|12 Months Ended|
Dec. 31, 2022
|Income Tax Disclosure [Abstract]|
|Income Taxes||Income Taxes
The components of income (loss) before income tax expense (benefit) were:
The Company follows the provisions of the accounting guidance on accounting for income taxes which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the consolidated financial statements or tax returns. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. A valuation allowance is provided to reduce the deferred tax asset to a level which, more likely than not, will be realized.
The provision (benefit) for income taxes is comprised of the following components:
The benefit for income taxes differs from the amount computed by applying the statutory federal income tax rate to income before benefit for income taxes. The sources and tax effects of the differences are as follows:
The Company’s deferred tax assets/(liabilities) consist of the following:
As of December 31, 2022, the Company has a valuation allowance of approximately $25,668 against the net deferred tax assets, for which realization cannot be considered more likely than not at this time. In assessing the need for a valuation allowance, the Company considers all positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies, jurisdictional netting and past financial performance. As of December 31, 2022 and 2021, based upon the consideration of such evidence, management believes a full valuation allowance against net deferred tax assets is warranted, with the exception of Europe net operating losses.
The valuation allowance recorded by the Company as of December 31, 2022 resulted from the uncertainties of the future utilization of deferred tax assets relating primarily to net operating loss (“NOL”) carryforwards for U.S. federal, Canada
and U.S. state income tax purposes. Realization of the NOL carryforwards is contingent on future taxable earnings. The deferred tax asset was reviewed for expected utilization using a “more likely than not” approach by assessing the available positive and negative evidence surrounding its recoverability. Accordingly, a full valuation allowance continues to be recorded with the exceptions of Europe net operating losses, as it was determined based upon past and projected future losses that it was “more likely than not” that the Company’s deferred tax assets would not be realized. The Company’s net deferred tax liability of $1,876 relates primarily to Blade Europe.
A "naked credit" exists when a deferred tax liability can only be offset up to 80% by NOLs generated after 2018, as well as NOLs available after consideration of IRC Section 382 limitation. The remaining portion that cannot be used causes the need for additional valuation allowance that remains as a liability. The Company has no naked credit as of December 31, 2022 and $144 of a naked credit as of December 31, 2021. The reversal of the naked credit that existed as of December 31, 2021 has been recorded as a tax benefit.
Further, as of December 31, 2022, the Company has approximately $76,553 of gross U.S. federal and $87,497 of gross U.S. state and local net operating loss carryforwards. The US federal, state and city net operating losses begin to expire in the year 2035. Federal net operating losses incurred in tax year 2018 and beyond do not expire. The Company has $62,586 of federal net operating losses that with an indefinite life.
In addition, as of December 31, 2022, the Company has approximately $2,396 of gross Canadian and $919 of gross French net operating losses. Canadian net operating losses can be carried forward 20 years and French net operating losses can be carried forward indefinitely. Canadian net operating losses will begin to expire in 2041.
Sections 382 and 383 of the Internal Revenue Code of 1986 subject the future utilization of net operating losses and certain other tax attributes, such as research and experimental tax credits, to an annual limitation in the event of certain ownership changes, as defined. The Company has undergone an ownership change study and has determined multiple changes in ownership as defined by IRC Section 382 of the Internal Revenue Code of 1986, did occur in December 2017, February 2018, and May 2021.
Based on the Company having undergone multiple ownership changes throughout its history, limited NOLs are subject to limitation at varying rates each year. Of the Company's $76,553 of total gross federal NOLs, approximately $4,516 of the Company's NOL carryforwards are subject to limitation. In addition, approximately $1,459 of NOLs and $112 of R&D Credits are expected to expire unused. The deferred tax assets associated with these attributes that are expected to expire without utilization have not been included within the deferred tax asset table or discussion above. There are approximately $72,037 of NOLs available to offset taxable income as of December 31, 2022. NOLs will continue to become available through 2037.
The Tax Cuts and Jobs Act of 2017 (TCJA) has modified the IRC 174 expenses related to research and development for tax years beginning after December 31, 2021. Under the TCJA, the Company must now capitalize the expenditures related to research and development activities and amortize over five years for U.S. activities and 15 years for non-U.S. activities using a mid-year convention. Therefore, the capitalization of research and development costs in accordance with IRC 174 resulted in a gross deferred tax asset of $4,729.
The Company recognizes tax liabilities when, despite its belief that its tax return positions are supportable, the Company believes that certain positions may not be fully sustained upon review by tax authorities. Each period the Company assesses uncertain tax positions for recognition, measurement and effective settlement. Benefits from uncertain tax positions are measured at the largest amount of benefit that is greater than 50 percent likely of being realized upon settlement. Where the Company has determined that its tax return filing position does not satisfy the more-likely-than-not recognition threshold, the Company has recorded no tax benefits. As of December 31, 2022, the Company has no unrecognized tax benefits.
The Company files tax returns in the U.S. federal Canada, France, Monaco and various state and local jurisdictions and is subject to examination by tax authorities. The Company has reported U.S. net operating losses dating back to inception. The IRS may examine records from the year a loss occurred when a net operating loss is applied. Thus, the Company is subject to U.S. federal income tax examinations for all years. The statute in other jurisdictions is generally 3-4 years.
On August 16, 2022, the Inflation Reduction Act (IRA) was signed into law. The legislation imposes new taxes, including a 15% corporate alternative minimum tax (CAMT) on adjusted financial statement income of corporations with profits over$1 billion, which is effective for tax years beginning after December 31, 2022, and a 1% surcharge on corporate stock buybacks of public US companies, which applies to repurchases of stock after December 31, 2022. The tax provisions of the Inflation Reduction Act do not have a material impact on the Company’s financial statements.
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