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Taxable Income
 12 Months Ended
Dec. 31, 2024
Income Tax Disclosure [Abstract]  
Taxable Income

7. TAXABLE INCOME

Effective December 11, 2006, the Company elected to be treated as a RIC under the Code and adopted a December 31 tax-calendar year end. As a RIC, the Company is not subject to federal income tax on the portion of its taxable income and gains distributed currently to its stockholders as a dividend. The Company’s quarterly distributions, if any, are determined by the Board. The Company anticipates distributing substantially all of its taxable income and gains, within the Subchapter M rules, and thus the Company anticipates that it will not incur any federal or state income tax at the RIC level. As a RIC, the Company is also subject to a federal excise tax based on distributive requirements of its taxable income on a calendar year basis (e.g., calendar year 2021). Depending on the level of taxable income earned in a tax year, the Company may choose to carry forward taxable income in excess of current year distributions into the next tax year and pay a 4% excise tax on such income, to the extent required.

The Company may distribute taxable dividends that are payable in cash or shares of its common stock at the election of each stockholder. Under certain applicable provisions of the Code and the Treasury regulations, distributions payable in cash or in shares of stock at the election of stockholders are treated as taxable dividends. The Internal Revenue Service has published guidance with respect to publicly offered RICs indicating that this rule will apply even where the total amount of cash that may be distributed is limited to no more than 20% of the total distribution. Under this guidance, if too many stockholders elect to receive their distributions in cash, the cash available for distribution must be allocated among the stockholders electing to receive cash (with the balance of the distribution paid in stock). If the Company decides to make any distributions consistent with this guidance that are payable in part in its stock, taxable stockholders receiving such dividends will be required to include the full amount of the dividend (whether received in cash, shares of the Company’s stock, or a combination thereof) as ordinary income (or as long-term capital gain to the extent such distribution is properly reported as a capital gain dividend) to the extent of the Company’s current and accumulated earnings and profits for U.S. federal income tax purposes. As a result, a U.S. stockholder may be required to pay tax with respect to such dividends in excess of any cash received. If a U.S. stockholder sells the stock it receives in order to pay this tax, the sales proceeds may be less than the amount included in income with respect to the dividend, depending on the market price of the Company’s stock at the time of the sale. Furthermore, with respect to non-U.S. stockholders, the Company may be required to withhold U.S. tax with respect to such dividends, including in respect of all or a portion of such dividend that is payable in stock. In addition, if a significant number of the Company’s stockholders determine to sell shares of its stock in order to pay taxes owed on dividends, it may put downward pressure on the trading price of the Company’s stock.

Book and tax basis differences relating to stockholder dividends and distributions and other permanent book and tax differences are typically reclassified among the Company’s capital accounts. In addition, the character of income and gains to be distributed is determined in accordance with income tax regulations that may differ from U.S. GAAP; accordingly at calendar years ended December 31, 2024, 2023 and 2022, the Company reclassified for book purposes amounts arising from permanent book/tax differences related to the tax treatment of return of capital distributions, non-deductible expenses, investments on non-accrual status, and capital loss carryforwards acquired as the result of the merger, as follows (amounts in thousands, except share and per share amounts):

 

 

 

Year Ended December 31,

 

($ in thousands)

 

2024

 

 

2023

 

 

2022

 

Capital in excess of par value

 

$

2

 

 

$

3,314

 

 

$

5,768

 

Total distributable (loss) earnings

 

$

(2

)

 

$

(3,314

)

 

$

(5,768

)

The following reconciles net increase (decrease) in net assets resulting from operations to taxable income for the years ended December 31, 2024 and December 31, 2023 (amounts in thousands, except share and per share amounts):

 

 

 

Year Ended December 31,

 

($ in thousands)

 

2024

 

 

2023

 

 

2022

 

 

 

 

 

 

 

 

 

 

 

Net (decrease) increase in net assets resulting from operations

 

$

(5,935

)

 

$

11,381

 

 

$

(20,996

)

Tax provision (benefit) on realized and unrealized (gains) losses on investments

 

 

(853

)

 

 

(414

)

 

 

786

 

Net change in unrealized depreciation (appreciation) from investments

 

 

(1,006

)

 

 

(3,322

)

 

 

17,915

 

Excess capital losses over capital gains

 

 

31,839

 

 

 

27,128

 

 

 

31,185

 

Book/tax differences on CLO equity investments

 

 

(45

)

 

 

(1,642

)

 

 

72

 

Book/tax differences related to mergers and partnership investments

 

 

2,036

 

 

 

(4,631

)

 

 

(586

)

Other book/tax differences

 

 

448

 

 

 

859

 

 

 

1,203

 

Taxable income before deductions for distributions

 

$

26,484

 

 

$

29,359

 

 

$

29,579

 

Taxable income before deductions for distributions per weighted
   average basic and diluted shares for the period

 

$

2.86

 

 

$

3.09

 

 

$

3.07

 

Dividends from Asset Manager Affiliates are recorded based upon a quarterly estimate of tax-basis earnings and profits of each Asset Manager Affiliate. Distributions in excess of the estimated tax-basis quarterly earnings and profits of each distributing Asset Manager Affiliate are recognized as tax-basis return of capital. The actual tax-basis earnings and profits and resulting dividend and/or return of capital for the year will be determined at the end of the tax year for each distributing Asset Manager Affiliate. For the years ended December 31, 2024 and December 31, 2023, the Asset Manager Affiliates did not make any cash distributions to the Company.

Distributions to shareholders that exceed tax-basis distributable income (tax-basis net investment income and realized gains, if any) are reported as distributions of paid-in capital (i.e. return of capital). The tax character of distributions is made on an annual (full calendar year) basis. The determination of the tax attributes of our distributions is made at the end of the year based upon our taxable income for the full year and the distributions paid during the full year. Therefore, a determination of tax attributes made on a quarterly basis may not be representative of the actual tax attributes of distributions for a full year.

 

($ in thousands)

 

Year Ended December 31,

 

Distributions paid from:

 

2024

 

 

2023

 

 

2022

 

Ordinary Income

 

$

25,582

 

 

$

26,147

 

 

$

24,661

 

Return of Capital

 

 

—

 

 

 

—

 

 

 

—

 

Total

 

$

25,582

 

 

$

26,147

 

 

$

24,661

 

 

 

As of December 31, 2024 and December 31, 2023, the components of accumulated earnings on tax basis (in thousands) were as follows:

 

 

 

Year Ended December 31,

 

($ in thousands)

 

2024

 

 

2023

 

 

2022

 

Undistributed ordinary income

 

$

4,586

 

 

$

7,064

 

 

$

4,917

 

Capital loss carryforward

 

 

(487,186

)

 

 

(445,684

)

 

 

(418,937

)

Other temporary differences

 

 

—

 

 

 

—

 

 

 

—

 

Net unrealized depreciation

 

 

(53,330

)

 

 

72,584

 

 

 

77,496

 

Total

 

$

(535,930

)

 

$

(366,036

)

 

$

(336,524

)

 

At December 31, 2024, the Company had a net capital loss carryforward of $487.2 million to offset net capital gains. This net capital loss carryforward is not subject to expiration. A portion of the Company’s capital loss carryovers are subject to an annual use limitation under the Code and related regulations.

The Company has certain taxable subsidiaries which have elected to be taxed as corporations for U.S. tax purposes. For the Company's tax year ended December 31, 2024, the taxable subsidiaries’ activity resulted in a provision (benefit) for income taxes of ($0.9) million. The taxable subsidiaries have, in aggregate, $0.5 million of net deferred tax liabilities. A portion of the taxable subsidiaries’ net operating loss and capital loss carryovers are subject to an annual use limitation under the Code and related regulations. For the Company's tax year ended December 31, 2023, the taxable subsidiaries’ activity resulted in a provision (benefit) for income taxes of ($0.4) million. The taxable subsidiaries have, in aggregate, no deferred tax assets and $1.3 million of deferred tax liabilities.

ASC Topic 740 Accounting for Uncertainty in Income Taxes (“ASC 740”) provides guidance for how uncertain tax positions should be recognized, measured, presented, and disclosed in the consolidated financial statements. ASC 740 requires the evaluation of tax positions taken or expected to be taken in the course of preparing the Company’s tax returns to determine whether the tax positions are “more-likely-than-not” of being sustained by the applicable tax authority. The Company recognizes the tax benefits of uncertain tax positions only where the position is “more likely than not” to be sustained assuming examination by tax authorities. Management has analyzed the Company’s tax positions and has concluded that no liability for unrecognized tax benefits should be recorded related to uncertain tax positions taken on returns filed for open tax years (the last three fiscal years) or expected to be taken in the Company’s current year tax return. The Company identifies its major tax jurisdictions as U.S. Federal and New York State, and the Company is not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will change materially in the next 12 months. Management’s determinations regarding ASC 740 may be subject to review and adjustment at a later date based upon factors including, but not limited to, an ongoing analysis of tax laws, regulations and interpretations thereof.