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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 components of income before income taxes were as follows:
| Years Ended December 31,
| 2021 |  | 2020
| (In thousands)
Domestic | $ | 175,635 |  |  | $ | 108,072 |
Foreign | (983) |  |  | — |
Total | $ | 174,652 |  |  | $ | 108,072 |
For purposes of reconciling the Company’s provision for income taxes at the statutory rate and the Company’s income tax expense (benefit) at the effective tax rate, a notional 21% tax rate was applied as follows:
| Years Ended December 31,
| 2021 |  | 2020
Statutory federal tax rate - expense (benefit) | 21 | % |  | 21 | %
Foreign rate differential | 5 | % |  | (1) | %
Nondeductible permanent items | (1) | % |  | — | %
Expired tax attributes | 4 | % |  | — | %
Derivative fair value adjustment | 5 | % |  | 11 | %
Valuation allowance | (21) | % |  | (33) | %
Other | 1 | % |  | 1 | %
Effective income tax rate | 14 | % |  | (1) | %
Acacia’s income tax (expense) benefit for the periods presented consisted of the following:
| Years Ended December 31,
| 2021 |  | 2020
| (In thousands)
Current: |  |  |
State | $ | (15) |  |  | $ | (66) |
Foreign | (8,530) |  |  | 1,225 |
Total current | (8,545) |  |  | 1,159 |
Deferred: |  |  |
Federal | (54,165) |  |  | — |
State | 1,573 |  |  | — |
Foreign | 332 |  |  | — |
Total deferred | (52,260) |  |  | — |
Change in valuation allowance | 36,518 |  |  | — |
Income tax (expense) benefit | $ | (24,287) |  |  | $ | 1,159 |
The tax effects of temporary differences and carryforwards that give rise to significant portions of deferred tax assets and liabilities consisted of the following:
| December 31,
| 2021 |  | 2020
| (In thousands)
Deferred tax assets: |  |  |
Net operating loss and capital loss carryforwards and credits | $ | 78,428 |  |  | $ | 113,561 |
Compensation expense for share-based awards | 383 |  |  | 497 |
Fixed assets and intangibles | — |  |  | 677 |
Basis of investments in affiliates | 18 |  |  | 254 |
Accrued liabilities and other | 1,495 |  |  | 432 |
Lease liability | 726 |  |  | 330 |
State taxes | — |  |  | 15 |
Total deferred tax assets | 81,050 |  |  | 115,766 |
Valuation allowance | (40,585) |  |  | (76,969) |
Total deferred tax assets, net of valuation allowance | 40,465 |  |  | 38,797 |
Deferred tax liabilities: |  |  |
ROU Asset | (726) |  |  | (330) |
Fixed assets and intangibles | (2,572) |  |  | — |
Unrealized gain on investments held at fair value | (55,696) |  |  | (38,374) |
Other | (23) |  |  | (93) |
Total deferred tax liabilities | (59,017) |  |  | (38,797) |
Net deferred tax liabilities | $ | (18,552) |  |  | $ | — |
As of December 31, 2021 and 2020, management assessed the realizability of deferred tax assets and evaluated the need for a valuation allowance for deferred tax assets on a jurisdictional basis. This evaluation utilizes the framework contained in ASC 740, "Income Taxes," wherein management analyzes all positive and negative evidence available at the balance sheet date to determine whether all or some portion of the Company's deferred tax assets will not be realized. Under this guidance, a valuation allowance must be established for deferred tax assets when it is more-likely-than-not that the asset will not be realized. In assessing the realization of the Company's deferred tax assets, management considers all available evidence, both positive and negative. Based upon available evidence, it was concluded on a more-likely-than-not basis that as of December 31, 2021 a valuation allowance of $40.6 million was needed for foreign tax credits and certain state tax attributes the Company estimates will expire prior to utilization. As of December 31, 2020, the Company recorded a full valuation allowance of $77.0 million. The valuation allowance (decreased)/increased by $(36.4) million and $(38.1) million for the years ended December 31, 2021 and 2020, respectively, as a result of the use of the NOLs and increase in unrealized gains. At December 31, 2021, Acacia had U.S. federal and state income tax net operating loss carryforwards (“NOLs”) totaling approximately $172.2 million and $38.1 million, respectively. $76.4 million of federal NOL carryovers generated in tax years beginning before January 1, 2018 will begin to expire in 2034. Pursuant to the Tax Cuts and Jobs Act enacted by the U.S. federal government in December 2017, for federal income tax purposes, NOL carryovers generated for our tax years beginning January 1, 2018 can be carried forward indefinitely but will be subject to a taxable income limitation. For state income tax purposes, our NOLs will expire between 2024 and 2040. As of December 31, 2021, Acacia had approximately $40.5 million of foreign tax credits, expiring between 2022 and 2026. The following changes occurred in the amount of unrecognized tax benefits:
| Years Ended December 31,
| 2021 |  | 2020
| (In thousands)
Beginning balance | $ | 731 |  |  | $ | 731 |
Additions for current year tax positions | 27 |  |  | — |
Additions included in purchase accounting for prior year positions | 129 |  |  | — |
Reductions for prior year tax positions | — |  |  | — |
Ending Balance (excluding interest and penalties) | 887 |  |  | 731 |
Interest and penalties | — |  |  | — |
Total | $ | 887 |  |  | $ | 731 |
At December 31, 2021 and 2020, the Company had total unrecognized tax benefits of approximately $887,000 and $731,000, respectively. At December 31, 2021 and 2020, $110,000 of unrecognized tax benefits are recorded in other long-term liabilities and the remaining amount is included as an offset to deferred tax assets. No interest and penalties have been recorded for the unrecognized tax benefits for the periods presented. At December 31, 2021, if recognized, $887,000 of tax benefits would impact the Company’s effective tax rate. The Company does not expect that the liability for unrecognized tax benefits will change significantly within the next 12 months. Acacia recognizes interest and penalties with respect to unrecognized tax benefits in income tax expense (benefit). Acacia has identified no uncertain tax position for which it is reasonably possible that the total amount of unrecognized tax benefits will significantly increase or decrease within 12 months. Acacia is subject to taxation in the U.S. and in various state/foreign jurisdictions and incurs foreign tax withholdings on revenue agreements with licensees in certain foreign jurisdictions. With no material exceptions, Acacia is no longer subject to U.S. federal or state examinations by tax authorities for years before 2017. The Company’s 2017 through 2021 tax years generally remain subject to examination by federal, state and foreign tax authorities. As the Company has incurred losses in most jurisdictions, the taxing authorities can generally challenge 2014 through 2020 losses to determine either the amount of carryforward deduction reported in the open year or the amount of a net operating loss deduction that is absorbed in a closed year and supports the determination of the available net operating loss deduction for the open year under examination. Deferred income taxes have not been provided for undistributed earnings of the Company’s consolidated foreign subsidiaries, as earnings are permanently reinvested, however, no deferred tax liability would be necessary as the parent entity would not be required to include the distribution into income as the amount would be tax free under current law. The Tax Cuts and Jobs Act subjects a US shareholder to tax on GILTI earned by certain foreign subsidiaries. The FASB Staff Q&A, Topic 740 No. 5. Accounting for Global Intangible Low-Taxed Income, states that an entity can make an accounting policy election to either recognize deferred taxes for temporary basis differences expected to reverse as GILTI in future years or to provide for the tax expense related to GILTI in the year the tax is incurred as a period expense only. We have elected to account for GILTI in the year the tax is incurred. On March 27, 2020, the United States enacted the CARES Act which provides certain income tax benefits including the ability to carryback federal NOLs generated in 2018 through 2020 for an extended five-year period and increased the limitation for the deduction of interest expense from 30 percent to 50 percent of modified taxable income. The CARES Act also provides other economic benefits such as allowing employers to defer payment of the employer’s portion of payroll taxes for 2020 and a refundable employee retention credit of up to $5,000 per eligible employee wages. The Company did not realize benefits from the provisions of the CARES Act including the extended NOL carryback period, the payroll tax deferral, and the employee retention credit. On December 27, 2020, the United States enacted the Consolidated Appropriations Act which extended many of the benefits of the CARES Act that were scheduled to expire. The Company does not expect a material impact from the Consolidated Appropriations Act on its consolidated financial statements and related disclosures. On March 11, 2021 the United States enacted the American Rescue Plan Act of 2021. This Act includes various income and payroll tax measures. The Company does not expect a material impact from the American Rescue Plan on its consolidated financial statements and related disclosures. On June 29, 2020, the state of California passed Assembly Bill 85 which suspends the California net operating loss deduction for the 2020-2022 tax years and the R&D credit usage for the same period (for credit usages in excess of $5.0 million). The Company does not expect a material impact from Assembly Bill 85 on its financial statements and related disclosures.

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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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