9.	INCOME TAXES

The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction and various states and foreign jurisdictions. The Company is

longer subject to U.S. federal examinations by tax authorities for years before

2016

and for state examinations before

2013.

Regarding foreign subsidiaries, the Company is

longer subject to examination by tax authorities for years before

2009

in Asia and generally

2011

in Europe. The Company is currently under examination by the taxing authorities in Slovakia for the tax year

2014

and has accrued tax based on preliminary findings.

December 31, 2019

and

2018,

the Company has approximately

$29.1

million and

$28.9

million, respectively, of liabilities for uncertain tax positions (

$2.2

million and

$1.4

million, respectively, is included in other current liabilities on the consolidated balance sheets and

$26.9

million and

$27.5

million, respectively, is included in liability for uncertain tax positions on the consolidated balance sheets). These amounts, if recognized, would reduce the Company’s effective tax rate. As of

December 31, 2019,

approximately

$2.2

million of the Company’s liabilities for uncertain tax positions are expected to be resolved during the next

twelve

months by way of expiration of the related statute of limitations.

As a result of the expiration of the statutes of limitations for specific jurisdictions, it is reasonably possible that the related unrecognized benefits for tax positions taken regarding previously filed tax returns

may

change materially from those recorded as liabilities for uncertain tax positions in the Company’s consolidated financial statements at

December 31, 2019.

A total of

$2.2

million of the liability for uncertain tax positions, of which

$0.9

million related to the

2009

tax year is scheduled to expire on

June 1, 2020.

The remaining

$1.3

million relates to the

2016

tax year and is scheduled to expire on

September 15, 2020.

Of the

$1.4

million of liability for uncertain tax positions that expired in

2019,

$1.0

million of liability relates to the

2008

tax year,

$0.1

million relates to the

2015

tax year and the remaining

$0.3

million relates to the interest on the

2017

transition tax that was settled during the tax year ended

December 31, 2019.

A reconciliation of the beginning and ending amount of the liability for uncertain tax positions, including the portion included in income taxes payable, is as follows:

	Year Ended December 31,
	2019			2018
Liability for uncertain tax positions - January 1	$	28,951		$	30,430
Additions based on tax positions related to the current year		1,738			1,703
Translation adjustment		(211	)		(657	)
Settlement/expiration of statutes of limitations		(1,417	)		(2,525	)
Liability for uncertain tax positions - December 31	$	29,061		$	28,951

The Company’s policy is to recognize interest and penalties related to uncertain tax positions as a component of the current provision for income taxes. During the years ended

December 31, 2019

and

2018,

the Company recognized

$0.7

million and

$1.3

million, respectively, in interest and penalties in the consolidated statements of operations. During the years ended

December 31, 2019

and

2018,

the Company recognized a benefit of

$0.7

million and

$0.3

million, respectively, for the reversal of such interest and penalties, relating to the expiration of statues of limitations and settlement of the acquired liability for uncertain tax positions, respectively. The Company has approximately

$4.9

million and

$3.8

million accrued for the payment of interest and penalties at

December 31, 2019

and

2018,

respectively, which is included in both income taxes payable and liability for uncertain tax positions in the consolidated balance sheets.

The Company’s total (loss) earnings before provision for income taxes included (loss) earnings from domestic operations of (

$17.1

) million and

$0.3

million for

2019

and

2018,

respectively, and earnings before provision for income taxes from foreign operations of

$9.8

million and

$23.3

million for

2019

and

2018,

respectively.

The provision (benefit) for income taxes consists of the following:

	Year Ended December 31,
	2019			2018
Current:
Federal	$	(215	)	$	(3,517	)
State		141			152
Foreign		3,687			3,782
		3,613			417
Deferred:
Federal		(2,222	)		2,895
State		(135	)		196
Foreign		185			(601	)
		(2,172	)		2,490

	$	1,441		$	2,907

A reconciliation of taxes on income computed at the U.S. federal statutory rate to amounts provided is as follows:

	Year Ended December 31,
	2019						2018
	$			%			$			%
Tax (benefit) provision computed at the federal statutory rate	$	(1,534	)		21	%	$	4,959			21	%
Increase (decrease) in taxes resulting from:
Different tax rates applicable to foreign operations		2,978			(41	%)		1,231			5	%
Increase in (reversal of) liability for uncertain tax positions - net		320			(4	%)		(822	)		(3	%)
Impact of U.S. Tax Reform		-			0	%		(2,628	)		(11	%)
Research and experimentation and foreign tax credits		(907	)		12	%		(300	)		(1	%)
State taxes, net of federal benefit		(54	)		1	%		322			1	%
SERP/COLI and restricted stock income		(547	)		7	%		195			1	%
Impairment of goodwill		1,522			(21	%)		-			0	%
Other, including under/(over) accruals, unrealized foreign exchange gains and amortization of purchase accounting intangibles		(337	)		5	%		(50	)		0	%
Tax provision computed at the Company's effective tax rate	$	1,441			(20	%)	$	2,907			12	%

The Company holds an offshore business license from the government of Macao. With this license, a Macao offshore company named Bel Fuse (Macao Commercial Offshore) Limited has been established to handle the Company’s sales to

third

-party customers in Asia. Sales by this company consist of products manufactured in the PRC. This company is

not

subject to Macao corporate profit taxes which are imposed at a tax rate of

12%.

September 21, 2018,

the Executive Council of the Macao SAR Government has proposed to abolish the existing Offshore Law. It is proposed that the existing law and the relevant regulations related to the offshore business will be abolished, and that the operating permit to carry on offshore business will be terminated on

January 1, 2021.

The Company is keeping the operations in Macao and will be subject to a

12%

tax on its income from this operation.

As of

December 31, 2019,

the Company has gross foreign income tax net operating losses (“NOL”) of

$29.6

million, foreign tax credits of

$0.3

million and capital loss carryforwards of

$0.2

million which amount to a total of

$7.1

million of deferred tax assets. The Company has established valuation allowances totaling

$7.1

million against these deferred tax assets. In addition, the Company has gross federal and state income tax NOLs of

$1.5

million, including

$0.8

million of NOLs acquired from Array, which amount to

$0.2

million of deferred tax assets and tax credit carryforwards of

$2.1

million. The Company has established valuation allowances of

$1.1

million against these deferred tax assets. The foreign NOL's can be carried forward indefinitely, the NOL acquired from Array expires at various times during

2026

–

2027,

the state NOL's expire at various times during

2020

–

2033

and the tax credit carryforwards expire at various times during

2026

2035.

Management has

specific plans to indefinitely reinvest the unremitted earnings of our foreign subsidiaries as of

December 31, 2019.

Applicable income and dividend withholding taxes of

$0.2

million have been reflected in the accompanying consolidated statements of operations for the year ended

December 31, 2019.

Due to the practicality of determining the deferred taxes on outside basis differences in our investments in our foreign subsidiaries, we have

not

provided for deferred taxes on outside basis differences and deemed that these basis differences will be indefinitely reinvested.

During the

fourth

quarter of

2018,

the Company completed the analysis of the impacts of the U.S. tax reform and recognized the tax consequences of all unremitted foreign earnings. At

December 31, 2017,

we had made a reasonable estimate of the effects on our existing deferred tax balances and the

one

-time transition tax in which we recognized a provisional amount of

$18.1

million, which was included as a component of income tax expense from continuing operations. On the basis of revised earnings and profit computations that were completed during the year ended

December 31, 2018,

the Company recognized a measurement-period adjustment reducing the deemed repatriation tax by

$2.6

million, resulting in the reduction of the Company’s provisional estimate from

$18.1

million to

$15.5

million. After payments made during

2018,

the remaining deemed repatriation taxes payable of

$10.8

million is included in other current liabilities on the Company’s consolidated balance sheet at

December 31, 2018.

December 31, 2019,

the majority of the deemed repatriation tax is included in other long-term liabilities on the Company’s consolidated balance sheet due to clarification on an Internal Revenue Service notice received in

December 2018.

Components of deferred income tax assets are as follows:

	December 31,
	2019		2018
	Tax Effect		Tax Effect

Deferred tax assets:
State tax credits	$	1,046	$	1,000
Unfunded pension liability		1,102		605
Reserves and accruals		2,721		2,483
Federal, state and foreign net operating loss and credit carryforwards		8,042		8,370
Depreciation		686		850
Amortization		698		-
Lease accounting		3,961		-
Other accruals		5,079		5,641
Total deferred tax assets		23,335		18,949
Deferred tax liabilities:
Depreciation		1,901		1,666
Amortization		6,973		7,930
Lease accounting		3,871		-
Other accruals		370		893
Total deferred tax liabilities		13,115		10,489
Valuation allowance		8,216		9,200
Net deferred tax assets/(liabilities)	$	2,004	$	(740	)

The Company continues to monitor proposed legislation affecting the taxation of transfers of U.S. intangible property and other potential tax law changes.