also known as an “Up-C” structure in which the business of Atlas Intermediate and its subsidiaries is held by Holdings and will continue to operate through the subsidiaries of Atlas Intermediate, and in which our only direct assets consist of common units of Holdings. We are the sole manager of Holdings in accordance with the terms of the Holdings LLC Agreement entered into in connection with the consummation of the Atlas Business Combination.

Previously, Atlas Intermediate was treated as a partnership for federal and state income tax purposes with all income tax liabilities and/or benefits of the Company being passed through to the partners and members. As such, no recognition of federal or state income taxes have been provided for in the accompanying consolidated financial statements except for income taxes relating to the C-Corp subsidiaries directly owned by Atlas Intermediate and the State of Texas Margin tax.

Subsequent to the Atlas Business Combination, income taxes relating to Atlas Technical Consulting, Inc, the C-Corps owned directly by Atlas Intermediate, the State of Texas Margin tax, and the State of Washington Business and Occupation tax are considered within the provision of non-controlling interest as it is generated through the results of Atlas Intermediate and its subsidiaries.

(Loss) before income taxes was follows:

	Year Ended December 31,
	2021			2020
United States	$	(27,181	)	$	(26,929	)

Income tax expense (benefit) consisted of the following:

	Year Ended December 31,
	2021			2020
Current:
Federal	$	854		$	(424	)
State		1,095			283
Total current income tax expense		1,949			(141	)
Deferred:
Federal		(2,571	)		1,731
State		3,146			(872	)
Total deferred income tax expense		575			859
Total income tax expense	$	2,524		$	718

Temporary differences comprising the net deferred income tax asset shown on the accompanying consolidated balance sheets were as follows:

	December 31, 2021			December 31, 2020
Deferred Tax Assets:
Basis difference in flow-through entity	$	83,744		$	14,057
Transaction costs		4,568			-
Accruals and reserves		458			166
Loss carryforwards		6,535			2,542
Valuation allowance		(94,517	)		(15,539	)
Total deferred tax assets		788			1,226
Deferred Tax Liabilities:
Basis difference in flow-through entity		(2,511	)		(2,704	)
Goodwill		(537	)		-
Total deferred tax liabilities		(3,048	)		(2,704	)
Net deferred tax liabilities	$	(2,260	)	$	(1,478	)

Our effective tax rate from continuing operations was (9.3%) and (2.7%) for the periods ending December 31, 2021 and 2020, respectively. Reconciliation between the amount determined by applying the U.S. federal income tax rate of 21% to pretax income from continuing operations and income tax expense is attributable to changes in our mix of pre-tax losses/earnings, the effect of non-controlling interest in income of consolidated subsidiaries, return to provision adjustments, and changes in our valuation allowance.

The Company provides a valuation allowance when it is more likely than not that some portion of the deferred tax assets will not be realized. Management assesses the available positive and negative evidence to estimate if sufficient future taxable income will be generated to utilize the existing deferred tax assets. Based on this evaluation, as of December 31, 2021 and 2020, it is more likely than not that a portion of the existing deferred tax assets will not be realized. As such, the Company has recorded valuation allowances of approximately $94.5 and $15.5 million, as of December 31, 2021 and 2020, respectively, to reduce net deferred tax assets to an amount that management believes is more than likely to be realized.

The Company had no unrecognized tax benefits as of December 31, 2021 or 2020. Interest and, if applicable, penalties are recognized related to unrecognized tax benefits in income tax expense. There are no accruals for interest and penalties as of December 31, 2021 or 2020.

The Company is subject to income taxation by both federal and state taxing authorities. Income tax returns for the years ended December 31, 2020, 2019, 2018 and 2017 are open to audit by federal and state taxing authorities.

At December 31, 2021 and 2020, the Company had federal net operating loss carry-forwards (“NOLs”) of approximately $24.6 million and $8.9 million, respectively. A portion of the federal net operating loss carryforward was incurred prior to the enactment of the 2017 Tax Cuts and Jobs Act and is therefore subject to expiration. Federal net operating loss carryforwards subject to expiration will begin to expire in 2026. The remaining federal net operating loss carryforwards incurred after the enactment of the 2017 Tax Cuts and Jobs Act carryforward indefinitely.