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TAXES
 12 Months Ended
Dec. 31, 2021
Income Tax Disclosure [Abstract]  
TAXES TAXES
Income tax expense (benefit) from continuing operations is summarized as follows:
Years Ended December 31,Period from Inception to December 31, 2019Period from January 1, 2019 to September 3, 2019
20212020(Successor)(Predecessor)
(in thousands)
Pre-tax (loss) income
Domestic $(10,856)$(8,524)$(17,968)$(19,033)
Foreign 259 122 211 90 
Total pre-tax loss (10,597)(8,402)(17,757)(18,943)
Current tax benefit (expense):
Federal (36)— — — 
State 222 (689)(78)(3)
Foreign (136)(303)(9)(17)
Total Current tax benefit (expense)50 (992)(87)(20)
Deferred tax benefit:
Federal 631 2,342 765 16,119 
State (62)554 180 7,189 
Foreign — — — — 
Total deferred tax benefit 569 2,896 945 23,308 
Total tax benefit (expense):
Federal 595 2,342 765 16,119 
State 160 (135)102 7,186 
Foreign (136)(303)(9)(17)
Total benefit for taxes on income $619 $1,904 $858 $23,288 
We account for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, we determine deferred tax assets and liabilities on the basis of the differences between the financial statement and tax bases of assets and liabilities by using enacted tax rates in effect for the year in which the differences are expected to reverse.
We file income tax returns in the U.S. federal jurisdiction and various state jurisdictions. We are no longer subject to U.S. federal income tax examinations for the years prior to 2018. With few exceptions, we are no longer subject to state income tax examinations for the years prior to 2018. At December 31, 2021, there are no income tax examinations currently in process in the U.S. jurisdictions.
Our subsidiary, Convey Health Solutions Philippines, Inc. (“CHSP”), is subject to income taxes in the Philippines at a favorable rate due to certain tax incentives afforded to our subsidiary by the Philippine Economic Zone Authority. At December 31, 2021, our subsidiary is under examination by the Bureau of Internal Revenue for the year 2014.
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of our deferred taxes were as follows:
December 31, 2021December 31, 2020
(in thousands)
Deferred Tax Assets:
Net operating loss carry forward$12,247$13,997
General business credits4,173 4,078 
Accrued compensation1,545 5,921 
Stock-based compensation2,132 1,870 
Foreign tax credit— 268 
Deferred revenue66 260 
Allowance for refunds, claim denials and returns20 171 
Accrued liabilities2,153 1,707 
Intangible assets603 648 
Deferred rent239 367 
Accrued Taxes2,654 3,264 
Interest expense4,186 — 
Tenant Improvement Allowance1,225 1,431 
Uniform Capitalization110 532 
Director and officer prior act liability insurance policy1,790 — 
Other266 121 
Total deferred tax assets, net$33,409$34,635
Deferred tax liabilities:
Identifiable Intangible assets$(47,660)$(50,827)
Property and equipment(5,382)(5,687)
Software development costs(2,984)(1,669)
Change in Fair Value on Contingent liability(3,018)(3,013)
Prepaids(357)—
Total deferred tax liabilities$(59,401)$(61,196)
Net deferred tax liability$(25,992)$(26,561)
The total of all deferred tax assets is $33.4 million and $34.6 million as of December 31, 2021 and 2020, respectively. The total of all deferred tax liabilities is $59.4 million and $61.2 million as of December 31, 2021 and 2020, respectively. As of December 31, 2021 and 2020, we had no unrecognized tax benefits.
As a result of the Merger, an analysis was completed in accordance with Internal Revenue Code Section 382 (“Section 382”) to determine the limitations associated with our use of preexisting Net Operating Loss (“NOL”) carryforwards in future periods. The annual limitation is based on a number of factors including the value of our stock (as defined for tax purposes) on the date of the ownership change, our net unrealized built in gain position on that date and the effect of any subsequent ownership changes, if any. We retained a third party to complete the required Section 382 analysis who determined that at September 4, 2019 approximately $66.9 million of the NOL carryforwards will be available to future tax periods in varying increments annually. As of December 31, 2021, we had $43.3 million of federal NOL carryforwards of which $0.7 million
begin to expire between 2023 and 2026 and the remaining $42.6 million has an indefinite carryforward period. The remaining NOLs will be limited to 80% of taxable income in accordance with the Tax Cut and Jobs Act. As of December 31, 2021, we had $41.4 million of combined NOL carryforwards in various states which will begin to expire in 2023.
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was enacted in response to the COVID-19 pandemic. The CARES Act, among other things, permits NOL carryovers and carrybacks to offset 100% of taxable income for taxable years beginning before 2021. In addition, the CARES Act allows NOLs incurred in 2018, 2019 and 2020 to be carried back to each of the five preceding taxable years to generate a refund of previously paid income taxes. Consequently, we have filed NOL carryback claims for the years 2016 and 2017. Furthermore, the CARES Act contains modifications on the limitation of business interest for tax years beginning in 2019 and 2020. The modifications to Internal Revenue Code Section 163(j) increase the allowable business interest deduction from 30% of adjusted taxable income to 50% of adjusted taxable income. This modification significantly increases the allowable interest expense deduction and results in significantly less taxable income for the year-ended 2020, resulting in less utilization of net operating losses in that year. As a result of the CARES Act, it is anticipated that we will fully utilize all interest expense that was deferred with no additional disallowed interest expense in 2020. Finally, the CARES Act included a retroactive technical correction as if it were included in the Tax Cuts and Jobs Act originally. The CARES Act permits Qualified Improvement Property to qualify for 15-year depreciation and therefore also be eligible for 100 percent first-year bonus depreciation.
A reconciliation of the provision for income taxes at the federal statutory rate compared to the effective tax rate is as follows:
Years Ended December 31,Period from
Inception to
December 31,
2019		Period from
January 1, 2019
to September 3,
2019
20212020(Successor)(Predecessor)
(in thousands)
Income tax expense at the statutory rate $2,225 $1,764 $3,729 $3,978 
Increase in income taxes resulting from:
Foreign Jurisdiction rate different than the statutory (82)(277)35 2 
State taxes, net of federal 30 (159)242 5,837 
Loss on Extinguishment of Debt — — — 654 
Transaction bonuses deduction for tax not for book — — — 2,713 
Tax credits 187 272 (71)72 
Option Holder Compensation 486 — — 9,300 
Non-Deductible Compensation for Covered Employees(880)— — — 
Write off of Excess DTA related to Stock Option Exercise(120)— — — 
Buyer Transaction Costs not Deductible for Tax— — (2,953)— 
70% Success based deductible transaction Costs— — — 1,185 
Prior Year Adjustments— — — (170)
Carryback Due To CARES Act— 154 — — 
Fair value contingency608 375 — — 
Disallowed Fringe Benefits(149)(140)(43)(59)
FTC - Expiration(268)— — — 
NOL Carryforward Adjustment - Amended 2019 Tax Return(1,369)— — — 
Other (49)(85)(81)(224)
Income tax benefit $619 $1,904 $858 $23,288