Income Taxes

12 Months Ended

Dec. 31, 2021

Income Tax Disclosure [Abstract]

Income Tax Disclosure [Text Block]

Note 15. Income Taxes

All the Company's operations are domestic. The components of the provision (benefit) for income taxes attributable to continuing operations are as follows:

	For the Years Ended
	December 31,
	2021			2020			2019
Current
Federal	$	918		$	2,104		$	-
State		152			1,333			407
Total Current	$	1,070		$	3,437		$	407
Deferred
Federal	$	(6,727	)	$	(28,906	)		(11,481	)
State		(1,413	)		(1,368	)		572
Total Deferred	$	(8,140	)	$	(30,274	)	$	(10,909	)
Total provision (benefit)	$	(7,070	)	$	(26,837	)	$	(10,502	)

The reconciliation of the Company's federal statutory rate to the effective tax rate is as follows:

	For the Years Ended
	December 31,
	2021			2020			2019
Federal statutory rate		21.0	%		21.0	%		21.0	%
State taxes, net of federal benefit		(20.8	%)		7.4	%		73.4	%
Permanent items and other		(4.6	%)		2.0	%		(18.6	%)
Expiration of net operating losses and tax credits		70.0	%		(125.7	%)		0.0	%
Valuation allowance increase/decrease		(247.8	%)		1168.7	%		(805.1	%)
Uncertain tax positions		(9.8	%)		(145.2	%)		0.0	%
Return to provision adjustments and change in tax rates		0.9	%		(42.8	%)		(1.0	%)
Effective rate		(191.1	%)		885.4	%		(730.3	%)

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. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to reverse.

Significant components of the Company's deferred taxes are as follows:

	As of			As of
	December 31,			December 31,
	2021			2020
Deferred tax assets:
Deferred revenue	$	675		$	-
Capitalized legal costs		1,249			1,403
Stock compensation		762			423
Interest expense		4,837			1,029
Other		1,307			535
Lease liabilities—operating leases		3,998			1,987
Passthrough activity—investment in partnerships		5,740			3,767
Debt obligations		10,430			11,122
Suspended losses		28			1,591
Contingent liabilities		-			153
Net operating losses and credit carryforwards		47,205			52,699
Total deferred tax assets		76,231			74,709
Valuation allowance for deferred tax assets		(12,857	)		(17,102	)
Deferred tax assets, net of valuation allowance	$	63,374		$	57,607
Deferred tax liabilities:
Goodwill		(8,455	)		(5,166	)
Intangibles		(5,728	)		(12,983	)
Investment in partnership		(147	)		-
Property and equipment		(127	)		(158	)
Right of use assets—operating leases		(3,766	)		(1,679	)
Total deferred tax liabilities		(18,223	)		(19,986	)
Deferred tax assets, net	$	45,151		$	37,621

Due to the uncertainty of realizing the benefits of our domestic favorable tax attributes in future tax returns, as of December 31, 2021, the Company has recorded a valuation allowance against its net deferred tax asset of $12.9 million. During the years ended December 31, 2021 and 2020, the valuation allowance decreased by approximately $4.2 million and $23.2 million, respectively. The 2021 decrease is primarily attributable to the release of valuation allowance on partnership

outside basis differences and the expiration of federal net operating losses while the 2020 valuation allowance

decrease is due primarily to projected future income from operations, acquisitions and the impact of changes in tax law. Among other factors in 2020, the Company’s long-term management and advisory fee contracts and related projected income serve as the positive evidence to support the release of the valuation allowance. Additionally, the Company’s restructuring undertaken as part of the IPO transaction introduces new sources of taxable income available to absorb existing loss carry forwards. With the exception of certain deferred tax assets, primarily related to built-in capital losses, management believes it is more likely than not that the results of future operations will generate sufficient taxable income to realize the deferred tax assets.

As of December 31, 2021, the Company had federal and post-apportioned state NOL carryforwards of approximately $220.4 million and $44.0 million, respectively, and research and development credit carryforwards of approximately $5.3 million. The federal NOL and credit carryforwards will expire beginning in 2022, if not utilized. $24.5 million of federal NOLs will expire in 2022, $22.1 million will expire in 2023, and $174.0 million will expire between 2024-2039. $10.9 million of the state NOLs will expire between 2022 and 2029 and $33.1 million will expire between 2030 and 2039. Utilization of the NOLs and tax credits may be subject to substantial annual limitation due to the “change of ownership” provisions of the Internal Revenue Code of 1986. The annual limitation may result in the expiration of net operating losses and credit carryforwards before utilization.

Tax positions are evaluated utilizing a two-step process. The Company first determines whether any of its tax positions are more-likely-than-not to be sustained upon examination, based solely on the technical merits of the position. Once it is

determined that a position meets this recognition threshold, the position is measured as the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement.

The reconciliation of the Company's unrecognized tax benefits at the beginning and end of the year is as follows:

	For the Years Ended
	December 31,
	2021			2020
Balance at January 1	$	7,378		$	1,966
Additions based on tax positions related to the current year		-			-
Additions for tax positions of prior years		(361	)		5,412
Reductions for tax positions of prior years		-			-
Settlements		-			-
Balance at December 31	$	7,017		$	7,378

The uncertain tax position is primarily related to transfer pricing, research and development credits and state exposure due to intercompany interest expense.

The Company does not anticipate any significant changes to the unrecognized tax benefits within the next twelve months. The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. As of December 31, 2021 and 2020, the Company has $0.1 million of accrued interest and penalties related to uncertain tax positions.

The Company is subject to U.S. federal income tax as well as income tax of multiple state jurisdictions. The Company is not currently under audit in any other income tax jurisdictions. We are generally subject to U.S. federal and state tax examinations for all tax years since 1999 due to our net operating loss carryforwards and the utilization of the carryforwards in years still open under statute.