Income Taxes

The components of income tax expense (benefit) are as follows:



	Year Ended December 31,
In thousands	2019			2018
Current
Federal	$	216		$	(18,194	)
State and local	504			314
Foreign	37			1,413
Total current	$	757		$	(16,467	)

Deferred
Federal	$	623		$	(470	)
State and local	(96		)	(181		)
Foreign	469			(994		)
Total deferred	$	996		$	(1,645	)

Total income tax expense (benefit)	$	1,753		$	(18,112	)

The U.S. and foreign components of loss before income taxes were as follows:



	Year Ended December 31,
In thousands	2019			2018
United States	$	(29,003	)	$	(4,873	)
Foreign	4,492			4,311
Total loss from operations before income taxes	$	(24,511	)	$	(562	)

The differences between total income tax expense (benefit) and the amount computed by applying the statutory federal income tax rate of 21% to (loss) income before income taxes were as follows:



	Year Ended December 31,
In thousands	2019			2018
Computed expected income tax benefit	$	(5,147	)	$	(118	)
Basis difference on sale of 3Q Digital	—			(11,937		)
Net effect of state income taxes	(509		)	(388		)
Foreign subsidiary dividend inclusions	1,083			2,781
Foreign tax rate differential	(268		)	189
Change in valuation allowance	6,085			3,383
Loss from deemed liquidation of foreign subsidiary	—			(4,242		)
Rate Benefit from Carryback of Capital Loss	—			(6,452		)
Stock-based compensation shortfalls	238			437
Return to Provision	216			(1,835		)
Other, net	55			70
Income tax expense (benefit) for the period	$	1,753		$	(18,112	)

Total income tax expense (benefit) was allocated as follows:



	Year Ended December 31,
In thousands	2019		2018
(Loss) Income from operations	$	1,753	$	(18,112	)
Stockholders’ equity	—		—
Total	$	1,753	$	(18,112	)

The U.S. Tax Cuts and Jobs Act (the “Tax Reform Act”) was enacted on December 22, 2017. The legislation significantly changed U.S. tax law by, among other things, lowering the corporate income tax rate from 35% to 21%, implementing a territorial tax system and imposing a one-time repatriation tax on deemed repatriated earnings of foreign subsidiaries. We applied the guidance in the SAB 118 when accounting for the enactment-date effects of the Tax Reform Act in 2017 and throughout 2018. At December 31, 2018, we completed our accounting for all the enactment-date income tax effects of the Tax Reform Act. We did not record any adjustments to our provisional amounts in the year ended December 31, 2018.

The Tax Reform Act subjects a U.S. shareholder to tax on Global Intangible Low Tax Income (GILTI) earned by certain foreign subsidiaries. The FASB Staff Q&A Topic 740, No. 5 “Accounting for Global Intangible Low-Taxed Income”, states that an entity can make an accounting policy election to either recognize deferred taxes for temporary basis differences expected to reverse as GILTI in future years or to provide for the tax expense related to GILTI in the year the tax is incurred as a period expense only. We elected to account for GILTI as a current period expense when incurred.

The tax effects of temporary differences that gave rise to significant portions of the deferred tax assets and deferred tax liabilities were as follows:



	Year Ended December 31,
In thousands	2019			2018
Deferred tax assets
Deferred compensation and retirement plan	$	18,067		$	16,179
Accrued expenses not deductible until paid	2,331			1,584
Lease liability	4,217			—
Employee stock-based compensation	736			780
Accrued payroll not deductible until paid	196			428
Accounts receivable, net	156			100
Investment in foreign subsidiaries, outside basis difference	1,336			1,322
Goodwill	649			710
Other, net	156			142
Foreign net operating loss carryforwards	2,364			3,042
State net operating loss carryforwards	4,387			3,776
Foreign tax credit carryforwards	3,653			3,653
Federal net operating loss carryforwards	5,394			2,507
Total gross deferred tax assets	43,642			34,223
Less valuation allowances	(38,379		)	(31,170		)
Net deferred tax assets	$	5,263		$	3,053

Deferred tax liabilities
Property, plant and equipment	$	(1,159	)	$	(1,689	)
Right-of-use asset	(3,785		)	—
Prepaid Expenses	(279		)	(331		)
Other, net	(284		)	(281		)
Total gross deferred tax liabilities	(5,507		)	(2,301		)
Net deferred tax (liabilities) assets	$	(244	)	$	752

A reconciliation of the beginning and ending balance of deferred tax valuation allowance is as follows:



In thousands
Balance at December 31, 2017	$	28,350
Deferred Income Tax Expense	3,383
Return to Provision Impact	(854		)
Other Comprehensive Income	291
Balance at December 31, 2018	$	31,170
Deferred Income Tax Expense	6,086
Return to Provision Impact	(364		)
Other Comprehensive Income	1,487
Balance at December 31, 2019	$	38,379

In assessing the realizability of deferred tax assets, we consider whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The valuation allowance for deferred tax assets was $38.4 million and $31.2 million at December 31, 2019 and 2018, respectively. The amount of the deferred tax asset considered realizable could be adjusted if estimates of future taxable income during the carryforward period are increased, or if objective negative evidence in the form of cumulative losses is no longer present, and additional weight may be given to subjective evidence such as changes in our growth projections.

We or one of our subsidiaries file income tax returns in the U.S. federal, U.S. state, and foreign jurisdictions. For U.S. state returns, we are no longer subject to tax examinations for years prior to 2014. For U.S. federal and foreign returns, we are no longer subject to tax examinations for years prior to 2016.

A reconciliation of the beginning and ending amount of unrecognized tax benefit is as follows:



In thousands
Balance at December 31, 2017	$	206
Settlements	(206		)
Balance at December 31, 2018	$	—
Settlements
Balance at December 31, 2019	$	—

There is no balance of unrecognized tax benefits as of December 31, 2019. Any adjustments to this liability as a result of the finalization of audits or potential settlements would not be material.

Effective January 1, 2019 we adopted ASU 2018-02 which allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the reduction of the U.S. federal statutory income tax rate from 35% to 21% due to the enactment of the Tax Reform Act. As a result of the adoption, we reclassified $11.4 million of stranded tax effects from accumulated other comprehensive income to retained earnings.

We have elected to classify any interest and penalties related to income taxes within income tax expense in our Consolidated Statements of Comprehensive Income (Loss). We did not recognize any tax benefits for the reduction of accrued interest and penalties associated with the reduction of the liability for unrecognized tax benefits during the years ended December 31, 2019 and 2018. We did not have any interest and penalties accrued at December 31, 2019 or 2018.

For U.S. tax return purposes, net operating losses and tax credits are normally available to be carried forward to future years, subject to limitations as discussed below. As of December 31, 2019, the Company has federal net operating loss carryforward of $25.7 million, of which the entire amount is not subject to expiration due to the change in carryforward periods as a result of the U.S. Tax Act. Federal Foreign tax carryforward credit of $3.7 million will expire on various dates from 2023 to 2026.

Deferred income taxes have not been provided on the undistributed earnings of our foreign subsidiaries as these earnings have been, and under current plans will continue to be, permanently reinvested in these subsidiaries. It is not practicable to estimate the amount of additional taxes which may be payable upon the distribution of these earnings. However, because of the provisions in the Tax Reform Act, the tax cost of repatriation is immaterial and limited to foreign withholding taxes, currency translation and state taxes.