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Income Taxes | 12 Months Ended
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Dec. 31, 2024
Income Tax Disclosure [Abstract] |
Income Taxes | NOTE 4. - INCOME TAXES The Corporation elected to be treated, for income tax purposes, as a RIC for the 2024, 2023 and 2022 tax years under Subchapter M of the Code. As a result, the Corporation did no t pay corporate-level federal income taxes on any net ordinary income or capital gains that the Corporation distributed to its stockholders as dividends. The Corporation must distribute substantially all of its investment company taxable income each tax year as dividends to its stockholders to maintain its RIC status. Depending on the level of taxable income earned in a tax year, the Corporation may choose to carry forward taxable income in excess of current year dividend distributions from such current year taxable income into the next tax year and pay a 4% excise tax on such income, as required. To the extent that the Corporation determines that its estimated current year taxable income will be in excess of estimated dividend distributions for the current year from such income, the Corporation accrues excise tax, if any, on estimated excess taxable income as such taxable income is earned. The Corporation incurred $37,388 and $52,800 in federal excise tax expense during the years ended December 31, 2024 and 2023, respectively. The Corporation did no t incur any federal excise tax expense during the year ended December 31, 2022. Distributions from net investment income and distributions from net realized capital gains are determined in accordance with U.S. federal tax regulations, which may differ from amounts determined in accordance with GAAP and those differences could be material. These book-to-tax differences are either temporary or permanent in nature. Reclassifications due to permanent book-tax differences, including non-deductible taxes and the tax treatment of earnings from the subsidiaries, have no impact on net assets. The following differences were reclassified for tax purposes for the years ended December 31, 2024 and December 31, 2023:
|  | 2024 |  |  | 2023 |
(Decrease) increase in capital in excess of par value |  | $ | (381,550 | ) |  | $ | 4,336,903 |
Increase (decrease) in total distributable earnings |  |  | 381,550 |  |  |  | (4,336,903 | )
The Corporation’s permanent book-to-tax reclassifications for 2024 are an estimate and will not be finalized until the Corporation files its 2024 federal income tax returns in 2025. Therefore, the Corporation’s actual permanent book-to tax reclassifications may be different than this estimate. Taxable income generally differs from net increase (decrease) in net assets for financial reporting purposes due to temporary and permanent differences in the recognition of income and expenses and generally excludes unrealized appreciation (depreciation) on investments, as investment gains and losses are not included in taxable income until they are realized. The following table reconciles net increase in net assets resulting from operations to taxable income for the years ended December 31, 2024 and December 31, 2023:
|  | 2024 |  |  | 2023 |
Net increase in net assets resulting from operations |  | $ | 8,827,612 |  |  | $ | 6,526,650 |
Net change in unrealized appreciation/depreciation on investments |  |  | 5,722,329 |  |  |  | (2,867,520 | )
Net change in deferred tax asset/liability |  |  | 376,989 |  |  |  | (77,734 | )
GAAP versus tax basis consolidation of subsidiaries |  |  | (32,936 | ) |  |  | (1,332,687 | )
Other permanent book income and tax income differences |  |  | 37,498 |  |  |  | 1,348,624 |
Temporary book income and tax income differences |  |  | (2,270,112 | ) |  |  | (82,198 | )
Taxable income |  | $ | 12,661,380 |  |  | $ | 3,515,135 |
The Corporation’s taxable income for 2024 is an estimate and will not be finalized until the Corporation files its 2024 federal income tax returns in 2025. Therefore, the Corporation’s actual taxable income and the Corporation’s actual taxable income that was earned in 2024 and carried forward for distribution in 2025 may be different than this estimate. For tax purposes, distributions paid to shareholders are reported as ordinary income, long term capital gains and return of capital, or a combination thereof. The tax character of distributions paid and deemed paid during the years ended December 31, 2024 and December 31, 2023 was as follows:
|  | 2024 |  |  | 2023 |
Ordinary income |  | $ | 3,427,968 |  |  | $ | 3,432,757 |
Long-term capital gains |  |  | 9,554,568 |  |  |  | — |
Return of Capital |  |  | — |  |  |  | — |
Total |  | $ | 12,982,536 |  |  | $ | 3,432,757 |
The determination of the tax attributes of the Corporation’s distributions is made annually as of the end of the Corporation’s fiscal year based upon the Corporation’s taxable income for the full year and distributions paid for the full year. The actual tax characteristics of distributions to shareholders are reported to shareholders annually on Form 1099-DIV. The tax basis components of distributable earnings (accumulated losses) and reconciliation to accumulated earnings (deficit) on a book basis for the years ended December 31, 2024 and December 31, 2023 were as follows:
|  | 2024 |  |  | 2023 |
Undistributed ordinary income – tax basis |  | $ | 11,649 |  |  | $ | 332,806 |
Capital loss carry forwards |  |  | — |  |  |  | (1,546,597 | )
Unrealized appreciation on investments |  |  | 3,843,912 |  |  |  | 9,906,212 |
Other temporary differences |  |  | (1,313,179 | ) |  |  | (2,376,665 | )
Total accumulated earnings – book basis |  | $ | 2,542,382 |  |  | $ | 6,315,756 |
The differences between components of distributable earnings on a tax basis and the amounts reflected in the consolidated statement of changes in net assets are primarily due to temporary book-tax differences that will reverse in subsequent periods. The Corporation had the following wholly-owned blocker companies in place at December 31, 2024: Rand BMP Swanson Holdings Corp., Rand Carolina Skiff Holdings Corp., Rand DSD Holdings Corp., Rand Filterworks Holdings Corp., Rand FSS Holdings Corp., Rand INEA Holdings Corp., and Rand ITA Holdings Corp. (the “Blocker Corps”), which are taxable entities and therefore are not consolidated for tax purposes. The primary purpose of the Blocker Corps is to permit the Corporation to hold certain equity interests in portfolio companies that are organized as limited liability companies, or LLCs (or other forms of pass-through entities), and still allow the Corporation to satisfy the RIC tax requirement that at least 90% of its gross income for U.S. federal income tax purposes must consist of qualifying investment income. The Blocker Corps are taxed at standard corporate tax rates based on their taxable income. At December 31, 2024, the Corporation had a net deferred tax asset of $2,161 that primarily related to net operating loss carryforwards, business interest expense carryforwards, and capital loss carryforwards within the Blocker Corps. At December 31, 2023, the Corporation had a net deferred tax asset of $39,179 that primarily related to net operating loss carryforwards, business interest expense carryforwards, and capital loss carryforwards within the Blocker Corps. Income Taxes on Blocker Corporations Deferred tax assets and liabilities are recorded for temporary differences between the financial statement and tax bases of assets and liabilities using the tax rate expected to be in effect when the taxes are actually paid or recovered. The tax effect of the major temporary differences and carryforwards that give rise to the Corporation’s net deferred tax asset at December 31, 2024 and 2023 are approximately as follows:
|  | 2024 |  |  | 2023 |
Investments |  | $ | (635,300 | ) |  | $ | (644,497 | )
NOL & tax credit carryforwards |  |  | 637,461 |  |  |  | 683,676 |
Deferred tax asset, net |  | $ | 2,161 |  |  | $ | 39,179 |
The major temporary differences cited above include differences in the book and tax bases of the Corporation’s portfolio company investments, as well as unrealized gains and losses on corporate investments that will be taxed when realized in future years. The Corporation assesses the recoverability of its deferred tax assets annually to determine if a valuation allowance is necessary. The Corporation records a valuation allowance against the deferred tax assets if and to the extent it is more likely than not that the Corporation will not recover the deferred tax assets. In evaluating the need for a valuation allowance, the Corporation weights all relevant positive and negative evidence, and considers among other factors, historical financial performance, projected future taxable income, scheduled reversals of deferred tax liabilities, the overall business environment, and tax planning strategies. Changes in circumstances, including the Blocker Corps generating significant taxable income and tax planning strategies, could cause a change in judgment about the need for a valuation allowance of the related deferred tax assets. Any change in the valuation allowance will be included in income in the period of the change in estimate. Accordingly, during the year ended December 31, 2024, the Corporation estimated that a portion of its Blocker Corps’ deferred tax assets, related to realized capital losses and NOL carryforwards, is not expected to be fully recoverable in the future. As a result, the Corporation recorded a partial valuation allowance of approximately $232,000 during the year ended December 31, 2024 against its U.S. Federal deferred tax assets. The valuation allowance was $363,471 and $131,338 at December 31, 2024 and 2023. The components of income tax expense (benefit) reported in the consolidated statements of operations are as follows for the years ended December 31:
|  | 2024 |  |  | 2023 |  |  | 2022 |
Current: |  |  |  |  |  |  |  |  |
Federal |  | $ | (85,356 | ) |  | $ | 609,056 |  |  | $ | 173,235 |
State |  |  | 5,292 |  |  |  | 58,320 |  |  |  | (2,555 | )
|  |  | (80,064 | ) |  |  | 667,376 |  |  |  | 170,680 |
Deferred: |  |  |  |  |  |  |  |  |
Federal |  |  | 62,619 |  |  |  | (13,797 | ) |  |  | 92,304 |
State |  |  | (25,600 | ) |  |  | 2,778 |  |  |  | 60,538 |
|  |  | 37,019 |  |  |  | (11,019 | ) |  |  | 152,842 |
Total |  | $ | (43,045 | ) |  | $ | 656,357 |  |  | $ | 323,522 |
A reconciliation of the expense (benefit) from income taxes at the federal statutory rate to the expense reported is as follows:
|  | 2024 |  |  | 2023 |  |  | 2022 |
Net investment income (loss), realized gain (loss) and unrealized gain (loss) before income taxes |  | $ | 8,784,567 |  |  | $ | 7,183,007 |  |  | $ | (558,327 | )
Expected tax expense (benefit) at statutory rate |  |  | 1,844,759 |  |  |  | 1,508,431 |  |  |  | (117,249 | )
State - net of federal effect |  |  | (14,673 | ) |  |  | 48,267 |  |  |  | 45,807 |
Pass-through expense (benefit) from portfolio investment |  |  | 4,145 |  |  |  | 487 |  |  |  | 721 |
Change in valuation allowance |  |  | 232,133 |  |  |  | 131,338 |  |  |  | — |
Tax benefit of RIC status |  |  | (2,169,298 | ) |  |  | (1,067,238 | ) |  |  | 400,329 |
RIC excise tax expense |  |  | 37,388 |  |  |  | 52,800 |  |  |  | — |
Other |  |  | 22,501 |  |  |  | (17,728 | ) |  |  | (6,086 | )
Total |  | $ | (43,045 | ) |  | $ | 656,357 |  |  | $ | 323,522 |
On January 1, 2024, the Corporation restructured the Blocker Corps with Rand DSD Holdings Corp becoming the common tax parent of the other Blocker Corps. It is the Corporation’s intent to file a consolidated federal, and if applicable, various state consolidated income tax returns beginning in 2024. As a result of this restructuring, the Blocker Corps have certain tax attributes that are subject to Separate Return Limitations (“SRLY”). At December 31, 2024 and 2023, the Corporation had $2,256,664, and $2,063,562, respectively, of federal net operating loss carryforwards (“NOL”), $1,913,908 and $1,061,635, respectively, of business interest expense carryforwards and $559,301 and $583,000, respectively, of capital loss carryforwards. Of these amounts approximately $2,100,000 and $1,060,000 of federal NOL and business interest expense carryforwards are subject to SRLY limitations. For state tax purposes, there were various state NOL carryforwards totaling $821,683 and $1,957,489 at December 31, 2024 and 2023, respectively. The Corporation has not determined how much of the state NOL carryforwards may be subject to SRLY limitations. Under the provisions of Section 382 of the Code, net operating loss and credit carryforwards and other tax attributes may be subject to limitations if there has been a significant change in ownership in the Corporation, as defined by the IRC. Prior to the completion of the Transaction with East in November 2019, the Corporation was able to utilize the remaining federal net operating losses. However, state net operating losses may be subject to similar limitations. The Corporation is currently open to audit under the statute of limitations by the Internal Revenue Service for the years ended December 31, 2021 through 2024. In general, the Corporation’s state income tax returns are open to audit under the statute of limitations for the years ended December 31, 2021 through 2024. It is the Corporation’s policy to include interest and penalties related to income tax liabilities in income tax expense on the Corporation's Consolidated Statement of Operations. In addition, the Corporation records uncertain tax positions in accordance with ASC 740, “Income Taxes”, (“ASC 740”). ASC 740 provides guidance for how uncertain tax positions should be recognized, measured, presented, and disclosed in the financial statements. The uncertain tax benefits for the years ended December 31, 2024, 2023 and 2022 were de minimis. The Corporation incurred $2,266 in interest expense and penalties related to income tax liabilities during the year ended December 31, 2024. No amounts were recorded for interest and penalties related to unrecognized tax positions for the year ended December 31, 2023. For the year ended December 31, 2022, the Corporation received $10,116 in interest income relating to an IRS carryback claim.

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