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INCOME TAXES | 12 Months Ended
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Dec. 31, 2021
Income Tax Disclosure [Abstract] |
INCOME TAXES | INCOME TAXES The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the financial reporting and tax basis of assets and liabilities. Deferred tax assets are reduced, if deemed necessary, by a valuation allowance for the amount of tax benefits which are not more likely than not to be realized. Investment tax credits are recognized on the flow through method. The provision for (benefit from) income taxes at December 31 consists of the following:
(In thousands) | 2021 |  | 2020 |  | 2019
Current |  |  |  |  |
U.S. Federal | $ | (1,713) |  |  | $ | (8,679) |  |  | $ | 23,798 |
State | (667) |  |  | (4,539) |  |  | 4,471 |
Foreign | 1,439 |  |  | 1,036 |  |  | 2,402 |
Current | (941) |  |  | (12,182) |  |  | 30,671 |
Deferred |  |  |  |  |
U.S. Federal | (237) |  |  | 17,044 |  |  | (16,250) |
State | (87) |  |  | (92) |  |  | 727 |
Foreign | (117) |  |  | (1,399) |  |  | 1,138 |
Deferred | (441) |  |  | 15,553 |  |  | (14,385) |
Total | $ | (1,382) |  |  | $ | 3,371 |  |  | $ | 16,286 |
The effective tax rates differ from the statutory federal income tax rate as follows:
| 2021 |  | 2020 |  | 2019
Statutory Federal Income Tax Rate | 21.0 | % |  | 21.0 | % |  | 21.0 | %
Permanent Items |  |  |  |  |
Stock Compensation Expense | (2.1) | % |  | (0.3) | % |  | (0.5) | %
Non Deductible Goodwill Impairment | — | % |  | (10.2) | % |  | — | %
Contingent Consideration Liability Fair Value Adjustment | 1.7 | % |  | — | % |  | — | %
Other | (0.7) | % |  | — | % |  | 0.5 | %
Foreign Tax Rate Differential | (2.7) | % |  | (1.0) | % |  | 1.4 | %
State Income Tax, Net of Federal Income Tax Effect | 2.2 | % |  | 3.3 | % |  | 6.0 | %
Research and Development Tax Credits | 12.8 | % |  | 2.2 | % |  | (4.6) | %
Change in Valuation Allowance | (29.8) | % |  | (19.2) | % |  | 1.1 | %
Net GILTI and FDII Tax Benefit | — | % |  | — | % |  | (1.2) | %
Foreign Tax Credit for Dividend Withholding | 1.7 | % |  | — | % |  | — | %
Tax Rate Change on 2020 Federal Net Operating Loss Carryback | 0.9 | % |  | 1.3 | % |  | — | %
Other | 0.1 | % |  | (0.1) | % |  | 0.1 | %
Effective Tax Rate | 5.1 | % |  | (3.0) | % |  | 23.8 | %
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes as well as tax attributes. Significant components of the Company’s deferred tax assets and liabilities at December 31, are as follows:
(In thousands) | 2021 |  | 2020
Deferred Tax Assets: |  |  |
Asset Reserves | $ | 17,462 |  |  | $ | 18,189 |
Deferred Compensation | 7,424 |  |  | 7,564 |
Section 163(j) - Interest Expense Limitation | 891 |  |  | — |
State Investment and Research and Development Tax Credit Carryforwards, Net of Federal Tax | 4,674 |  |  | 866 |
Customer Advanced Payments and Deferred Revenue | 1,301 |  |  | 2,216 |
Net Operating Loss Carryforwards and Other | 15,617 |  |  | 11,244 |
Goodwill and Intangible Assets | 1,082 |  |  | 2,069 |
ASC 606 Revenue Recognition | 1,817 |  |  | 2,311 |
Lease Liabilities | 4,178 |  |  | 5,545 |
Other | 5,540 |  |  | 2,300 |
Total Gross Deferred Tax Assets | 59,986 |  |  | 52,304 |
Valuation Allowance for Federal and State Deferred Tax Assets and Tax Credit Carryforwards, Net of Federal Tax | (43,519) |  |  | (37,168) |
Deferred Tax Assets | 16,467 |  |  | 15,136 |
Deferred Tax Liabilities: |  |  |
Depreciation | 9,393 |  |  | 10,166 |
ASC 606 Revenue Recognition - Section 481(a) Adjustment | 1,030 |  |  | 928 |
Lease Assets | 3,539 |  |  | 4,506 |
Earnout Income Accrual | 2,603 |  |  | — |
Other | 1,050 |  |  | 1,186 |
Deferred Tax Liabilities | 17,615 |  |  | 16,786 |
Net Deferred Tax Liabilities | $ | (1,148) |  |  | $ | (1,650) |
The net deferred tax assets and liabilities presented in the Consolidated Balance Sheets are as follows at December 31:
(In thousands) | 2021 |  | 2020
Other Assets — Long-term | $ | 273 |  |  | $ | 1,259 |
Deferred Tax Liabilities — Long-term | (1,421) |  |  | (2,909) |
Net Deferred Tax Liabilities | $ | (1,148) |  |  | $ | (1,650) |
At December 31, 2021, gross federal net operating losses, amounted to approximately $22.1 million. In the current year, the Company generated approximately $15.8 million of net operating losses, which can be carried forward indefinitely, limited annually to 80% of taxable income. The remaining prior year carry forward net operating losses of approximately $6.3 million can be carried forward and are subject to annual limitations under Internal Revenue Code Section 382. Of these net operating losses, $5.9 million expire in 2037 and 2038 and the remaining $0.4 million will carryforward indefinitely. Given that the Company does not have a source of future taxable income to realize these net operating losses, a valuation allowance has been recorded on them. At December 31, 2021, gross state net operating loss carryforwards amounted to approximately $137.2 million. These state net operating loss carryforwards begin to expire at various dates from 2021 through 2041. Due to the uncertainty as to the Company’s ability to generate sufficient taxable income in certain states in the future and to utilize certain of the Company’s state operating loss carryforwards before they expire, the Company has recorded a valuation allowance on $134.6 million of them. The remaining $2.6 million of net operating loss carryforwards are more likely than not to be realized. At December 31, 2021, state income tax credit carryforwards amounted to approximately $1.8 million and begin to expire at various dates from 2021 to 2036. Due to the uncertainty as to the Company’s ability to generate sufficient taxable income in certain states in the future, the Company has recorded a valuation allowance on these credits. At December 31, 2021, the estimated federal R&D tax credit for the current year amounted to approximately $2.6 million which the Company can carry forward through 2041. In addition, the Company has approximately $0.7 million of foreign tax credits that it can carry forward through 2031. Given that the Company does not have a source of future taxable income to realize these tax attributes, a valuation allowance has been recorded on these credits. During the year ended December 31, 2020, the Company determined that a revised state filing position could be taken which would reduce the taxable income apportioned for state income tax purposes and recorded a state income tax receivable of approximately $3.0 million as a component of Prepaid Expenses and Other Current Assets. The Company has filed amended state income tax returns for tax years 2015 and 2016 and intends to file amended state income tax returns for tax years 2017 through 2019 in order to claim these refunds. During the year ended December 31, 2018, the Company determined that a revised state filing position could be taken which would reduce the taxable income apportioned for state income tax purposes and amended state income tax returns were filed for the open tax years of 2014 through 2017 to reflect this revised tax position. The Company is also claiming the benefit of the revised filing position for 2018 and subsequent tax years. The statute of limitations expired on various dates in 2020 and 2021 for the amended returns for tax years 2014 through 2016, and approximately $0.8 million and approximately $0.5 million of the unrecognized tax benefit was recognized during 2020 and 2021, respectively. Absent a state tax audit notice related to the refund claim, the statute of limitations will expire in December 2022 for the amended return for tax year 2017, at which time approximately $0.5 million of the unrecognized tax benefit is expected to be recognized. The statute of limitations will expire in years 2022 through 2025 for tax years 2018 through 2021, respectively. The Company has analyzed its filing positions in all of the federal and state jurisdictions where it is required to file income tax returns, as well as all open tax years in these jurisdictions. Should the Company need to accrue a liability for uncertain tax benefits, any interest associated with that liability would be recorded as interest expense. Penalties, if any, would be recorded as operating expenses. During the year ended December 31, 2020, reserves for uncertain tax positions were recorded in association with a revised state income tax filing positions pursuant to ASC Topic 740-10. A reconciliation of the total amounts of unrecognized tax benefits, excluding interest and penalties that, if recognized, would impact the effective tax rate, is as follows:
(in thousands) | 2021 |  | 2020 |  | 2019
Balance at Beginning of the Year | $ | 1,890 |  |  | $ | 2,565 |  |  | $ | 2,197 |
Decreases as a Result of Tax Positions Taken in Prior Years | (478) |  |  | (775) |  |  | — |
Increases as a Result of Tax Positions Taken in the Current Year | — |  |  | 100 |  |  | 368 |
Balance at End of the Year | $ | 1,412 |  |  | $ | 1,890 |  |  | $ | 2,565 |
There are no material penalties or interest liabilities accrued as of December 31, 2021, 2020, or 2019, nor are any material penalties or interest costs included in expense for each of the years ended December 31, 2021, 2020 and 2019. The years under which we conducted our evaluation coincided with the tax years currently still subject to examination by major federal and state tax jurisdictions, those being 2017 through 2021 for federal purposes and 2017 through 2021 for state purposes. Pretax (loss) income from the Company’s foreign subsidiaries amounted to $(3.3) million, $(7.0) million and $12.2 million for 2021, 2020 and 2019, respectively. The balance of pretax earnings or loss for each of those years were domestic. On December 29, 2021, Luminescent Systems Canada, Inc. (“LSI Canada”) declared a one-time dividend in the amount of $16.5 million to its U.S. parent. LSI Canada remitted non-resident Canadian withholding tax on this dividend in the amount of approximately $0.8 million. No additional provision for U.S. federal or foreign taxes has been made as the remaining foreign subsidiaries’ undistributed earnings (approximately $3.0 million at December 31, 2021) are considered to be permanently reinvested. It is not practicable to determine the amount of outside basis differences related to the investment in foreign subsidiaries and other taxes that would be payable if these amounts were repatriated to the U.S. While the Tax Cuts and Jobs Act provides for a territorial tax system, beginning in 2018, it includes the foreign-derived intangible income (“FDII”) and global intangible low taxed income (“GILTI”) provisions. The Company elected to account for GILTI tax in the period in which it is incurred, and includes in its U.S. income tax return foreign subsidiary earnings from its Controlled Foreign Corporations (“CFCs”) in excess of an allowable return on the foreign subsidiary’s tangible assets. The Company does not expect to incur any GILTI tax expense during the year ended December, 31, 2021 as the Company is in a net tested loss position. The FDII provisions allow for a deduction equal to a percentage of the foreign-derived intangible income of a domestic corporation. As a result of these provisions, net, the Company recorded no tax benefit during the year ended December 31, 2021, a tax benefit of less than $0.1 million during the year ended December 31, 2020, and a tax benefit of approximately $0.8 million during the year ended December 31, 2019. On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was enacted in response to the economic uncertainty resulting from the COVID-19 pandemic. The CARES Act includes many measures to assist companies, including temporary changes to income and non-income based laws, some of which were enacted as part of the Tax Cuts and Jobs Act of 2017 (“TCJA”). Some of the key changes include eliminating the 80% of taxable income limitation by allowing corporate entities to fully utilize NOLs to offset taxable income in 2018, 2019 and 2020, allowing NOLs originating in 2018, 2019 and 2020 to be carried back five years, enhanced interest deductibility, and retroactively clarifying the immediate recovery of qualified improvement property costs rather than over a 39-year recovery period. During the years ended December 31, 2021 and 2020, the Company recorded a tax benefit relating to the NOL carryback provisions and the technical correction for qualified improvement property provided for in the CARES Act of approximately $0.3 million and $1.5 million respectively. As a result of the on-going COVID-19 pandemic, the Company generated a significant tax loss for the year ended December 31, 2020, which was carried back under the CARES Act to recover previously paid income taxes. The Company records a valuation allowance against the deferred tax assets if and to the extent it is more likely than not that the Company will not recover the deferred tax assets. In evaluating the need for a valuation allowance, the Company weights all relevant positive and negative evidence, and considers among other factors, historical financial performance, projected future taxable income, scheduled reversals of deferred tax liabilities, the overall business environment, and tax planning strategies. Losses in recent periods and cumulative pre-tax losses in the three years period ending with the current year, combined with the significant uncertainty brought about by the COVID-19 pandemic, is collectively considered significant negative evidence under ASC 740 when assessing whether an entity can use projected income as a basis for concluding that deferred tax assets are realizable on a more-likely than not basis. For purposes of assessing the recoverability of deferred tax assets, the Company determined that it could not include future projected earnings in the analysis due to recent history of losses and therefore had insufficient objective positive evidence that the Company will generate sufficient future taxable income to overcome the negative evidence of cumulative losses. Accordingly, during the years ended December 31, 2021 and 2020, the Company determined that a portion of its deferred tax assets are not expected to be realizable in the future. As a result, the Company recorded a provision for valuation allowances against its U.S. federal deferred tax assets of approximately $6.0 million and $23.3 million during the years ended December 31, 2021 and 2020 respectively. In addition, during the year ended December 31, 2021, the Company recorded a valuation allowance against certain foreign deferred tax assets of approximately $1.3 million.

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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://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 21 -URI http://asc.fasb.org/extlink&oid=121826272&loc=d3e32857-109319 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section S99 -Paragraph 2 -Subparagraph (SAB Topic 11.C) -URI http://asc.fasb.org/extlink&oid=122134291&loc=d3e330215-122817 Reference 3: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 17 -Subparagraph (b) -URI http://asc.fasb.org/extlink&oid=121826272&loc=d3e32809-109319 Reference 4: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SAB TOPIC 6.I.5.Q1) -URI http://asc.fasb.org/extlink&oid=122134291&loc=d3e330036-122817 Reference 5: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 14 -URI http://asc.fasb.org/extlink&oid=121826272&loc=d3e32705-109319 Reference 6: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 270 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6424409&loc=d3e44925-109338 Reference 7: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 Reference 8: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 30 -Section 50 -Paragraph 2 -Subparagraph (a) -URI http://asc.fasb.org/extlink&oid=6424122&loc=d3e41874-109331 Reference 9: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08(h)(2)) -URI http://asc.fasb.org/extlink&oid=120395691&loc=d3e23780-122690 + Details
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