Income Taxes |
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Dec. 31, 2015 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Income Tax Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Income Taxes |
INCOME TAXES
The Company files a consolidated federal income tax return based on a June 30th tax year end. The provision for income taxes for the three and six months ended December 31, 2015 and 2014 consists of the following:
The effective tax rate for the three and six months ended December 31, 2015 and 2014 is as follows:
The Company uses an estimated annual effective tax rate, which is based on expected annual income, statutory tax rates and tax planning opportunities available in the various jurisdictions in which the Company operates, to determine its quarterly provision for income taxes. Certain significant or unusual items are separately recognized in the quarter in which they occur and can be a source of variability in the effective tax rates from quarter to quarter. The effective tax rate varies from the federal statutory rate due to permanent adjustments for nondeductible items and state taxes.
Transition of Tax Filing Obligation Due to the Spinoff
The Company files income tax returns in the U.S., various states and Austria. Prior to the Distribution, the Company was included in the consolidated federal and state tax filings of the Former Parent. In connection with the spinoff, the Company entered into a tax separation agreement with the Former Parent (the "Tax Separation Agreement"). The Tax Separation Agreement governs the respective rights, responsibilities and obligations of the Former Parent and the Company with respect to, among other things, liabilities for U.S. federal, state, local and other taxes. In addition to the allocation of tax liabilities, the Tax Separation Agreement addresses the preparation and filing of tax returns for such taxes and disputes with taxing authorities regarding such taxes. Pursuant to the Tax Separation Agreement, A-Mark may be responsible for any tax amount related to A-Mark that is incurred as the result of adjustments made during the Internal Revenue Service examination or other tax jurisdictions' examinations of the Former Parent. Under the terms of the Tax Separation Agreement, the Former Parent has the responsibility to prepare and file tax returns for tax periods ending prior to the Distribution date and for tax periods which include the Distribution date but end after the Distribution date, which includes A-Mark and its subsidiaries.
The Company's condensed consolidated financial statements recognized the current and deferred income tax consequences that result from the Company's activities during the current and preceding periods, as if the Company were a separate taxpayer during the period prior to the Distribution rather than a member of the Former Parent's consolidated income tax return group. Current income tax payable due to the Former Parent reflects balances due to the Former Parent for taxable income generated as if the Company were a separate taxpaying entity prior to the Distribution, net of amounts related to balances due from the Former Parent for its share of income tax assets of the group. Current income tax receivable due from the Former Parent reflects balances due to A-Mark for its share of the income tax assets of the group.
As of December 31, 2015 and June 30, 2015, the amount payable under the Company's income tax sharing obligation due from Former Parent totaled $0.5 million, and $0 million, respectively, and is shown on the face of the condensed consolidated balance sheets as income taxes payable to Former Parent. As of December 31, 2015 and June 30, 2015, the amount receivable under the Company's income tax sharing obligation due from Former Parent totaled $0.0 million, and $1.1 million, respectively, and is shown on the face of the condensed consolidated balance sheets as income taxes receivable from Former Parent.
Tax Balances and Activity
The tax returns filed by the Company since the spinoff have been prepared on a basis consistent with past practices. Income taxes receivable represents amounts paid to federal and state jurisdictions in excess of amounts due to taxing authorities based upon taxable income generated following the close of the transaction. Our deferred tax assets and liabilities represent tax effected balances that were assumed in the spinoff and generated since the spinoff.
As of December 31, 2015 and June 30, 2015, the income tax receivable totaled $7.0 million and $7.8 million, respectively. As of December 31, 2015 and June 30, 2015, the deferred tax assets (non-current) totaled $0 and $23,000, respectively, the deferred tax liabilities (current) totaled $1.4 million and $0.1 million, respectively, and the deferred tax liabilities (non-current) totaled $0.3 million and $0.
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized by evaluating both positive and negative evidence. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. As of December 31, 2015 and June 30, 2015, management concluded that with the exception of certain state net operating losses, it was more likely than not that the Company would be able to realize the benefit of the U.S. federal and state deferred tax assets. We based this conclusion on historical and projected operating performance, as well as our expectation that our operations will generate sufficient taxable income in future periods to realize the tax benefits associated with the deferred tax assets.
As of December 31, 2015 and June 30, 2015, the Company has state and city net operating loss carryforwards of approximately $13.7 million and $17.6 million, respectively, which expire beginning with the year ending June 30, 2030. These state and city net operating loss carryforwards were allocated pursuant to the terms of the Tax Separation Agreement. As of December 31, 2015 and June 30, 2015, the tax effect of the state and city net operating loss carryforwards included in the Company's deferred tax assets is $0.4 million and $0.9 million, respectively. As of December 31, 2015 and June 30, 2015, the Company had$114,000 and $114,000, respectively, of valuation allowance for certain state and city net operating loss carryforwards, based on the Company's quarterly assessment of the realizability of its deferred tax assets.
As of December 31, 2015, the Company has recorded $243,000 of tax expense related to unrecognized tax positions. In addition, the Company had associated balances of $109,000 of accrued interest expense and $72,000 of accrued penalties related to uncertain tax positions. Of the total unrecognized tax benefits, $424,000 would reduce the Company's effective tax rate, if recognized. For the three months ended December 31, 2015 and 2014, the Company recognized approximately $5,000 and $10,000 of interest expense, respectively, and $0 and $0 of penalties related to uncertain tax positions, respectively. For the six months ended December 31, 2015 and 2014, the Company recognized approximately $9,000 and $19,000 of interest expense $0 and $0 of penalties related to uncertain tax positions, respectively.
Tax Examinations
Prior to the Distribution, the Company was included in the consolidated federal and state tax filings of the Former Parent. The Former Parent has been under examination by the IRS for the years ended June 30, 2004 through 2013; however, during the year ended June 30, 2015, the Former Parent was notified that it had successfully resolved the June 30, 2004 through June 30, 2007 tax years. As a result of the IRS exam, the Former Parent amended the state tax filings for the applicable periods. The amended state tax filings resulted in a tax benefit of approximately $0.6 million related to state net operating loss apportioned to the Company under intrastate apportionment rules for the year ended June 30, 2013. The Former Parent remains in appeals with the IRS for the years ended June 30, 2008 through 2013 and in examination with other taxing jurisdictions on certain tax matters, including challenges to certain positions the Former Parent has taken. The Former Parent is unable to determine the outcome of these audits at this time. With few exceptions, either prior federal, state or local examinations have been completed by the tax authorities or the statute of limitations have expired for U.S. federal, state and local income tax returns filed by the Former Parent for the years through 2006.
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