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Income Taxes
 12 Months Ended
Jul. 31, 2022
Income Tax Disclosure [Abstract]  
Income Taxes

Note 19—Income Taxes

 

The components of income before income taxes are as follows:

 

Year ended July 31
(in thousands)		  2022   2021   2020 
Domestic  $25,025   $60,969   $13,380 
Foreign   9,858    4,255    4,338 
INCOME BEFORE INCOME TAXES  $34,883   $65,224   $17,718 

 

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

 

July 31
(in thousands)		  2022   2021 
Deferred income tax assets:          
Bad debt reserve  $959   $1,011 
Accrued expenses   3,570    3,456 
Stock options and restricted stock   42    980 
Charitable contributions   730    778 
Depreciation   (640)   (373)
Unrealized gain   2,895   (1,826)
Net operating loss   40,733    49,368 
Deferred revenue   —   (352)
Total deferred income tax assets   48,289    53,042 
Valuation allowance   (11,588)   (11,540)
NET DEFERRED INCOME TAX ASSETS  $36,701   $41,502 

 

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

Year ended July 31
(in thousands)		  2022   2021   2020 
Current:               
Federal  $

(45

)  $—   $— 
State and local   (863)   (512)   (46)
Foreign   (729)   (811)   (177)
Current   (1,637)   (1,323)   (223)
Deferred:               
Federal   (2,596)   26,408    8,345 
State and local   (19)   (57)   12 
Foreign   (1,626)   6,639    (4,434)
Deferred   (4,241)   32,990    3,923 
(PROVISION FOR) BENEFIT FROM INCOME TAXES  $(5,878)  $31,667   $3,700 

 

 

IDT CORPORATION

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

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)		  2022   2021   2020 
U.S. federal income tax at statutory rate  $(7,325)  $(13,697)  $(3,721)
Valuation allowance   1,147    47,862    15,470 
Foreign tax rate differential   (1,059)   (190)   (3,702)
Nondeductible expenses   2,044   (636)   (813)
Other   1    299    88 
Foreign restructuring   —   (1,510)   (3,266)
State and local income tax, net of federal benefit   (686)   (461)   (356)
(PROVISION FOR) BENEFIT FROM INCOME TAXES  $(5,878)  $31,667   $3,700 

 

The Company’s cumulative undistributed foreign earnings are included in accumulated deficit in the Company’s consolidated balance sheets and consisted of approximately $297 million at July 31, 2022. The Company has concluded that the earnings remain permanently reinvested.

 

At July 31, 2022, the Company had U.S. federal net operating loss carryforwards of approximately $100 million. These loss carryforwards are available to offset future U.S. federal taxable income. U.S. federal net operating loss carryforwards of $97 million expire in fiscal 2027 through fiscal 2038, and $3 million do not expire. The Company has foreign net operating loss carryforwards of approximately $75 million, of which approximately $63 million does not expire, approximately $11 million expires in two to ten years and approximately $1 million expires in twenty years. These foreign loss carryforwards are available to offset future taxable income in the countries in which the losses were incurred. The Company’s subsidiary, net2phone, has additional U.S. federal net operating loss carryforwards of approximately $14 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 loss carryforwards 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		 
2022                    
Reserves deducted from deferred income taxes, net:                    
Valuation allowance  $11,540   $48   $—  $11,588 
2021                    
Reserves deducted from deferred income taxes, net:                    
Valuation allowance  $58,700   $835   $(47,995)  $11,540 
2020                    
Reserves deducted from deferred income taxes, net:                    
Valuation allowance  $74,170   $—   $(15,470)  $58,700 

 

In fiscal 2021, the Company released $46.5 million of its valuation allowance on the portion of the deferred income tax assets that it is more likely than not going to utilize. This release was mostly related to domestic deferred income tax assets. The Company used the framework of ASC Income Taxes (Topic 740) to determine whether the valuation allowance should be maintained or reversed. The Company considered the scheduled expiration of its net operating losses included in its deferred tax assets, projected future taxable income, and tax planning strategies in its assessment of the valuation allowance. The primary factors that resulted in the valuation allowance release were the three consecutive years of profitability in the United States and expected future profitability in both the United States and the United Kingdom that will utilize a significant portion of the net operating losses. The Company’s tax planning strategies were not a significant factor in the analysis.

 

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 forecasted future profitability in the United States.

 

 

IDT CORPORATION

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

At July 31, 2022 and 2021, the Company did not have any unrecognized income tax benefits. There were no changes in the balance of unrecognized income tax benefits in fiscal 2022, fiscal 2021, and fiscal 2020. At July 31, 2022, the Company did not expect any changes in unrecognized income tax benefits during the next twelve months. In fiscal 2022, fiscal 2021, and fiscal 2020, the Company did not record any interest and penalties on income taxes. At July 31, 2022 and 2021, 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 (“NJEDA”) as having met all of the requirements of the Grow New Jersey Assistance Act Tax Credit Program. The program provides for credits against a corporation’s New Jersey corporate business tax liability and that, tax credits may be sold subject to certain conditions. The tax credits are dependent on the corporation maintaining a minimum number of employees in New Jersey. The Company has applied for several years of credits. To date, only the Company’s report for its 2019 tax filing period has received an award recommendation from the NJEDA. The award recommendation was in the amount of $1.8 million and is subject to the NJEDA’s quality control and quality assurance review.

 

The Company currently remains subject to examinations of its tax returns as follows: U.S. federal tax returns for fiscal 2019 to fiscal 2022, state and local tax returns generally for fiscal 2018 to fiscal 2022, and foreign tax returns generally for fiscal 2018 to fiscal 2022.