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Income Taxes
 12 Months Ended
Dec. 31, 2021
Income Tax Disclosure [Abstract]  
Income Taxes Income Taxes
The benefit for income taxes attributable to income from operations includes the following (in thousands):
For the Years Ended December 31,
202120202019
Current (benefit) provision
Federal$— $— $25 
State(98)(77)68 
Total current(98)(77)93 
Deferred provision (benefit)
Federal19 27 88 
State51 4 (285)
Total deferred70 31 (197)
Total benefit$(28)$(46)$(104)
The provision for income taxes related to operations varies from the amount determined by applying the federal income tax statutory rate to the income or loss before income taxes. The reconciliation of these differences is as follows:
For the Years Ended December 31,
202120202019
Computed expected income tax provision21.0 %21.0 %21.0 %
State income taxes, net of federal income tax benefit1.5 1.0 (0.7)
Change in valuation allowance for deferred tax assets(7.9)17.0 (24.7)
Cumulative deferred adjustments— 0.7 (1.1)
Provision to return adjustments(0.4)0.5 1.3 
Other permanent differences(0.2)1.0 (3.8)
Dividend and accretion on preferred stock — 10.5 (35.8)
Gain on redemption of preferred stock — (43.3)— 
Section 162(m) limitation - covered employees (16.0)14.6 (6.9)
Capitalization of IPO transaction costs— 4.4 — 
FIN 48 liability(0.6)0.2 (3.7)
R&D credit 2.7 (12.4)19.0 
Non-controlling interest — (15.9)40.0 
0.1 %(0.7 %)4.6 %
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities on December 31, 2021 and 2020 are as follows (in thousands):
December 31,
20212020
Deferred tax assets:
Accounts receivable, principally due to allowance for doubtful accounts$29 $78 
Allowance for inventory obsolescence and amortization315 398 
Accrued liabilities not currently deductible1,713 2,204 
Stock-based compensation7,993 — 
Accrued compensation648 1,161 
Deferred rent3,813 4,387 
Section 163(j) interest limitation54 306 
Goodwill37,394 41,534 
Net operating loss carryforwards - federal5,681 3,814 
Net operating loss carryforwards - state1,014 1,002 
R&D credit2,645 1,986 
Total gross deferred tax assets61,299 56,870 
Less valuation allowance(55,588)(52,198)
Total deferred tax assets, net of valuation allowance5,711 4,672 
Deferred tax liabilities:
Amortization and depreciation(6,434)(4,471)
Unbilled accounts receivable, deferred for tax purposes— (853)
Total deferred tax liabilities(6,434)(5,324)
Net deferred tax liabilities$(723)$(652)
The components of the valuation allowance are as follows (in thousands):
Balance Beginning of
Period		AdditionsRecoveriesBalance
End of
Period
December 31, 2021$52,198 $3,390 $— $55,588 
December 31, 2020$7,206 $44,992 $— $52,198 
December 31, 2019$6,652 $554 $— $7,206 
We establish a valuation allowance for deferred tax assets if, based on the weight of available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. The realization of deferred tax assets is dependent upon the generation of future taxable income.  We considered projected future taxable income, tax planning strategies, and reversal of taxable temporary differences in making this assessment. Based on available evidence, we have determined that a full valuation allowance is required as of December 31, 2021 and 2020. As a result of a full valuation allowance against our deferred tax assets and liabilities, a deferred tax liability related to indefinite-lived goodwill remains on our consolidated balance sheets on December 31, 2021 and 2020.
In 2020, we recorded deferred tax assets and liabilities related to the purchase of an additional 50% interest in Telos ID, including a deferred tax asset of $43.8 million for tax-deductible goodwill generated in the transaction. We also recorded a corresponding valuation allowance against the additional deferred taxes.
On December 31, 2021, for federal income tax purposes there was approximately a $27.1 million net operating loss available to be carried forward to offset future taxable income. Approximately $10.6 million of these net operating loss carryforwards expire between 2035 and 2037, the remaining will be carried forward indefinitely. As of December 31, 2021, there was approximately $3.5 million of R&D credit carryover which begins to expire in 2033. Certain tax attributes of the Company, including net operating losses and credits, would be subject to a limitation should an ownership change as defined under Section 382 of the Internal Revenue Code of 1986, as amended, occur. The limitations resulting from a change in ownership could affect the Company’s ability to utilize its tax attributes. A study was completed in 2020 which confirmed that no limitation applies to the Company's tax attributes as of December 31, 2020. We believe that ownership activity since December 31, 2020 would not result in limitation sufficient to result in the expiration of unused attributes.
Under the provisions of ASC 740, we determined that there were approximately $1,056,000, $763,000, and $714,000 of unrecognized tax benefits as of December 31, 2021, 2020, and 2019, respectively. Included in the balance of unrecognized tax benefits as of December 31, 2021, 2020, and 2019 were $174,000, $278,000, and $369,000, respectively, of tax benefits that, if recognized, would impact the effective tax rate. Also included in the balance of unrecognized tax benefits as of December 31, 2021, 2020, and 2019 were $882,000, $485,000, and $345,000, respectively, of tax benefits that, if recognized, would not impact the effective tax rate due to the Company’s valuation allowance. The Company had accrued interest and penalties related to the unrecognized tax benefits of $170,000 and $241,000, which were recorded in other liabilities as of December 31, 2021 and 2020, respectively.
We believe that the total amounts of unrecognized tax benefits will not significantly increase or decrease within the next 12 months. The period for which tax years are open, 2013 to 2021, has not been extended beyond the applicable statute of limitations. As of December 31, 2021, the Company is not under examination by any federal or state tax jurisdiction.
A reconciliation of the beginning and ending amount of gross unrecognized tax benefits is as follows (in thousands):
202120202019
Unrecognized tax benefits, beginning of period$763 $714 $649 
Increase (decrease) in prior year tax positions90 (104)1 
Increase related to current year tax positions273 213 101 
Decrease related to lapse of statutes(70)(60)(37)
Unrecognized tax benefits, end of period$1,056 $763 $714