CONSUMER PORTFOLIO SERVICES, INC. Income Taxes Disclosure

(9) Income Taxes

 

Components of income tax expense (benefit) from continuing operations were as follows:

Schedule of income taxes expenses
		Year Ended December 31,
		2025				2024				2023
		(In thousands)
Current federal tax expense		$	5,603			$	4,376			$	7,122
Current state tax expense .			1,740				1,807				2,613
Total current			7,343				6,183				9,735
Deferred federal tax expense			1,016				1,382				4,307
Deferred state tax expense.			319				663				1,712
Total deferred			1,335				2,045				6,019
Income tax expense		$	8,678			$	8,228			$	15,754

 

The Company does not have pretax income from continuing foreign operations or foreign tax expense.

 

The following table provides a reconciliation of tax computed at the US statutory federal tax rate and the recorded tax expense (in dollars and percentages) for the year ended December 31, 2025, under the provisions of ASU No. 2023-09:

 

Reconciliation of income tax		Year Ended December 31,
		2025 (1)
		(In thousands)
Expense at federal tax rate		$	5,881				21%
State taxes, net of federal income tax effect (2)			1,627				5.8
Non-deductible expenses
Executive compensation expense, net (3)			717				2.6
Meals and Entertainment			468				1.7
Other			27				0.1
Total non-deductible expenses			1,212				4.3
Other adjustments			(42	)			(0.1	)
		$	8,678				31.0%

________________________

	(1)	Percentages may not add due to rounding.
	(2)	State taxes in California, Florida, Illinois and Texas comprise the majority (>50%) of the tax effect.
	(3)	The amount includes the federal income tax effect of the windfall/shortfall adjustments related to the vesting of stock awards and IRC limitations on executive compensation.

 

The following table provides a reconciliation of tax computed at the statutory federal tax rate and the recorded tax expense (in percentages) for the years ended December 31, 2024, and 2023, prior to the adoption of ASU No. 2023-09:

 

Reconciliation of income tax prior years		Year Ended December 31,
		2024				2023
		(In thousands)
Expense at federal tax rate		$	5,760			$	12,830
State taxes, net of federal income tax effect			1,863				3,716
Stock-based compensation			(958	)			(1,184	)
Non-deductible expenses			1,612				1,629
Other			(49	)			(1,237	)
		$	8,228			$	15,754

 

Income tax payments during the year, net of refunds, are comprised of the following:

 

Schedule of income tax payments		Year Ended December 31,
		2025
		(In thousands)
Federal		$	4,800
State			2,028
Income Taxes Paid		$	6,828

 

Income taxes paid (net of refunds) exceeded 5 percent of total income taxes paid (net of refunds) in the following jurisdictions:

 

Schedule of state income taxes paid		Year Ended December 31,
		2025
		(In thousands)
State
California		$	390

 

 

 

 

The tax effected cumulative temporary differences that give rise to deferred tax assets and liabilities as of December 31, 2025, and 2024 are as follows:

Schedule of deferred tax assets and liabilities
		December 31,
		2025				2024
		(In thousands)
Deferred Tax Assets:
Accrued liabilities		$	309			$	703
NOL carryforwards			224				256
Built in losses			106				753
Stock compensation			608				755
Lease liability			5,018				5,846
Other			60				262
Total deferred tax assets		$	6,325			$	8,575
Deferred Tax Liabilities:
Pension accrual		$	(1,662	)		$	(2,015	)
Lease right-of-use assets			(4,430	)			(5,301	)
Furniture and equipment and other			(217	)			(249	)
Total deferred tax liabilities			(6,309	)			(7,565	)
Net deferred tax asset		$	16			$	1,010

 

We acquired certain net operating losses and built-in loss assets as part of our acquisitions of MFN Financial Corp. (“MFN”) in 2002 and TFC Enterprises, Inc. (“TFC”) in 2003. Moreover, both MFN and TFC have undergone an ownership change for purposes of Internal Revenue Code (“IRC”) Section 382. In general, IRC Section 382 imposes an annual limitation on the ability of a loss corporation (that is, a corporation with a net operating loss (“NOL”) carryforward, credit carryforward, or certain built-in losses (“BILs”)) to utilize its pre-change NOL carryforwards or BILs to offset taxable income arising after an ownership change.

 

In determining the possible future realization of deferred tax assets, we have considered future taxable income from the following sources: (a) reversal of taxable temporary differences; and (b) tax planning strategies that, if necessary, would be implemented to accelerate taxable income into years in which net operating losses might otherwise expire.

 

Deferred tax assets are recognized subject to management’s judgment that realization is more likely than not. A valuation allowance is recognized for a deferred tax asset if, based on the weight of the available evidence, it is more likely than not that some portion of the deferred tax asset will not be realized. In making such judgements, significant weight is given to evidence that can be objectively verified. Although realization is not assured, we believe that the realization of the recognized net deferred tax asset of $16,000 as of December 31, 2025, is more likely than not based on forecasted future net earnings. Our net deferred tax asset of $16,000 million consists of approximately $270,000 of net U.S. federal deferred tax liabilities and $286,000 of net state deferred tax assets.

 

As of December 31, 2025, we had net operating loss carryforwards for state income tax purposes of $3.8 million. These state net operating losses begin to expire in 2026.

 

On July 4, 2025, the One Big Beautiful Bill Act (OBBBA) was enacted into law. The OBBBA includes significant provisions, such as the permanent extension of certain expiring provisions of the Tax Cuts and Jobs Act and the restoration of favorable tax treatment for certain business tax provisions. The legislation has multiple effective dates, with certain provisions effective in 2025 and others being phased in through 2027. Through December 31, 2025, the OBBBA had not materially impacted the Company’s income taxes; however, the Company continues to evaluate the effect the OBBBA will have on the Company’s consolidated financial condition and results of operations

 

We recognize a tax position as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the “more likely than not” test, no tax benefit is recorded. We recognize potential interest and penalties related to unrecognized tax benefits as income tax expense. At December 31, 2025, we had no unrecognized tax benefits for uncertain tax positions.

 

We are subject to taxation in the US and various state jurisdictions. With few exceptions, we are no longer subject to U.S. federal, state, or local examinations by tax authorities for years before 2021.