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Income Taxes
 12 Months Ended
Dec. 31, 2023
Income Taxes [Abstract]  
Income Taxes

18. Income Taxes

 

The Company’s provision for (benefit from) income taxes is comprised of the following:

 

   Year Ended December 31 
   2023   2022 
Current        
Federal  $3,023,000   $(749,000)
State and local   499,000    104,000 
Total Current   3,522,000    (645,000)
           
Deferred          
Federal  $(366,000)  $(305,000)
State and local   259,000    (350,000)
Total Deferred   (107,000)   (655,000)
           
Total Provision for (benefit from) income taxes  $3,415,000   $(1,300,000)

 

The Company’s effective tax rate differs from the U.S. federal statutory income tax rate of 21% for the periods indicated are as follows:

 

   Year Ended December 31 
   2023   2022 
Federal statutory income tax rate   21.0%   21.0%
Goodwill amortization   (2.5)%   6.5%
Non-deductible fines and penalties   
—
%   
—
%
Share based compensation   
—
%   
—
%
Permanent differences   2.7%   (6.1)%
State and local taxes, net of federal benefit   5.7%   9.4%
Change in valuation allowance   2.4%   2.0%
Other   1.1%   (2.5)%
Effective tax rate   30.4%   30.3%
           

 

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred tax assets and liabilities are as follows:

 

   As of December 31 
   2023   2022 
Deferred tax assets:        
Net operating losses  $3,393,000   $5,023,000 
Lease liabilities   840,000    648,000 
Share-based compensation   
—
    
—
 
Investment in Tigress   
—
    775,000 
Investment in RISE   123,000    10,000 
Investment in OpenHand   239,000    
—
 
R&D costs capitalization   142,000    
—
 
Settlement liability related to Kakaopay termination   1,253,000    
—
 
Capital loss carryover   803,000    
—
 
Other   79,000    45,000 
Subtotal   6,872,000    6,501,000 
Less: valuation allowance   (1,243,000)   (978,000)
Total Deferred tax assets  $5,629,000   $5,523,000 
Deferred tax liabilities:          
Fixed assets  $(1,125,000)  $(1,126,000)
Total Deferred tax liabilities   (1,125,000)   (1,126,000)
Net Deferred tax assets  $4,504,000   $4,397,000 

 

In assessing the Company’s ability to recover its deferred tax assets, the Company evaluated whether it is more likely than not that some portion or the entire deferred tax asset will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income in those periods in which temporary differences become deductible and/or net operating losses can be utilized. The Company considered all positive and negative evidence when determining the amount of the net deferred tax assets that are more likely than not to be realized. This evidence includes, but is not limited to, historical earnings, scheduled reversal of taxable temporary differences, tax planning strategies and projected future taxable income.

 

Based on historical operating profitability, positive trend of earnings and projected future taxable income, the Company concluded as of December 31, 2023 that its U.S. deferred tax assets are realizable on a more-likely-than-not basis with the exception of certain investments that will result in future capital losses and certain state net operating losses. The amount of the Company’s valuation allowance increased $265,000 during 2023. The Company will continue to evaluate its deferred tax assets to determine whether any changes in circumstances could affect the realization of their future benefit. If it is determined in future periods that portions of the Company’s deferred income tax assets satisfy the realization standards, the valuation allowance will be reduced accordingly.

 

As of December 31, 2023, the Company had U.S. federal net operating loss carryforwards of approximately $4.6 million which expire in varying amounts starting in 2035 to 2036 if not utilized but available to offset 100% of future taxable income. The U.S. federal net operating loss carryforwards are subject to annual limitation under Section 382.

 

A reconciliation of the beginning and ending amount of unrecognized tax benefits, excluding interest and penalties, is as follows:

 

   Amount 
Balance as of December 31, 2021  $2,418,000 
Additions for tax positions taken during current year   
—
 
Additions for tax positions taken during prior year   12,000 
Reductions for tax positions taken during prior years   (834,000)
Settlements   
—
 
Expirations of statutes of limitations   
—
 
Balance as of December 31, 2022  $1,596,000 
Additions for tax positions taken during current year   15,000 
Additions for tax positions taken during prior year   
—
 
Reductions for tax positions taken during prior years   (2,000)
Settlements   
—
 
Expirations of statutes of limitations   (204,000)
Balance as of December 31, 2023  $1,405,000 

 

The unrecognized tax benefit of $1,405,000 and $1,596,000 as of December 31, 2023 and 2022, respectively, are recorded in the line item “Taxes payable” on the consolidated statements of financial condition. Of the amounts reflected above as of December 31, 2023 and 2022, the entire amount would reduce the Company’s effective tax rate if recognized. The Company records accrued interest and penalties related to income tax matters as part of the provision for income taxes. For the years ended December 31, 2023 and 2022, the Company recognized expense related to interest and penalties on unrecognized tax benefits of $118,000 and $100,000, respectively. For the years ended December 31, 2023 and 2022, the accrued balance of interest and penalties on unrecognized tax benefits was $245,000 and $127,000, respectively. The Company does not believe that the amount of unrecognized tax benefits will significantly increase or decrease within the next 12 months.

 

The Company files a federal income tax return and income tax returns in various state tax jurisdictions. The Company is not currently under examination by the IRS or any state or local taxing authority for any tax year. The open tax years for the federal and state income tax filings is generally 2020 through 2023.

 

On October 8, 2021, the Organization for Economic Co-operation and Development (OECD) announced the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting which agreed to a two-pillar solution to address tax challenges arising from digitalization of the economy. On December 20, 2021, the OECD released Pillar Two Model Rules defining the global minimum tax, which calls for the taxation of a minimum rate of 15% for multinational companies with consolidated revenue above €750 million. Various foreign jurisdictions are in the process of enacting legislation to adopt a minimum effective tax rate. The OECD continues to release additional guidance on the two-pillar solution with an implementation anticipated by 2024. Based on the fact that the Company’s operations are all located within the United State and is below current revenue thresholds contained in the Pillar Two Model Rules, the Company expects to be outside the scope of the implementation of the reporting requirements for 2024.