INCOME TAXES

12 Months Ended

Dec. 31, 2020

Components of the provision for income taxes are as follows:


(In thousands)	December 31, 2020		December 31, 2019
Current:
Federal	$	(3,682)	$	(12)
State	(120)		(205)
Foreign	(37)		87
	(3,839)		(130)

Release of valuation allowance due to CARES Act	(3,664)		—
	(7,503)		(130)

Deferred:
Federal	(25)		(3,989)
State	(1,004)		(741)

	(1,029)		(4,730)

Valuation allowance	1,029		4,730



Total provision for income tax	$	(7,503)	$	(130)

Below is a reconciliation of the statutory federal income tax rate to the Company's effective tax rate:


	Year Ended December 31,
	2020		2019
Federal tax provision	21.0	%	21.0	%
State taxes (net of federal benefit)	5.1	%	4.3	%

Valuation allowance	(5.3)	%	(23.8)	%

NOL carryback from CARES Act	18.9	%	—	%
Other	(1.0)	%	(0.8)	%
Total	38.7	%	0.7	%

Major components of the Company’s deferred tax assets (liabilities) are as follows:


(In thousands)	December 31, 2020		December 31, 2019
Deferred tax assets:
Loss and credit carryforwards	$	1,888	$	4,779
Stock-based compensation	1,603		1,004


Other	745		1,133
Total deferred tax assets	4,236		6,916
Valuation allowance	(3,837)		(6,472)
Total deferred tax assets, net of valuation allowance	399		444
Deferred tax liabilities:

Property and equipment	(278)		(245)

Other	(121)		(199)
Total deferred tax liabilities	(399)		(444)
Net deferred tax assets	$	—	$	—

On March 27, 2020, the U.S. government enacted the CARES Act to provide relief from COVID-19. The CARES Act includes a provision that allows companies to carryback net operating losses (NOL’s) generated in the period 2018 through 2020 to prior years. In conjunction with the disposition of the Core business in 2018, the Company generated a significant amount of taxable income in 2018. Subsequent to this, the Company generated NOLs in 2019 and 2020. For the NOLs generated in 2019, the Company previously recorded a full valuation allowance on the deferred tax assets associated with the NOL due to realization not being probable under then existing tax law. The CARES Act makes these assets realizable and, as of the date of the CARES Act, the Company has recognized an income tax benefit of approximately $3.7 million associated with the release of the valuation allowance on its Federal NOL deferred tax asset from 2019. Additionally, using the provisions of the CARES Act, the Company is carrying back its 2020 Federal NOL of approximately $3.7 million.

The Company considers all positive and negative evidence regarding the realization of deferred tax assets, including past operating results and future sources of taxable income.

The Company considers the earnings of Apyx Bulgaria, EOOD to be indefinitely invested outside the United States on the basis of estimates that future domestic cash generation will be sufficient to meet future domestic cash needs and our specific plans for reinvestment of those subsidiary earnings. It has not recorded a deferred tax liability related to the U.S. Federal and State income taxes and foreign withholding taxes on the undistributed earnings of Apyx Bulgaria, EOOD indefinitely invested outside the United States. If it decides to repatriate the foreign earnings, the Company will need to adjust its income tax provision in the period it determines that the earnings will no longer be indefinitely invested outside the United States.

The Company assesses the financial statement impact of an uncertain tax position taken or expected to be taken on an income tax return at the largest amount that is more-likely-than-not to be sustained upon audit by the relevant taxing authority. An uncertain income tax position will not be recognized in the financial statements unless it is more likely than not of being sustained. As of December 31, 2020 and 2019, the Company has recorded a liability of approximately $1.3 million related to uncertain tax positions and accrued approximately $0.4 million and $0.2 million, respectively, of interest and penalties on these positions. It is expected that the change in unrecognized tax benefits within the next 12 months will not be significant.

The following is a roll-forward of the Company's total gross unrecognized tax benefits, not including interest and penalties, for the years ended December 31:


(in thousands)	Gross Unrealized Tax Benefits
	2020		2019
Beginning of year balance	$	1,313	$	1,313
Additions of tax positions related to the current year	—		—
Additions of tax positions related to the prior year	—		—
Decreases for tax positions related to prior year	—		—
End of year balance	$	1,313	$	1,313

The Company is subject to U.S. federal and state income tax examination. The Company’s 2017 through 2019 U.S. federal income tax returns are subject to examination by the Internal Revenue Service. The Company’s state income tax returns are subject to examination for the 2016 through 2019 tax years.

- 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 + Details