Note 11 — Income Taxes

In accordance with the provisions of ASC 740, the Company periodically reviews its income tax positions based on tax laws and regulations and financial reporting considerations, and records adjustments as appropriate. This review takes into consideration the status of current taxing authorities’ examinations of the Company’s tax returns, recent positions taken by the taxing authorities on similar transactions, if any, and the overall tax environment.

The total amount of unrecognized tax benefits that would affect our effective tax rate if recognized was $258,000, $258,000 and $0 as of December 31, 2022, 2021 and 2020, respectively. The Company records interest expense and penalties related to unrecognized tax benefits in income tax expense. The amount of accrued interest was $33,000 and $0 at December 31, 2022 and 2021, respectively. The amount of penalties accrued was $44,000 and $0 at December 31, 2022 and 2021, respectively.

For the year ended December 31, 2022, there was no change to unrecognized tax benefits related to California Enterprise Zone hiring credits. For the year ended December 31, 2021, unrecognized tax benefits increased by $258,000 related to California Enterprise Zone hiring credits. For the year ended December 31, 2020, unrecognized tax benefits decreased by $73,000 related to the filing of state income tax returns for open tax years and jurisdictions in which the Company had nexus.

We account for interest and penalties related to uncertain tax positions as part of our provision for federal and state income taxes. Accrued interest and penalties are included within accrued expenses and liabilities on the Consolidated Balance Sheets.

As of December 31, 2022, the Company is subject to examination by federal and various state tax authorities for certain years ending December 31, 2018 through 2021.

As of each reporting date, management considers the realization of deferred tax assets based on management’s judgment of various future events and uncertainties, including the timing and amount of future income, as well as the implementation of various tax planning strategies to maximize realization of deferred tax assets. A valuation allowance is provided when it is more likely than not that some portion of deferred tax assets will not be realized. As of December 31, 2022, management determined that a valuation allowance of $1.3 million was appropriate against certain state net operating losses. For all other deferred tax assets, management believes it was more likely than not that these deferred tax assets will be realized principally through future taxable income and reversal of existing taxable temporary differences. As of December 31, 2021, management determined that a valuation allowance of $1.6 million was appropriate against certain state net operating losses.

As of December 31, 2022, the Company had net operating loss carryforwards of $9.7 million and $204.1 million for federal and state income tax purposes, respectively. The federal net operating loss carryforwards of $9.7 million expire at various dates from 2034 to 2035. The state net operating loss carryforwards include California of $142.1 million which expire at various dates from 2031 through 2035, and Illinois of $62.0 million which expire at various dates from 2035-2036. Management determined that a partial valuation allowance was required against the Illinois net operating loss carryforwards. As of December 31, 2022, the Company had $1.7 million low income housing tax credit carryforwards.

The CARES Act includes provisions for tax payment relief, significant business incentives, and certain corrections to the 2017 Tax Cuts and Jobs Act, or the Tax Act. The tax relief measures for entities includes a five-year net operating loss carry back, increases in interest expense deduction limits, accelerates alternative minimum tax credit refunds, provides payroll tax relief, and provides a technical correction to allow accelerated deductions for qualified improvement property. ASC Topic 740, Income Taxes, requires the effect of changes in tax law be recognized in the period in which new legislation is enacted. The enactment of the CARES Act was not material to the Company’s income taxes for the year ended December 31, 2021.

On December 27, 2020, the U.S. enacted the Consolidated Appropriations Act, 2021 (the “Act”) that provides additional tax relief to individuals and businesses affected by the coronavirus pandemic. The provisions of the Act do not have a material impact on the overall income taxes.