A-Mark Precious Metals, Inc. Quarterly report pursuant to Section 13 or 15(d)

Quarterly report pursuant to Section 13 or 15(d)

Income Taxes

Income Taxes

3 Months Ended

Sep. 30, 2017

Income from operations before provision for income taxes is shown below:



in thousands
Three Months Ended September 30,	2017		2016
U.S.	$	684	$	2,984
Foreign	34		14
Income before provision for income taxes	$	718	$	2,998

The Company files a consolidated federal income tax return based on a June 30 tax year end. The provision for (benefit from) income taxes for the three months ended September 30, 2017 and 2016 consists of the following:



in thousands

Three Months Ended September 30,	2017		2016
Federal	$	252	$	986
State and local	21		73
Foreign	1		—
Provision for income taxes	$	274	$	1,059

The effective tax rate for the three months ended September 30, 2017 and 2016 are set forth below:



in thousands
Three Months Ended September 30,	2017		2016
Effective tax rate	38.2	%	35.5	%

Tax Balances and Activity

Income Taxes Receivable and Payable

As of September 30, 2017 and June 30, 2017, income taxes receivable totaled $5.9 million and $0.0 million, respectively. As of September 30, 2017 and June 30, 2017, income taxes payable totaled $0.0 million and $1.4 million, respectively.

Deferred Tax Assets and Liabilities

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 September 30, 2017 and June 30, 2017, 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 September 30, 2017, the consolidated balance sheet reflects the deferred tax items for each tax-paying component (i.e., federal and state), resulting in a state deferred tax asset of $1.2 million and a federal deferred tax liability of $1.9 million. As of June 30, 2017, the consolidated balance sheet reflects the deferred tax items for each tax-paying component (i.e., federal and state), resulting in a state deferred tax asset of $1.4 million and a federal deferred tax asset of $2.5 million.

Net Operating Loss Carryforwards and Valuation Allowances

As of September 30, 2017 and June 30, 2017, the Company's state and city net operating loss carryforwards totaled approximately $12.5 million and $12.5 million, respectively. The Company's tax-effected net operating loss carryforwards totaled, as of September 30, 2017 and June 30, 2017, $0.7 million and $0.7 million, respectively. These net operating loss carryforwards start to expire in the year ending June 30, 2028. As of September 30, 2017 and June 30, 2017, the Company had $56,000 and $56,000, respectively, of valuation allowance for certain state and city net operating loss carryforwards, based on the Company's annual assessment of the realizability of its deferred tax assets.

Unrecognized Tax Benefits

The Company has taken or expects to take certain tax benefits on its income tax return filings that it has not recognized a tax benefit (i.e., an unrecognized tax benefit) on its consolidated statements of income. The Company's measurement of its uncertain tax positions is based on management's assessment of all relevant information, including, but not limited to prior audit experience, audit settlement, or lapse of the applicable statute of limitations. Below is a reconciliation of the net unrecognized tax benefits for the three months ended September 30, 2017:



in thousands
Three Months Ended September 30,	2017

Beginning balance	$	197
Reductions due to lapse of statute of limitations	—
Additions as a result of tax positions taken during current period	—
Ending balance	$	197

In addition to the $197,000 of accrued tax expense related to unrecognized tax positions, as shown in the table above, the Company accrued $103,000 of interest and $53,000 of penalties related to its uncertain tax positions. As of September 30, 2017, the amount of this accrued liability (inclusive of the uncertain tax deductions and the associated interest and penalty accrual) totaled $353,000, and, if recognized, would reduce the Company's effective tax rate. For the three months ended September 30, 2017 and 2016, the Company recognized approximately $5,000 and $6,000 of interest expense, respectively.

Tax Examinations

Refer to Note 12 of the Notes to Consolidated Financial Statements in the 2017 Annual Report for information relating to open tax examinations; there have been no significant changes.