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Note 15 - Income Taxes
 12 Months Ended
Dec. 31, 2024
Notes to Financial Statements  
Income Tax Disclosure [Text Block]

NOTE 15 INCOME TAXES

 

The Company and all of its eligible U.S. subsidiaries file a U.S. consolidated federal income tax return ("KFSI Tax Group"). The method of allocating federal income taxes among the companies in the KFSI Tax Group is subject to written agreement, approved by each company's Board of Directors. The allocation is made primarily on a separate return basis, with current credit for any net operating losses or other items utilized in the consolidated federal income tax return. The Company’s non-U.S. subsidiaries file separate foreign income tax returns.   

 

 

Income tax benefit consists of the following:

 

(in thousands)

 

Years ended December 31,

 
  

2024

  

2023

 
         

Current income tax expense

 $390  $25 

Deferred income tax benefit

  (537)  (1,924)

Income tax benefit

 $(147) $(1,899)

 

Income tax benefit varies from the amount that would result by applying the applicable U.S. corporate income tax rate of 21% to (loss) income from continuing operations before income tax benefit. The following table summarizes the differences:

 

(in thousands)

 

Years ended December 31,

 
  

2024

  

2023

 

Income tax (benefit) expense at U.S. statutory income tax rate

 $(1,735) $4,967 

Valuation allowance

  1,591   (7,678)

Indefinite life intangibles

  (243)  258 

Non-deductible compensation

  143   435 

Investment income

  (166)  (18)

State income tax, net of Federal benefit

  161   (2)

Disposition of subsidiary

  —   (18)

Other

  102   157 

Income tax benefit for continuing operations

 $(147) $(1,899)

 

The tax effects of temporary differences that give rise to significant portions of the deferred income tax assets and liabilities are presented as follows:

 

(in thousands)

 

December 31,

 
  

2024

  

2023

 

Deferred income tax assets:

        

Losses carried forward

 $132,150  $132,302 

Unpaid loss and loss adjustment expenses and unearned premiums

  3,790   3,795 

Intangible assets

  860   1,109 

Debt issuance costs

  78   85 

Investments

  109   — 

Deferred rent

  61   65 

Deferred revenue

  247   253 

Compensation

  219   173 

Other

  326   608 

Valuation allowance

  (130,707)  (129,375)

Deferred income tax assets

 $7,133  $9,015 

Deferred income tax liabilities:

        

Indefinite life intangibles

 $(3,899) $(4,152)

Depreciation and amortization

  (140)  (1,180)

Fair value of debt

  (334)  — 

Land

  —   (47)

Intangible assets

  (1,892)  (3,175)

Deferred revenue

  (1,605)  (1,499)

Investments

  —   (168)

Deferred acquisition costs

  (2,913)  (2,884)

Other

  (721)  (951)

Deferred income tax liabilities

 $(11,504) $(14,056)

Net deferred income tax liabilities

 $(4,371) $(5,041)

 

 

The Company maintains a valuation allowance for its gross deferred income tax assets of $130.7 million (U.S. operations - $130.7 million; Other - less than $0.1 million) and $129.4 million (U.S. operations - $129.4 million; Other - less than $0.1 million) at December 31, 2024 and December 31, 2023, respectively. The Company's businesses have generated substantial operating losses in prior years. These losses can be available to reduce income taxes that might otherwise be incurred on future taxable income; however, it is uncertain whether the Company will generate the taxable income necessary to utilize these losses or other reversing temporary differences. This uncertainty has caused management to place a full valuation allowance on its December 31, 2024 and December 31, 2023 net deferred income tax assets, excluding the deferred income tax asset and liability amounts set forth in the paragraph below.

 

In 2024, the Company (i) increased by $0.1 million its valuation allowance primarily due to deferred tax liabilities assumed from corporate acquisitions; (ii) decreased by $0.2 million its valuation allowance relating to a change in indefinite life deferred income tax liabilities; and (iii) decreased by $0.2 million its valuation allowance associated with business interest expense with an indefinite life.

 

In2023, the Company (i) decreased by $2.1 million its valuation allowance primarily due to deferred tax liabilities assumed from corporate acquisitions; and (ii) increased by $0.3 million its valuation allowance relating to a change in indefinite life deferred income tax liabilities.

 

The Company carries net deferred income tax liabilities of$4.4 million and $5.0 million at December 31, 2024 and December 31, 2023, respectively, that consists of:

 

 

•

$3.7 million and $4.1 million of deferred income tax liabilities related to indefinite life intangible assets; and

 

•

$0.7 million and $0.9 million of deferred state income tax liabilities.

 

The Tax Cuts and Jobs Act (the "Tax Act") modified the U.S. net operating loss deduction, effective with respect to losses arising in tax years beginning after December 31, 2017. The Tax Act, however, did not limit the utilization, in 2018 and later tax years, of U.S. net operating losses generated in 2017 and prior tax years.

 

Amounts, originating dates and expiration dates of the KFSI Tax Group's consolidated U.S. net operating loss carryforwards, totaling $622.3 million, are as follows:

 

    

Net operating loss

 

Year of net operating loss

 

Expiration date

 

(in thousands)

 
       

2009

 

2029

 $384,582 

2010

 

2030

  92,058 

2011

 

2031

  39,866 

2012

 

2032

  30,884 

2013

 

2033

  30,779 

2014

 

2034

  7,245 

2016

 

2036

  16,006 

2017

 

2037

  20,848 

 

In addition, not reflected in the table above, are net operating loss carryforwards of (i) $4.0 million relating to losses generated in separate U.S. tax return years, which losses will expire over various years through 2037 and (ii) $0.1 million relating to non-U.S. operations, which losses will expire over various years through 2044.

 

At  December 31, 2024 and December 31, 2023, the Company had no unrecognized tax benefits.  The Company classifies interest and penalty accruals, if any, related to unrecognized tax benefits as income tax expense (benefit). 

 

The federal income tax returns of the Company's U.S. operations for the years through 2020 are closed for Internal Revenue Service ("IRS") examination. The Company's federal income tax returns are not currently under examination by the IRS for any open tax years. The federal income tax returns of the Company's Canadian operations for the years through 2019 are closed for Canada Revenue Agency ("CRA") examination. The Company's Canadian federal income tax returns are not currently under examination by the CRA for any open tax years.