Income Taxes

6 Months Ended

Dec. 31, 2022

Income Taxes

Income Taxes

Note 17. Income Taxes

The federal, state and local income tax expense for the three months ended December 31, 2022 was $32 thousand compared to income tax benefit of $1.4 million for the three months ended December 31, 2021. The effective tax rates for the three months ended December 31, 2022 and 2021 were (0.1)% and 1.7%, respectively.

The federal, state and local income tax expense for the six months ended December 31, 2022 was $66 thousand compared to income tax benefit of $1.4 million for the six months ended December 31, 2021. The effective tax rates for the six months ended December 31, 2022 and 2021 were (0.1)% and 1.4%, respectively.

The Company may recognize the tax benefit from an uncertain tax position claimed on a tax return only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement.

As of December 31, 2022 and June 30, 2022, the Company has total unrecognized tax benefits of $4.6 million, of which $4.5 million would impact the Company’s effective tax rate for each period, if recognized. As a result of the positions taken during the period, the Company has not recorded any material interest and penalties for the period ended December 31, 2022 in the statement of operations and no cumulative interest and penalties have been recorded either in the Company’s statement of financial position as of December 31, 2022 and June 30, 2022. The Company will recognize interest accrued on unrecognized tax benefits in interest expense and any related penalties in operating expenses.

The Company files income tax returns in the United States federal jurisdiction and various states. The Company’s federal tax returns for Fiscal 2014 and prior generally are no longer subject to review as such years are closed. The Company’s Fiscal 2015 through 2017, 2019, 2020 and 2021 federal returns are currently under examination by the Internal Revenue Service (“IRS”). As part of a lengthy process, the Company has received various Information Document Requests and Notices of Proposed Adjustment with respect to positions taken in certain income tax issues, including an accounting method change related to chargebacks and rebates that the IRS is proposing to disallow. We are in the process of assessing the impact of these notices and preparing a response to the IRS. We believe that it is more likely than not that our positions will ultimately be sustained upon further examination, and, if necessary, will contest any addition tax determined to be owed; however, an adverse outcome could have a material impact to the Company’s Consolidated Statements of Operations and financial position. In September 2022, the IRS notified the Company that a portion of its income tax receivables balance will be held until the completion of the examination of its federal tax returns. As such, the balance expected to be held by the IRS is classified as income taxes receivable on the Company’s Consolidated Balance Sheet as of December 31, 2022.