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INCOME TAXES
 12 Months Ended
Dec. 31, 2022
Income Tax Disclosure [Abstract]  
INCOME TAXES INCOME TAXES
The components of (loss) income before income taxes were as follows:
Years Ended December 31,
20222021
(In thousands)
Domestic$(126,810)$175,635 
Foreign(340)(983)
Total$(127,150)$174,652 
For purposes of reconciling the Company’s provision for income taxes at the statutory rate and the Company’s income tax expense (benefit) at the effective tax rate, a notional 21% tax rate was applied as follows:
Years Ended December 31,
20222021
Statutory federal tax rate - expense (benefit) (21)%21 %
Foreign rate differential— %5 %
Noncontrolling interests in operating subsidiaries(2)%— %
Nondeductible permanent items— %(1)%
Expired tax attributes6 %4 %
Derivative fair value adjustment(2)%5 %
Valuation allowance7 %(21)%
Other(1)%1 %
Effective income tax rate(13)%14 %
Acacia’s income tax benefit (expense) for the periods presented consisted of the following:
Years Ended December 31,
20222021
(In thousands)
Current:
Federal$(54)$— 
State(482)(15)
Foreign(606)(8,530)
Total current(1,142)(8,545)
Deferred:
Federal24,789 (54,165)
State259 1,573 
Foreign(28)332 
Total deferred25,020 (52,260)
Change in valuation allowance(7,667)36,518 
Income tax benefit (expense)$16,211 $(24,287)
The tax effects of temporary differences and carryforwards that give rise to significant portions of deferred tax assets and liabilities consisted of the following:
December 31,
20222021
(In thousands)
Deferred tax assets:
Net operating loss and capital loss carryforwards and credits$47,386 $78,428 
Unrealized gain on investments held at fair value35 — 
Compensation expense for share-based awards607 383 
Fixed assets and intangibles— — 
Basis of investments in affiliates— 18 
Accrued liabilities and other1,551 1,495 
Lease liability784 726 
State taxes94 — 
Total deferred tax assets50,457 81,050 
Valuation allowance(48,250)(40,585)
Total deferred tax assets, net of valuation allowance2,207 40,465 
Deferred tax liabilities:
ROU Asset(782)(726)
Fixed assets and intangibles(2,166)(2,572)
Unrealized gain on investments held at fair value— (55,696)
Other— (23)
Total deferred tax liabilities(2,948)(59,017)
Net deferred tax liabilities$(742)$(18,552)
As of December 31, 2022 and 2021, management assessed the realizability of deferred tax assets and evaluated the need for a valuation allowance for deferred tax assets on a jurisdictional basis. This evaluation utilizes the framework contained in ASC 740, "Income Taxes," wherein management analyzes all positive and negative evidence available at the balance sheet date to determine whether all or some portion of the Company's deferred tax assets will not be realized. Under this guidance, a valuation allowance must be established for deferred tax assets when it is more-likely-than-not that the asset will not be realized. In assessing the realization of the Company's deferred tax assets, management considers all available evidence, both positive and negative.
Based upon available evidence, it was concluded on a more-likely-than-not basis that as of December 31, 2022 a valuation allowance of $48.3 million was needed for foreign tax credits and certain state tax attributes the Company estimates will expire prior to utilization. As of December 31, 2021, the Company recorded a full valuation allowance of $40.6 million. The valuation allowance increased by $7.7 million for the year ended December 31, 2022 as a result of the use of the NOLs against realized gains and unrealized losses. The valuation allowance decreased by $(36.4) million for the year ended December 31, 2021 as a result of the use of the NOLs and increase in unrealized gains.
At December 31, 2022, Acacia had U.S. federal and state income tax net operating loss carryforwards (“NOLs”) totaling approximately $63.8 million and $36.0 million, respectively. Pursuant to the Tax Cuts and Jobs Act ("TCJA") enacted by the U.S. federal government in December 2017, for federal income tax purposes, NOL carryovers generated for our tax years beginning January 1, 2018 can be carried forward indefinitely but will be subject to a taxable income limitation. All federal losses are post TCJA NOLs, which do not expire. The $36.0 million of state NOLs will expire in varying amounts through 2040.
As of December 31, 2022 Acacia had combined foreign NOLs available to reduce future taxable income of approximately $1.9 million. As of December 31, 2022 a valuation of $1.9 million had been recorded against the related deferred tax assets for those NOLs that are not more likely than not to be fully utilized in reducing future taxable income.
As of December 31, 2022, Acacia had approximately $31.2 million of foreign tax credits, expiring between 2023 and 2032. In general, foreign taxes withheld may be claimed as a deduction on future U.S. corporate income tax returns, or as a credit against future U.S. income tax liabilities, subject to certain limitations.
During the fourth quarter of 2022, the Company finalized Printronix's pre-acquisition income tax returns and recorded an adjustment to the assets acquired and liabilities assumed. As a result, the Company recognized an increase in goodwill of $71,000 from the initial assessment as of the acquisition date.
The following changes occurred in the amount of unrecognized tax benefits:
Years Ended December 31,
20222021
(In thousands)
Beginning balance$887 $731 
Additions for current year tax positions— 27 
Additions included in purchase accounting for prior year positions— 129 
Reductions for prior year tax positions(127)— 
Ending Balance (excluding interest and penalties)760 887 
Interest and penalties— — 
Total$760 $887 
At December 31, 2022 and 2021, the Company had total unrecognized tax benefits of approximately $760,000 and $887,000, respectively. At December 31, 2022 and 2021, $760,000 and $108,000, respectively, of unrecognized tax benefits are recorded in other long-term liabilities. At December 31, 2022, if recognized, $760,000 of tax benefits would impact the Company’s effective tax rate.
Acacia recognizes interest and penalties with respect to unrecognized tax benefits in income tax expense (benefit). No interest and penalties have been recorded for the unrecognized tax benefits for the periods presented. Acacia has identified no uncertain tax position for which it is reasonably possible that the total amount of unrecognized tax benefits will significantly increase or decrease within 12 months.
Acacia is subject to taxation in the U.S. and in various state/foreign jurisdictions and incurs foreign tax withholdings on revenue agreements with licensees in certain foreign jurisdictions. With no material exceptions, Acacia is no longer subject to U.S. federal or state examinations by tax authorities for years before 2018. The Company’s 2018 through 2022 tax years generally remain subject to examination by federal, state and foreign tax authorities. As the Company has incurred losses in most jurisdictions, the taxing authorities can generally challenge 2015 through 2021 either the amount of carryforward deduction reported in the open year or the amount of a net operating loss deduction that is absorbed in a closed year and supports the determination of the available net operating loss deduction for the open year under examination.
Deferred income taxes have not been provided for undistributed earnings of the Company’s consolidated foreign subsidiaries, as earnings are permanently reinvested, however, no deferred tax liability would be necessary as the parent entity would not be required to include the distribution into income as the amount would be tax free under current law.
TCJA subjects a US shareholder to tax on 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 have elected to account for GILTI in the year the tax is incurred.
On March 11, 2021 the United States enacted the American Rescue Plan Act of 2021. This Act includes various income and payroll tax measures. The Company does not expect a material impact from the American Rescue Plan on its consolidated financial statements and related disclosures.
On August 16, 2022, President Biden signed into law the Inflation Reduction Act of 2022, which includes a 15% minimum tax on the adjusted financial statement income of corporations with a three taxable year average annual adjusted financial statement income in excess of $1 billion, a 1% excise tax on net stock repurchases made by publicly traded U.S. corporations and several tax incentives to promote clean energy. The alternative minimum tax and excise tax are effective in taxable years beginning after December 31, 2022. These tax law changes are not expected to significantly impact the Company’s consolidated financial statements. The Company will continue to evaluate its impact as further information becomes available.