Income Taxes

12 Months Ended

Dec. 31, 2021

Income Tax Disclosure [Abstract]

Income Taxes

5. Income Taxes

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was signed into law. The CARES Act is a relief package intended to assist many aspects of the American economy and includes provisions relating to refundable payroll tax credits, deferral of certain payment requirements for the employer portion of Social Security taxes, net operating loss carryback periods and temporarily increasing the amount of net operating losses that

corporations can use to offset income, alternative minimum tax (“AMT”) credit refunds, modifications to the net interest deduction limitations, and technical corrections to tax depreciation methods for qualified improvement property.

On July 20, 2020, the Department of the Treasury and the Internal Revenue Service issued final regulations addressing the treatment of income earned by certain foreign corporations that is subject to a high rate of foreign tax. The final regulations allow taxpayers to exclude certain high-taxed income of a controlled foreign corporation from their Global Intangible Low Taxed Income (“GILTI”) computation on an elective basis (“the GILTI High Tax Exclusion election” or “the Election”). Taxpayers make the election on an annual basis. Taxpayers may make the election retroactively to tax years beginning after December 31, 2017 if certain requirements are met.

The Company has reflected the impact of the Election as well as the impact of the extended net operating loss carryback periods provided by the CARES Act on its 2020 income tax provision and continues to assess the future implications of these provisions on its consolidated financial statements.

The provision for income taxes for 2021, 2020, and 2019 consists of the following:

	2021			2020			2019
(amounts in thousands)
Domestic and foreign components of income before    income taxes are as follows:
Domestic	$	4,797		$	2,497		$	2,306
Foreign		6,940			8,164			3,983
Total income before income taxes	$	11,737		$	10,661		$	6,289
The provision (benefit) for income taxes consists of:
Current tax:
U.S. federal	$	(219	)	$	258		$	62
Foreign		2,654			2,679			1,947
U.S. state and local		138			365			107
Total current tax		2,573			3,302			2,116
Deferred tax:
U.S. federal		(3,810	)		—			—
Foreign		60			(280	)		48
U.S. state and local		(816	)		—			—
Total deferred tax		(4,566	)		(280	)		48
Total tax	$	(1,993	)	$	3,022		$	2,164
The effective and statutory income tax rate can be reconciled    as follows:
Tax at statutory rate	$	2,465		$	2,239		$	1,321
State tax, net of federal benefit		280			53			121
Non-taxable income		(192	)		(393	)		(250	)
Non-deductible expenses		9			569			720
Change in estimate primarily related to foreign taxes		352			(227	)		100
Change in valuation allowance related to U.S. federal taxes		(5,229	)		1,952			(629	)
Change in estimate primarily related to U.S. federal taxes		—			(1,141	)		—
Tax credits		(260	)		(679	)		(164	)
GILTI		—			146			376
Foreign rate differential		504			488			531
Other, net		78			15			38
Total tax	$	(1,993	)	$	3,022		$	2,164
Effective income tax rate		(17.0	)%		28.3	%		34.4	%

The ETR was lower in 2021 primarily due to the reversal of the valuation allowance against the Company’s US deferred tax assets.

The ETR was lower in 2020 primarily resulting from the GILTI High Tax Exclusion election and extended NOL carryback periods.

The ETR was higher in 2019 primarily due to non-deductible acquisition costs related to the Tech-IT and Soft Company acquisitions.

The Company’s deferred tax assets and liabilities at December 31, 2021 and 2020 consist of the following:

December 31,	2021			2020
(amounts in thousands)
Assets
Deferred compensation	$	4,498		$	5,475
Loss and credit carryforwards		1,454			522
Accruals deductible for tax purposes when paid		908			1,551
State taxes		639			836
Depreciation		42			52
Unrealized gain		74			12
Leases		5,691			5,686
Other		13			88
Gross deferred tax assets		13,319			14,222
Deferred tax asset valuation allowance		(2,128	)		(7,664	)
Gross deferred tax assets less valuation allowance		11,191			6,558
Liabilities
Amortization		(1,847	)		(2,317	)
Depreciation		(477	)		(312	)
Leases		(5,691	)		(5,686	)
Deferred compensation		(22	)		(24	)
Gross deferred tax liabilities		(8,037	)		(8,339	)
Net deferred tax assets (liabilities)	$	3,154		$	(1,781	)
Net deferred tax assets and liabilities are recorded as follows:
Net non-current assets	$	4,946		$	393
Net non-current liabilities		(1,792	)		(2,174	)
Net deferred tax assets (liabilities)	$	3,154		$	(1,781	)

In assessing the realizability of deferred tax assets, management considers, within each taxing jurisdiction, whether it is more likely than not that all or some portion of the deferred tax assets will be realized, or that a valuation allowance is required. Management considers all available evidence, both positive and negative, in assessing realizability of its deferred tax assets. A key component of this assessment is management’s critical evaluation of current and future impacts of business and economic factors on the Company’s ability to generate future taxable income. Factors that may affect the Company’s ability to generate taxable income include, but are not limited to increased competition, a decline in revenue or margins, a loss of market share, the availability of qualified professional staff, and a decrease in demand for the Company’s services. The Company elected to use the incremental cash tax savings approach when considering GILTI in its assessment of the realizability of its U.S. deferred tax assets. The Company generated U.S. book and tax income during 2019, 2020, and 2021 resulting in a cumulative income position for the three years ended December 31, 2021. The Company believes its financial outlook remains positive and the uncertainty around the COVID-19 pandemic has decreased. Given the positive U.S. financial results and outlook, management has concluded that it is more likely than not that the Company will be able to fully realize its U.S. deferred tax assets and has reversed the valuation allowance totaling $5.2 million at December 31, 2021. The analysis that the Company prepared to determine the valuation allowance required significant judgment and assumptions regarding future market conditions as well as forecasts for profits, taxable income, and taxable income by jurisdiction. Due to the sensitivity of the analysis, changes to the assumptions in subsequent periods could have a material effect on the valuation allowance. Additionally, management has determined that a valuation allowance is required against its Netherlands and India deferred taxes. The total valuation allowance recorded against these deferred tax assets is $2.1 million, a net decrease of $5.5 million during the year, of which $5.1 million was recorded as income tax benefit in the consolidated statement of operations.

The Company has a U.S. federal and various state net operating loss carryforwards of $4.0 million and $1.7 million, respectively.  The federal carryforward has no expiration date, and the state carryforwards begin to expire in 2022. The Company has net operating loss carryforwards in the Netherlands, United Kingdom, and India of $0.2 million, $1.3 million, and $0.8 million, respectively. The carryforwards in the Netherlands expire between 2022 and 2027, the carryforwards in the United Kingdom have no expiration date, and the carryforwards in India begin to expire in 2028.  

At December 31, 2021, the Company believes it has adequately provided for its tax-related liabilities, and that no reserve for unrecognized tax benefits is necessary. No significant change in the total amount of unrecognized tax benefits is expected within the next twelve months. The Company recognizes accrued interest and penalties related to unrecognized tax benefits (if any) in tax expense, as applicable. At December 31, 2021 and 2020, the Company had no accrual for the payment of interest and penalties.

The Company has not recorded a U.S. deferred tax liability for the excess book basis over the tax basis of its investments in foreign subsidiaries as these amounts continue to be indefinitely reinvested in foreign operations.

Net income tax payments during 2021, 2020, and 2019 totaled $2.7 million, $4.2 million, and $2.5 million, respectively.