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Income Taxes
 12 Months Ended
Jul. 31, 2020
Income Tax Disclosure [Abstract]  
Income Taxes

Note 16—Income Taxes

 

The components of income before income taxes are as follows:

 

Year ended July 31
(in thousands)		  2020   2019 
Domestic  $13,380   $6,827 
Foreign   4,338    (6,374)
INCOME BEFORE INCOME TAXES  $17,718   $453 

 

Significant components of the Company’s deferred income tax assets consist of the following:

 

July 31
(in thousands)		  2020   2019 
Deferred income tax assets:        
Bad debt reserve  $854   $540 
Accrued expenses   2,963    3,134 
Stock options and restricted stock   1,226    866 
Charitable contributions   659    734 
Depreciation   (71)   151 
Unrealized gain   (302)   (231)
Net operating loss   62,588    72,625 
Transaction taxes   
—
    2,000 
Deferred revenue   (705)   (1,060)
Total deferred income tax assets   67,212    78,759 
Valuation allowance   (58,700)   (74,170)
NET DEFERRED INCOME TAX ASSETS  $8,512   $4,589 

 

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

 

Year ended July 31
(in thousands)		  2020   2019 
Current:        
Federal  $
—
   $
—
 
State and local   (46)   (15)
Foreign   (177)   971 
    (223)   956 
Deferred:          
Federal   8,345    
—
 
State and local   12    1 
Foreign   (4,434)   (1,080)
    3,923    (1,079)
BENEFIT FROM (PROVISION FOR) INCOME TAXES  $3,700   $(123)

 

The differences between income taxes expected at the U.S. federal statutory income tax rate and income taxes provided are as follows:

 

Year ended July 31
(in thousands)		  2020   2019 
U.S. federal income tax at statutory rate  $(3,721)  $(95)
Transition tax on foreign earnings   
—
    92 
Valuation allowance   15,470    2,008 
Foreign tax rate differential   (3,702)   (2,835)
Nondeductible expenses   (813)   (657)
Other   88    1 
Foreign restructuring   (3,266)   2,271 
Tax law changes   
—
    (896)
State and local income tax, net of federal benefit   (356)   (12)
BENEFIT FROM (PROVISION FOR) INCOME TAXES  $3,700   $(123)

 

The Company’s cumulative undistributed foreign earnings are included in accumulated deficit in the Company’s consolidated balance sheets and consisted of approximately $376 million at July 31, 2020. The Company has concluded that the earnings remain permanently reinvested.

 

At July 31, 2020, the Company had federal net operating loss carryforwards of approximately $156 million. These carry-forward losses are available to offset future U.S. federal taxable income. The federal net operating loss carryforwards expire in fiscal 2027 through fiscal 2038. The Company has foreign net operating losses of approximately $90 million, of which approximately $81 million does not expire, approximately $8 million expires in two to ten years and $1 million expires in twenty years. These foreign net operating losses are available to offset future taxable income in the countries in which the losses were incurred. The Company’s subsidiary, net2phone, has additional federal net operating losses of approximately $49 million, which will expire through fiscal 2027. With the reacquisition of net2phone by the Company in March 2006, its losses were limited under Internal Revenue Code Section 382 to approximately $7 million per year. The net operating losses do not include any excess benefits related to stock options or restricted stock.

 

The change in the valuation allowance is as follows:

 

Year ended July 31
(in thousands)		  Balance at
beginning of
year		   Additions
charged to
costs and
expenses		   Deductions   Balance at
end of year		 
2020                
Reserves deducted from deferred income taxes, net:                
Valuation allowance  $74,170   $
—
   $(15,470)  $58,700 
2019                    
Reserves deducted from deferred income taxes, net:                    
Valuation allowance  $76,020   $
—
   $(1,850)  $74,170 

 

In fiscal 2020, due to taxable income in the United States, the Company utilized deferred tax assets and released the corresponding valuation allowance to offset income tax expense of $3.5 million. In addition, in fiscal 2020, the Company released an additional $8.4 million of the valuation allowance on the portion of the deferred tax assets that it is more likely than not going to utilize because the Company is forecasting future profitability in the United States.

 

At July 31, 2020 and 2019, the Company did not have any unrecognized income tax benefits. There were no changes in the balance of unrecognized income tax benefits in fiscal 2020 and fiscal 2019. At July 31, 2020, the Company did not expect any changes in unrecognized income tax benefits during the next twelve months. In fiscal 2020 and fiscal 2019, the Company did not record any interest and penalties on income taxes. At July 31, 2020 and 2019, there was no accrued interest included in current income taxes payable.

 

In September 2017, the Company, IDT DT, and certain other affiliates were certified by the New Jersey Economic Development Authority as having met all of the requirements of the Grow New Jersey Assistance Act Tax Credit Program. The corporation business tax credits to be received are a maximum of $21.1 million. The Company may claim a portion of the tax credit each tax year for ten years beginning in 2017. The tax credit can be applied to 100% of the Company’s New Jersey tax liability each year, and the unused amount of the annual credit can be carried forward. In addition, the Company may apply for a tax credit transfer certificate to sell unused tax credits to another business. The tax credits must be sold for no less than 75% of the value of the tax credits. The tax credits are subject to reduction, forfeiture and recapture if, among other things, the number of full-time employees declines below the program or statewide minimum. The Company has yet to receive the credit.

 

The Company currently remains subject to examinations of its tax returns as follows: U.S. federal tax returns for fiscal 2017 to fiscal 2020, state and local tax returns generally for fiscal 2016 to fiscal 2020, and foreign tax returns generally for fiscal 2016 to fiscal 2020.