Annual report pursuant to Section 13 and 15(d)

Provision for Income Taxes

v3.22.0.1
Provision for Income Taxes
12 Months Ended
Dec. 31, 2021
Income Tax Disclosure [Abstract]  
Provision for Income Taxes

NOTE 12. PROVISION FOR INCOME TAXES

The components of the Company’s loss before the provision for income taxes consisted of the following:

 

 

 

Year Ended

 

 

 

December 31,

 

 

 

2021

 

 

2020

 

United States of America

 

$

(88,092

)

 

$

(47,831

)

Foreign

 

 

20,243

 

 

 

31

 

Total

 

$

(67,849

)

 

$

(47,800

)

 

 

The provision for income taxes consisted of the following for the years ended December 31, 2021 and 2020:

 

 

 

Year Ended

 

 

 

December 31,

 

 

 

2021

 

 

2020

 

Current

 

 

 

 

 

 

 

 

Federal

 

$

249

 

 

$

 

State

 

 

99

 

 

 

70

 

Foreign

 

 

2,988

 

 

 

6

 

Total current provision

 

 

3,336

 

 

 

76

 

 

 

 

 

 

 

 

 

 

Deferred

 

 

 

 

 

 

 

 

Federal

 

 

(10,549

)

 

 

(11,573

)

State

 

 

(6,197

)

 

 

(4,532

)

Foreign

 

 

(520

)

 

 

 

 

 

 

 

 

 

 

 

 

Change in valuation allowance

 

 

16,674

 

 

 

16,105

 

Total deferred benefit

 

 

(592

)

 

 

 

Total provision for income taxes

 

$

2,744

 

 

$

76

 

 

A reconciliation of the statutory U.S. federal income tax rate to the Company's effective tax rate for the years ended December 31, 2021 and 2020 is as follows:

 

 

 

Year Ended

 

 

 

December 31,

 

 

 

2021

 

 

2020

 

Tax, computed at the federal statutory rate

 

 

21.00

%

 

 

21.00

%

State taxes, net of federal tax benefit

 

 

9.37

 

 

 

9.36

 

Foreign rate differential

 

 

3.54

 

 

 

 

Global intangible low-taxed income

 

 

(6.84

)

 

 

 

Stock-based compensation

 

 

6.47

 

 

 

1.49

 

Earn-out revaluation

 

 

(7.08

)

 

 

 

Meals, entertainment and other

 

 

(5.92

)

 

 

1.68

 

Change in valuation allowance

 

 

(24.58

)

 

 

(33.69

)

(Provision for) benefit from income taxes

 

 

(4.04

)%

 

 

(0.16

)%

 

The significant components of the Company’s deferred income tax assets and liabilities as of December 31, 2021 and 2020 were as follows:

 

 

 

Year Ended

 

 

 

December 31,

 

 

 

2021

 

 

2020

 

Net operating loss carryforwards

 

$

55,385

 

 

$

44,711

 

Stock-based compensation

 

 

21,003

 

 

 

15,866

 

Accrued expenses

 

 

1,146

 

 

 

2,352

 

Research credits

 

 

4,632

 

 

 

3,193

 

Other

 

 

669

 

 

 

518

 

Total gross deferred tax assets

 

 

82,835

 

 

 

66,640

 

Valuation allowance

 

 

(81,784

)

 

 

(65,110

)

Total deferred tax assets

 

 

1,051

 

 

 

1,530

 

 

 

 

 

 

 

 

 

 

Other - fixed assets and intangibles

 

 

(589

)

 

 

(1,530

)

Acquired intangibles

 

 

(11,367

)

 

 

 

Total deferred tax liabilities

 

 

(11,956

)

 

 

(1,530

)

Net deferred tax liabilities

 

$

(10,905

)

 

$

 

 

 

The Company has evaluated the available positive and negative evidence supporting the realization of its gross deferred tax assets, including its cumulative losses, and the amount and timing of future taxable income, and has determined it is more likely than not that certain historical U.S. federal and state deferred tax assets will not be realized. Accordingly, the Company recorded a valuation allowance as of December 31, 2021 and 2020 against these deferred tax assets.

The change in the valuation allowance for the years ended December 31, 2021 and 2020 is as follows:

 

 

 

Year Ended

 

 

 

December 31,

 

 

 

2021

 

 

2020

 

Valuation allowance, at beginning of year

 

$

65,110

 

 

$

49,005

 

Increase in valuation allowance

 

 

16,674

 

 

 

16,105

 

Valuation allowance, at end of year

 

$

81,784

 

 

$

65,110

 

 

As of December 31, 2021, the Company has federal and state income tax net operating loss carryforwards of approximately $217,754 and $135,075, respectively. The U.S. federal and state net operating losses are projected to expire beginning in 2034 and 2022, respectively, unless previously utilized. Net federal operating loss carryforwards generated after January 1, 2018 may be carried forward indefinitely, subject to the 80% taxable income limitation on the utilization of the carryforwards. In addition, the Company had federal and state research and development credit carryforwards of approximately $3,636 and $2,545, respectively, as of December 31, 2021. The federal research and development credit will begin to expire in 2036 if unused and the state research and expenditure credit may be carried forward indefinitely. Utilization of the Company's U.S. net operating loss and tax credit carryforwards may be subject to a substantial annual limitation due to the ownership change limitations set forth in Internal Revenue Code Section 382 and similar state provisions. Such an annual limitation could result in the expiration of the net operating loss and tax credit carryforwards before utilization

 

In connection with our acquisition of PandoLogic in September 2021, we recorded a net deferred tax liability primarily related to acquired non-goodwill intangible fair value in excess of tax basis.  No valuation allowance is recorded against acquired PandoLogic deferred tax assets as it is more likely than not they will be utilized to offset future taxable income.

 

In August 2021, PandoLogic obtained the approval for the Israeli Preferred Technology Enterprise (“PTE”) status which provides beneficial tax treatment for Israeli companies engaged in R&D activities that own the intellectual property rights.  Under PTE status, our Israeli tax rate is reduced from the 23% statutory rate to a 12% beneficial rate.  This arrangement is scheduled to expire in December 2025 and is subject to certain conditions which we have complied with during 2021.  The effect of this tax incentive arrangement reduced our income tax provision, as compared to the statutory rate, by $2,257 in 2021.

 

The Company continues to permanently reinvest its foreign cumulative earnings in its foreign subsidiaries and has not recorded any provision for deferred income taxes on the undistributed earnings.  In accordance with the U.S. global intangible low-taxed income (“GILTI”) provisions, we include in our U.S. income tax return foreign subsidiary earnings in excess of an allowable return on the foreign subsidiary’s tangible assets.  We account for the GILTI tax in the period in which it is incurred, and therefore have not provided any deferred tax impacts of GILTI in our consolidated financial statements.

 

At December 31, 2021 and 2020, the Company had approximately $1,111 and $720, respectively, of unrecognized tax benefits netted against its deferred tax assets within other assets, none of which would impact the Company’s effective tax rate if recognized due to the valuation allowance. If recognized, $1,015 would result in a deferred tax asset for tax attribute carryforwards, which is expected to require a full valuation allowance based on present circumstances. The Company estimates that none of its unrecognized tax benefits will materially change within the next twelve months.  Amounts accrued for interest and penalties related to uncertain tax positions were not material for any period presented. 

 

 

A reconciliation of the unrecognized tax benefits from January 1, 2020 to December 31, 2021 is as follows:

 

 

 

Year Ended

 

 

 

December 31,

 

 

 

2021

 

 

2020

 

Unrecognized tax benefits as of January 1

 

$

720

 

 

$

 

Gross increase for tax positions of prior years

 

 

 

 

 

470

 

Gross increase for tax positions of current year

 

 

391

 

 

 

250

 

Unrecognized tax benefits balance at December 31

 

$

1,111

 

 

$

720

 

The Company is subject to taxation in the United States, Israel, the United Kingdom, and various U.S. states. Due to our tax loss carryovers in some jurisdictions, certain U.S. federal tax returns and state tax returns are open for examination since inception. The Israeli statute of limitations period is generally three years commencing at the end of the year in which the return was filed. The Company is not currently under examination from income tax authorities in the jurisdictions in which the Company does business.

On March 27, 2020, the U.S federal government enacted the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”). The CARES Act is an emergency economic stimulus package in response to the coronavirus outbreak which, among other things, contains numerous income tax provisions. Some of these tax provisions are effective retroactively for years ended before the date of the enactment.  The provisions of the CARES Act did not materially impact the Company's tax position.