|9 Months Ended|
Sep. 30, 2021
|Income Tax Disclosure [Abstract]|
17. INCOME TAXES
The Company provides for income taxes using an asset and liability approach under which deferred income taxes are provided for based upon enacted tax laws and rates applicable to periods in which the taxes become payable.
The Company recorded income tax expense of $766,000 and an income tax benefit of $263,000 for the three months ended September 30, 2021 and 2020, respectively, and an income tax benefit of $6.6 million and $1.2 million for the nine months ended September 30, 2021 and 2020, respectively.
The Company maintains a valuation allowance against its domestic deferred tax assets, with the exception of certain deferred tax liabilities as result of purchase accounting adjustments, and most foreign jurisdictions other than India also maintain a valuation allowance against its deferred tax assets.
On March 27, 2020, the United States enacted the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) in response to the COVID-19 pandemic. The CARES Act, among other things, permits net operating loss carryovers and carrybacks to offset 100% of taxable income for taxable years beginning before 2021. In addition, the CARES Act allows net operating loss incurred in 2018, 2019, and 2020 to be carried back to each of the five preceding taxable years to generate a refund of previously paid income taxes. The Company recognized a $959,000 discrete tax benefit during the nine months ending September 30, 2021, related to a release of the domestic valuation allowance associated with a net operating loss carryback.
During the nine months ended September 30, 2021, the Company also released $5.8 million of valuation allowance related to previously reserved deferred tax assets which the Company has determined will be utilized in the future to offset net deferred tax liabilities related to the mGage acquisition during the period. During the three months ended September 30, 2021, measurement period adjustments related to the acquisition of mGage resulted in a $551,000 reduction in the Company’s previously released valuation allowance. The net valuation allowance release was $5.3 million during the nine months ended September 30, 2021.
During the three months ended September 30, 2021, the Company also released $320,000 of valuation allowance related to previously reserved deferred tax assets which the Company has determined will be utilized in the future to offset net deferred tax liabilities related to the Bandyer acquisition. As management receives additional information during the measurement period, the valuation allowance may be adjusted.
As of September 30, 2021, the Company maintained $4.9 million of undistributed earnings and profits generated by a foreign subsidiary (Solutions Infini) for which no deferred tax liabilities have been recorded, since the Company intends to indefinitely reinvest such earnings in the subsidiary to fund the international operations and certain obligations of the subsidiary. Should the above undistributed earnings be distributed in the form of dividends or otherwise, the distributions would result in approximately $737,000 of tax expense.
The Company files income tax returns in the United States and in foreign jurisdictions including Italy, India, and Switzerland. As of September 30, 2021, the tax years 2008 through the current period remain open to examination in each of the major jurisdictions in which the Company is subject to tax.
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.
Reference 1: http://www.xbrl.org/2003/role/disclosureRef