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INCOME TAXES | 12 Months Ended
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Dec. 31, 2018
INCOME TAXES [Abstract] |
INCOME TAXES | 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 no longer subject to U.S. federal examinations by tax authorities for years before 2015 and for state examinations before 2012. Regarding foreign subsidiaries, the Company is no longer subject to examination by tax authorities for years before 2008 in Asia and generally 2010 in Europe. At December 31, 2018 and 2017, the Company has approximately $28.9 million and $30.4 million, respectively, of liabilities for uncertain tax positions ($1.4 million and $2.5 million, respectively, is included in other current liabilities on the consolidated balance sheets and $27.5 million and $27.9 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, 2018, approximately $1.1 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, 2018. A total of $1.1 million of the liability for uncertain tax positions, of which $1.0 million related to the 2008 tax year is scheduled to expire on June 1, 2019. The remaining $0.1 million relates to the 2015 tax year and is scheduled to expire on September 15, 2019. A total of $2.5 million of the liability for uncertain tax positions expired during the year ended December 31, 2018, of which $1.1 million related to the 2006 tax year and $1.4 million related to the 2014 tax year. 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, |
|  | 2018 |  |  | 2017 |
Liability for uncertain tax positions - January 1 |  | $ | 30,430 |  |  | $ | 27,828 |
Additions based on tax positions |  |  |  |  |  |  |  |
related to the current year |  |  | 1,703 |  |  |  | 2,168 |
Additions relating to acquisitions |  |  | - |  |  |  | - |
Translation adjustment |  |  | (657 | ) |  |  | 804 |
Settlement/expiration of statutes of limitations |  |  | (2,525 | ) |  |  | (370 | )
Liability for uncertain tax positions - December 31 |  | $ | 28,951 |  |  | $ | 30,430 |
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, 2018 and 2017, the Company recognized $1.3 million and $0.9 million, respectively, in interest and penalties in the consolidated statements of operations. During the years ended December 31, 2018 and 2017, the Company recognized a benefit of $0.3 million and zero, respectively, for the reversal of such interest and penalties, relating to the expiration of statues of limitations and settlement of a liability for uncertain tax positions, respectively. The Company has approximately $3.8 million and $3.2 million accrued for the payment of interest and penalties at December 31, 2018 and 2017, respectively, which is included in both income taxes payable and liability for uncertain tax positions in the consolidated balance sheets. The Company's total earnings (loss) before provision (benefit) for income taxes included earnings (loss) from domestic operations of $0.3 million and ($2.0) million for 2018 and 2017, respectively, and earnings (loss) before provision (benefit) for income taxes from foreign operations of $23.3 million and $11.7 million for 2018 and 2017, respectively. The provision (benefit) for income taxes consists of the following:
|  | Years Ended December 31, |
|  | 2018 |  |  | 2017 |
Current: |  |  |  |  |  |
Federal |  | $ | (3,517 | ) |  | $ | 16,055 |
State |  |  | 152 |  |  |  | 115 |
Foreign |  |  | 3,782 |  |  |  | 5,685 |
|  |  | 417 |  |  |  | 21,855 |
Deferred: |  |  |  |  |  |  |  |
Federal |  |  | 2,895 |  |  |  | (1,312 | )
State |  |  | 196 |  |  |  | (329 | )
Foreign |  |  | (601 | ) |  |  | 1,326 |
|  |  | 2,490 |  |  |  | (315 | )
|  | $ | 2,907 |  |  | $ | 21,540 |
A reconciliation of taxes on income computed at the U.S. federal statutory rate to amounts provided is as follows:
|  | Years Ended December 31, |
|  | 2018 |  |  | 2017 |
|  | $ |  |  |  | % |  |  | $ |  |  |  | % |
Tax provision computed at the |  |  |  |  |  |  |  |  |  |  |  |  |  |
federal statutory rate |  | $ | 4,959 |  |  |  | 21 | % |  | $ | 3,375 |  |  |  | 35 | %
Increase (decrease) in taxes resulting from: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Different tax rates applicable to foreign operations |  |  | 1,231 |  |  |  | 5 | % |  |  | (2,531 | ) |  |  | (26 | %)
(Reversal of) increase in liability for uncertain |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
tax positions - net |  |  | (822 | ) |  |  | (3 | %) |  |  | 1,082 |  |  |  | 11 | %
Impact of U.S. Tax Reform |  |  | (2,628 | ) |  |  | (11 | %) |  |  | 19,171 |  |  |  | 199 | %
Utilization of research and experimentation, solar and foreign |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
tax credits |  |  | (300 | ) |  |  | (1 | %) |  |  | (272 | ) |  |  | (3 | %)
State taxes, net of federal benefit |  |  | 322 |  |  |  | 1 | % |  |  | (261 | ) |  |  | (3 | %)
Foreign tax on gain, net of federal benefit |  |  | - |  |  |  | 0 | % |  |  | 1,223 |  |  |  | 13 | %
Other, including qualified production activity credits, SERP/COLI |  |  |  |  |  |  |  |  |  |  |  |  |
income, under/(over) accruals, unrealized foreign exchange gains |  |  |  |  |  |  |  |  |  |  |  |  |
and amortization of purchase accounting intangibles |  |  | 145 |  |  |  | 1 | % |  |  | (247 | ) |  |  | (3 | %)
Tax provision computed at the Company's |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
effective tax rate |  | $ | 2,907 |  |  |  | 12 | % |  | $ | 21,540 |  |  |  | 223 | %
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%. On September 21, 2018, the Executive Council of the Macao SAR Government 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 currently looking at other options for the Company's operations. Additionally, the Company established TRP International, a China Business Trust ("CBT"), when it acquired the TRP group, as previously discussed. Sales by the CBT consists of products manufactured in the PRC and sold to third-party customers inside and outside Asia. The CBT is not subject to PRC income taxes, which are generally imposed at a tax rate of 25%. As of December 31, 2018, the Company has gross foreign income tax net operating losses ("NOL") of $35.6 million, foreign tax credits of $0.3 million and capital loss carryforwards of $0.2 million which amount to a total of $8.2 million of deferred tax assets. The Company has established valuation allowances totaling $8.2 million against these deferred tax assets. In addition, the Company has gross federal and state income tax NOLs of $2.1 million, including $1.8 million of NOLs acquired from Array, which amount to $0.4 million of deferred tax assets and tax credit carryforwards of $1.5 million. The Company has established valuation allowances of $1.0 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 2019 – 2032 and the tax credit carryforwards expire at various times during 2025 - 2034. The Company's intention is to repatriate certain amounts of cash from its China operations, which include its wholly owned PRC subsidiary, Dongguan Transpower Electric Products Co., Ltd, a Chinese Limited Liability Company, to the U.S. Applicable income and dividend withholding taxes of $0.4 million have been reflected in the accompanying consolidated statements of operations for the year ended December 31, 2018. 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 due to an Internal Revenue Service notice received in December 2018. Except for the distribution noted above, management's intention is to permanently reinvest the remaining unremitted earnings of our foreign subsidiaries as of December 31, 2018. 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 determined that these basis differences will be indefinitely reinvested. Components of deferred income tax assets are as follows:
|  | December 31, |
|  | 2018 |  |  | 2017 |
|  | Tax Effect |  |  | Tax Effect |
Deferred tax assets: |  |  |  |  |  |
State tax credits |  | $ | 1,000 |  |  | $ | 1,033 |
Unfunded pension liability |  |  | 605 |  |  |  | 1,139 |
Reserves and accruals |  |  | 2,483 |  |  |  | 2,828 |
Federal, state and foreign net operating loss |  |  |  |  |
and credit carryforwards |  |  | 8,370 |  |  |  | 10,524 |
Depreciation |  |  | 850 |  |  |  | 917 |
Other accruals |  |  | 5,641 |  |  |  | 4,915 |
Total deferred tax assets |  |  | 18,949 |  |  |  | 21,356 |
Deferred tax liabilities: |  |  |  |  |  |  |  |
Depreciation |  |  | 1,666 |  |  |  | 989 |
Amortization |  |  | 7,930 |  |  |  | 8,490 |
Other accruals |  |  | 893 |  |  |  | 946 |
Total deferred tax liabilities |  |  | 10,489 |  |  |  | 10,425 |
Valuation allowance |  |  | 9,200 |  |  |  | 8,343 |
Net deferred tax (liabilities)/assets |  | $ | (740 | ) |  | $ | 2,588 |
The Company continues to monitor proposed legislation affecting the taxation of transfers of U.S. intangible property and other potential tax law changes.

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- Definition The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 + Details
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