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Note 12 - Income Taxes | 12 Months Ended
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Dec. 31, 2022
Notes to Financial Statements |
Income Tax Disclosure [Text Block] |
12. | Income Taxes
Deferred tax assets and liabilities reflect the effects of tax losses, credits, and the future income tax effects of temporary differences between the consolidated financial statement carrying amounts of existing assets and liabilities and their respective tax bases and are measured using enacted tax rates that apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The current and deferred portions (in thousands) of our federal, foreign, and state and other income tax expenses or benefits are as follows:
|  | For the Year Ended December 31, |
|  | 2022 |  |  | 2021 |  |  | 2020 |
Federal income tax (expense) benefit: |  |  |  |  |  |  |  |  |  |  |  |
Current tax benefit (expense) |  | $ | 4,352 |  |  | $ | (34,910 | ) |  | $ | 1,351 |
Deferred tax (expense) |  |  | (16,623 | ) |  |  | (2,369 | ) |  |  | (21,752 | )
Total federal income tax (expense) |  | $ | (12,271 | ) |  | $ | (37,279 | ) |  | $ | (20,401 | )
Foreign income tax (expense) benefit: |  |  |  |  |  |  |  |  |  |  |  |
Current tax (expense) |  | $ | (183 | ) |  | $ | (107 | ) |  | $ | (143 | )
Deferred tax benefit (expense) |  |  | 3 |  |  |  | 1 |  |  |  | (5 | )
Total foreign income tax (expense) |  | $ | (180 | ) |  | $ | (106 | ) |  | $ | (148 | )
State and other income tax benefit (expense): |  |  |  |  |  |  |  |  |  |  |  |
Current tax benefit (expense) |  | $ | 2,146 |  |  | $ | (4,910 | ) |  | $ | (1,228 | )
Deferred tax (expense) benefit |  |  | (4,355 | ) |  |  | 511 |  |  |  | 1,303 |
Total state and other income tax (expense) benefit |  | $ | (2,209 | ) |  | $ | (4,399 | ) |  | $ | 75 |
Total income tax (expense) |  | $ | (14,660 | ) |  | $ | (41,784 | ) |  | $ | (20,474 | )
We experienced an effective income tax expense rate of 9.8% and 19.0% for the years ended December 31, 2022, and December 31, 2021, respectively. Our effective income tax expense rates for these years are below the statutory rate principally due to (1) deductions associated with the exercise of stock options and the vesting of restricted stock at times when the fair value of our stock exceeded such share-based awards’ grant date values—such deductions being significantly higher in 2022 than in 2021 given stock option exercises in 2022 by the Executive Chairman of our Board of Directors, such options being grandfathered from executive compensation deduction limitations under Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”) and (2) our deduction for income tax purposes of amounts characterized in our consolidated financial statements as dividends on a preferred stock issuance, such amounts constituting deductible interest expense on a debt issuance for tax purposes. Offsetting the above factors are the effects on our effective tax rate of state and foreign income tax expense, taxes on global intangible low-taxed income, and executive compensation deduction limitations under Section 162(m) of the Code. Further details related to the above are reflected in the table below reconciling our effective income tax expense rate to the statutory rate. We report income tax-related interest and penalties (including those associated with both our accrued liabilities for uncertain tax positions and unpaid tax liabilities) within our income tax line item on our consolidated statements of income. We likewise report the reversal of income tax-related interest and penalties within such line item to the extent we resolve our liabilities for uncertain tax positions or unpaid tax liabilities in a manner favorable to our accruals therefor. For 2022 and 2021, we experienced only de minimis interest expense and reversals within our income tax line item. The following table reconciles our effective income tax expense rate to the statutory rate for 2022 and 2021:
|  | For the Year Ended December 31, |
|  | 2022 |  |  | 2021 |  |  | 2020 |
Statutory federal expense rate |  |  | 21.0 | % |  |  | 21.0 | % |  |  | 21.0 | %
(Decrease) increase in statutory federal tax expense rate resulting from: |  |  |  |  |  |  |  |  |  |  |  |
Share-based compensation |  |  | (10.5 | ) |  |  | (3.1 | ) |  |  | — |
Section 162(m) of the Code executive compensation deduction limitations |  |  | 0.2 |  |  |  | 1.7 |  |  |  | — |
Net interest and penalties related to uncertain tax positions and unpaid tax liabilities |  |  | 0.1 |  |  |  | — |  |  |  | (0.6 | )
Interest expense on preferred stock classified as debt for tax purposes |  |  | (2.3 | ) |  |  | (1.6 | ) |  |  | (2.6 | )
Foreign taxes, net of valuation allowance effects |  |  | (0.2 | ) |  |  | (0.1 | ) |  |  | (0.2 | )
State taxes, net of valuation allowance effects |  |  | 1.4 |  |  |  | 1.6 |  |  |  | (0.1 | )
Prior year provision to return reconciling items, tax effects of non-controlling interests, and other |  |  | (0.1 | ) |  |  | (0.6 | ) |  |  | 0.2 |
Global intangible low-taxed income tax |  |  | 0.2 |  |  |  | 0.1 |  |  |  | 0.2 |
Effective tax expense rate |  |  | 9.8 | % |  |  | 19.0 | % |  |  | 17.9 | %
As of December 31, 2022, and December 31, 2021, the respective significant components (in thousands) of our deferred tax assets and liabilities (which are included as a component of our Income tax liability on our consolidated balance sheets) were:
|  | As of December 31, |
|  | 2022 |  |  | 2021 |
Deferred tax assets: |  |  |  |  |  |  |  |
Capitalized research and experimentation expenditures and fixed assets |  | $ | 1,445 |  |  | $ | — |
Provision for credit loss |  |  | 1,716 |  |  |  | 14,647 |
Credit card and other loans receivable fair value election differences |  |  | 70,966 |  |  |  | 48,730 |
Equity-based compensation |  |  | 1,327 |  |  |  | 967 |
Accrued expenses |  |  | 156 |  |  |  | 159 |
Accruals for state taxes and interest associated with unrecognized tax benefits and unpaid accrued tax liabilities |  |  | 195 |  |  |  | 149 |
Federal net operating loss and capital loss carry-forwards |  |  | 22,626 |  |  |  | — |
Foreign net operating loss carry-forward |  |  | 304 |  |  |  | 304 |
Other |  |  | 1,056 |  |  |  | 506 |
State tax benefits, primarily from net operating losses |  |  | 28,796 |  |  |  | 27,081 |
Deferred tax assets, gross |  | $ | 128,587 |  |  | $ | 92,543 |
Valuation allowances |  |  | (20,699 | ) |  |  | (22,716 | )
Deferred tax assets, net of valuation allowances |  | $ | 107,888 |  |  | $ | 69,827 |
Deferred tax (liabilities): |  |  |  |  |  |  |  |
Prepaid expenses and other |  | $ | (1,030 | ) |  | $ | (513 | )
Software development costs and fixed assets |  |  | — |  |  |  | (41 | )
Equity in income of equity-method investee |  |  | (792 | ) |  |  | (697 | )
Market discount on acquired marked discount bonds |  |  | (155,879 | ) |  |  | (94,958 | )
Deferred costs |  |  | (641 | ) |  |  | (590 | )
Deferred tax (liabilities), gross |  | $ | (158,342 | ) |  | $ | (96,799 | )
Deferred tax (liabilities), net |  | $ | (50,454 | ) |  | $ | (26,972 | )
We undertook a detailed review of our deferred taxes and determined that a valuation allowance was required for certain deferred tax assets in state tax jurisdictions within the U.S. and in the U.K. We reduce our deferred tax assets by valuation allowances if it is more likely than not that some or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which temporary differences are deductible. In making our valuation allowance determinations, we consider all available positive and negative evidence affecting specific deferred tax assets, including our past and anticipated future performance, the reversal of deferred tax liabilities, the length of carry-back and carry-forward periods, and the implementation of tax planning strategies. Because our valuation allowance evaluations require consideration of future events, significant judgment is required in making the evaluations, and our conclusions could be materially different if our expectations are not met. Our valuation allowances totaled $20.7 million and $22.7 million as of December 31, 2022, and December 31, 2021, respectively. Certain of our deferred tax assets relate to federal, foreign, and state net operating losses, and we have no other net operating losses, capital losses, or credit carryforwards other than those noted herein. We have recorded a federal deferred tax asset of $22.6 million (based on indefinite-lived federal net operating loss carryforwards of $104.0 million). We have recorded state deferred tax assets of $28.6 million based on state net operating loss carryforwards, some of which are indefinite-lived and some which expire in various years beginning in 2023. Our subsidiaries file federal, foreign, and/or state and other income tax returns. In the normal course of our business, we are subject to examination by taxing authorities throughout the world, including such major jurisdictions as the U.S., the U.K., and various U.S. states and territories. With a few exceptions of a non-material nature, we are no longer subject to federal, state, local, or foreign income tax examinations for years prior to 2018. Reconciliations (in thousands) of our unrecognized tax benefits from the beginning to the end of 2022 and 2021, respectively, are as follows:
|  | 2022 |  |  | 2021 |  |  | 2020 |
Balance at January 1, |  | $ | (605 | ) |  | $ | (495 | ) |  | $ | (445 | )
Reductions based on tax positions related to prior years |  |  | 79 |  |  |  | 23 |  |  |  | — |
(Additions) based on tax positions related to prior years |  |  | (11,965 | ) |  |  | (26 | ) |  |  | 32 |
(Additions) based on tax positions related to the current year |  |  | (10,201 | ) |  |  | (107 | ) |  |  | (82 | )
Balance at December 31, |  | $ | (22,692 | ) |  | $ | (605 | ) |  | $ | (495 | )
Our unrecognized tax benefits that, if recognized, would affect the effective tax rate are not material at only $0.9 million, $0.7 million and $0.6 million as of December 31, 2022, 2021 and 2020, respectively.

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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 https://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 https://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 https://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 https://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 https://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 https://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 https://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 https://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 https://asc.fasb.org/extlink&oid=120395691&loc=d3e23780-122690 + Details
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