Synacor, Inc. - 10-K filing on 2021-03-31

Income Taxes

12 Months Ended

Dec. 31, 2020

INCOME TAXES

Income (loss) before income tax expense was attributable to the following jurisdictions (in thousands):


	2020		2019
United States	$	(11,810)	$	(8,799)
Foreign	1,206		707
Total	$	(10,604)	$	(8,092)

The provision (benefit) for income taxes for the years ended December 31, 2020 and 2019, was comprised of the following (in thousands):


	2020		2019
Current:
United States Federal	$	—	$	—
State	31		35
Foreign	700		850
Total current provision for income taxes	731		885
Deferred:
United States Federal	10		24
State	126		61
Foreign	90		(41)
Net deferred provision for income taxes	226		44
Total provision for income taxes	$	957	$	929

The income tax effects of significant temporary differences and carryforwards that give rise to deferred income tax assets and liabilities as of December 31, 2020 and 2019 are as follows (in thousands):


	2020		2019
Deferred income tax assets:
Stock and other compensation expense	$	2,157	$	2,252
Net operating losses	14,169		11,787
Research and development credits	1,676		1,676
Other federal, state and foreign carryforwards	2,458		2,424
Intangible assets	2,221		1,765
Other	459		620
Gross deferred tax assets	23,140		20,524
Valuation allowances	(19,333)		(14,025)
Net deferred tax assets	3,807		6,499
Deferred income tax liabilities:
Fixed assets	(2,380)		(5,139)
Intangible assets and other	(1,300)		(1,007)
Gross deferred tax liabilities	(3,680)		(6,146)
Subtotal	127		353
Less unrecognized tax benefit liability related to deferred items	(628)		(628)
Net deferred tax liabilities	$	(501)	$	(275)

There have been no additions or reductions to the unrecognized tax benefit of $0.6 million in any of the years ended December 31, 2020 and 2019. The unrecognized tax benefits at the end of December 31, 2020 and 2019 were primarily related to research and development carryforwards.

The Company does not expect any material changes to its unrecognized tax benefits within the next twelve months.

The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. As of December 31, 2020 and 2019, penalties and interest were insignificant.

The Company files income tax returns in the U.S. federal jurisdiction as well as many U.S. states and foreign jurisdictions. The tax years 2017 to 2020 remain open to examination by the major jurisdictions in which the Company is subject to tax. Fiscal years outside the normal statute of limitation remain open to audit by tax authorities due to tax attributes generated in those early years which have been carried forward and may be audited in subsequent years when utilized.

Income tax expense for the years ended December 31, 2020 and 2019 differs from the expected income tax benefit calculated using the statutory U.S. Federal income tax rate as follows (dollars in thousands):


	2020				2019
Federal income tax (benefit) expense at statutory rate	$	(2,227)	21	%	$	(1,699)	21	%
State and local taxes—net of federal benefit	124		(1)		76		(1)
Foreign taxes	648		(6)		569		(7)
Federal, state and foreign true-up	(2,092)		20		—		—
Valuation allowance	4,458		(43)		1,818		(21)
Permanent differences	46		—		117		(2)
Other	—		—		48		(1)
Total	$	957	(9)	%	$	929	(11)	%

No additional U.S. income taxes or foreign withholding taxes have been provided for any additional outside basis differences inherent in the Company’s foreign entities as the Company does not have any material unremitted earnings of the subsidiaries outside of the United States.

At December 31, 2020 and December 31, 2019, the Company has federal NOL carryforwards of $54.7 million and $48.2 million. The NOL generated December 31, 2017 and prior, will begin to expire in 2028. The Company has weighed all the available evidence both positive and negative and has determined that the Company more likely than not will not be able to generate sufficient taxable income in the future to be able to utilize the entire NOL in future periods. Therefore, a full valuation allowance has been recorded against the net deferred income tax asset as of December 31, 2020 and 2019. The deferred income tax provision is primarily due to the recognition of deferred tax liabilities relating to indefinite-lived goodwill that cannot be predicted to reverse for book purposes during the Company’s loss carry forward periods.

Utilization of certain NOLs and credit carryforwards may be subject to an annual limitation due to ownership change limitations set forth in the Internal Revenue Code of 1986, as amended, or the Code, and comparable state income tax laws. Any future annual limitation may result in the expiration of NOLs and credit carryforwards before utilization. A prior ownership change and certain acquisitions resulted in the Company having NOLs subject to insignificant annual limitations. NOLs arising in a tax year ended on or before 2017 can offset 100% of taxable income in future periods, and expire 20 years after they arise. The Tax Cuts add Jobs Act provides that NOLs arising after 2017 can only be used to offset 80% of future taxable income, cannot be carried back, and do not expire. The CAREs Act of 2020, allows for the five year carry back of net operating losses generated in 2018, 2019, and 2020. The Company did not have any NOL carry back opportunities under the CARES Act.