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

8. Income Taxes

 

The provision for income taxes from continuing operations consists of the following for the fiscal years indicated:

 

    2022    2021    2020 
    Fiscal Year 
    2022    2021    2020 
Current               
State  $—   $1,000   $— 
Foreign   144,000    128,000    129,000 
Total current provision   144,000    129,000    129,000 
Deferred               
Federal   1,073,000    (3,367,000)   (1,075,000)
State   (1,561,000)   (928,000)   (321,000)
Foreign   74,000    318,000)   (19,000)
Change in valuation allowance   414,000    3,977,000    1,415,000 
Total deferred provision   —    —    — 
Total provision for income taxes  $144,000   $129,000   $129,000 

 

The following table sets forth the changes in the Company’s balance of unrecognized tax benefits for the year ended:

 

   Total 
Unrecognized tax benefits at December 26, 2020  $394,000 
Gross increases—prior year tax positions   — 
Unrecognized tax benefits at December 25, 2021   394,000 
Gross increases—current year tax positions   — 
Unrecognized tax benefits at December 31, 2022  $394,000 

 

U.S. GAAP requires applying a ‘more likely than not’ threshold to the recognition and derecognition of uncertain tax positions either taken or expected to be taken by the Company’s income tax returns. The total amount of our gross tax liability for tax positions that may not be sustained under a ‘more likely than not’ threshold amounts to $0.4 million as of December 31, 2022 and December 25, 2021. The Company’s policy regarding the classification of interest and penalties is to include these amounts as a component of income tax expense. The total amount of accrued interest and penalties related to the Company’s unrecognized tax benefits was $1.0 million as of December 31, 2022 and December 25, 2021.

 

Net operating losses were not utilized in 2022, 2021 and 2020 to offset federal and state taxes.

 

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

 

The actual income tax provisions reported from operations are different from those which would have been computed by applying the federal statutory tax rate to loss before income tax provision. A reconciliation of income tax provision from continuing operations as computed at the U.S. federal statutory income tax rate to the provision for income tax benefit is as follows:

 

    2022    2021    2020 
    Fiscal Year 
    2022    2021    2020 
Tax provision at federal statutory rates  $(4,029,000)  $(2,787,000)  $(925,000)
State tax liability   —    —    — 
Foreign deferred tax rate differential   (8,000)   (55,000)   (38,000)
Permanent items   5,262,000    (79,000)   238,000 
Increase in net state operating loss carryforwards   (987,000)   (911,000)   (233,000)
Utilization of net operating losses for U.K. research and development refund   (24,000)   (134,000)   (151,000)
Provision to tax return adjustments and tax rate change   (36,000)   (69,000)   (180,000)
Tax credits   (441,000)   (261,000)   9,000 
Equity compensation   (188,000)   326,000    (121,000)
Uncertain tax position for transfer pricing   143,000    128,000    129,000 
Other, net   38,000    (6,000)   (14,000)
Change in valuation allowance   414,000    3,977,000    1,415,000 
Total provision  $144,000   $129,000   $129,000 

 

Pretax foreign income from continuing operations was approximately $0.4 million for the fiscal year ended 2022, $2.7 million for fiscal year ended 2021, and $1.0 million for fiscal year ended 2020. Deferred income taxes are provided to recognize the effect of temporary differences between tax and financial reporting. Deferred income tax assets and liabilities consist of the following:

 

    2022    2021 
    Fiscal Year 
    2022    2021 
Deferred tax liability:          
Foreign withholding liability  $(483,000)  $(513,000)
Deferred tax assets:          
Federal net operating loss carryforwards   46,618,000    49,609,000 
State net operating loss carryforwards   7,381,000    6,393,000 
Foreign net operating loss carryforwards   942,000    994,000 
Equity awards   34,000    222,000 
Tax credits   9,854,000    9,413,000 
R&D expense amortization   1,900,000    — 
Property, plant and equipment   624,000    620,000 
Unrealized losses on investments   1,406,000    2,834,000 
Other   2,611,000    872,000 
Net deferred tax assets   70,887,000    70,444,000 
Valuation allowance   (71,370,000)   (70,957,000)
Deferred tax assets, net  $(483,000)  $(513,000)

 

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

 

The valuation allowance was approximately $71.4 million and $71.0 million at December 31, 2022 and December 25, 2021, respectively, primarily driven by U.S. net operating loss carryforwards (“NOLs”) and tax credits that the Company does not believe will ultimately be realized.

 

As of December 31, 2022, the Company has available for tax purposes NOLs of $160.3 million expiring in 2022 through 2038 and $88.5 million that have an unlimited carryover period. The Company has recognized a full valuation allowance on its net deferred tax assets as the Company has concluded that such assets are not more likely than not to be realized.

 

The 2017 Tax Act imposes a mandatory transition tax on accumulated foreign earnings and eliminates U.S. taxes on foreign subsidiary distribution. As a result, earnings in foreign jurisdictions are available for distribution to the U.S. without incremental U.S. income taxes.

 

Under the provisions of Section 382, certain substantial changes in Kopin’s ownership may limit in the future the amount of net operating loss carryforwards that could be used annually to offset future taxable income and income tax liability.

 

The Company’s income tax returns have not been examined by the Internal Revenue Service and are subject to examination for all years since 2001. State income tax returns are generally subject to examination for a period of three to five years after filing of the respective return. The state impact of any federal changes remains subject to examination by various states for a period of up to one year after formal notification to the states.

 

International jurisdictions have statutes of limitations generally ranging from three to twenty years after filing of the respective return. Years still open to examination by tax authorities in major jurisdictions include Korea (2010 onward), Japan (2010 onward), Hong Kong (2012 onward) and the United Kingdom (2015 onward). The Company is not currently under examination in these jurisdictions.