Dominari Holdings Inc. Income Taxes Disclosure

Note 14. Income Taxes

 

The income tax provision consists of the following ($ in thousands):

 

		For the years ended
		December 31,
		2024				2023
						(Revised *)
Federal
Current		$	-			$	-
Deferred			(2,322	)			(1,141	)
Increase (decrease) in valuation allowance			2,322				1,141
State and local
Current
Deferred			1,897				2,277
Increase (decrease) in valuation allowance			(1,897	)			(2,277	)
Income Tax Provision (Benefit)		$	-			$	-

The following is a reconciliation of the U.S. federal statutory rate to the effective income tax rates for the years ended December 31, 2024 and 2023:

 

		For the years ended
		December 31,
		2024				2023
						(Revised *)
U.S. Statutory Federal Rate			21.00	%			21.00	%
State Taxes, Net of Federal Tax Benefit			37.42	%			(3.59	)%
Sec. 162m disallowed compensation			(7.65	)%			-	%
Other permanent differences			(0.23	)%			(0.54	)%
State rate change in effect			(47.16	)%			(4.27	)%
Deferred tax adjustment for stock based compensation			(0.67	)%			(17.30	)%
Decrease due to change in Federal NOL and other true ups			1.90	%			(0.26	)%
Change in Valuation Allowance			(4.61	)%			4.96	%
Income Tax Benefit			0.00	%			0.00	%

 

As of December 31, 2024 and 2023, the Company’s deferred tax assets and liabilities consisted of the effects of temporary differences attributable to the following ($ in thousands):

 

		As of December 31,
		2024				2023
						(Revised *)
Deferred tax assets:
Net-operating loss carryforward		$	35,913			$	34,467
Stock based compensation			289				443
Patents & licenses			5,339				8,061
Transaction costs			160				209
Research & development			1,412				1,937
Operating lease liability			870				1,202
Investment portfolio and other			5,305				2,880
Total deferred tax assets			49,288				49,199
Valuation allowance			(48,403	)			(47,979	)
Deferred tax asset, net of allowance		$	885			$	1,220
Deferred tax liability:
Depreciation			(42	)			(57	)
Right of use asset			(843	)			(1,163	)
Total deferred tax liability		$	-			$	-

 

In assessing the realization 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. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the period in which those temporary differences become deductible. Management considers the Company’s history of cumulative net losses, the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. The Company has determined that, based on objective positive and negative evidence currently available, it is more likely than not that the Company will not realize the benefits of the deferred tax assets. Accordingly, the Company has provided a full valuation allowance for the deferred tax assets as of December 31, 2024 and 2023. As of December 31, 2024, the change in valuation allowance is approximately $0.4 million.

 

As of December 31, 2024, the Company has approximately $42.1 million federal net operating loss carryovers (“NOLs”), which expire from 2033 through 2037, and $79.8 million of federal NOLs which will never expire. The Company has approximately $154.4 million of state and city NOLs, which expire from 2035 through 2044. As of December 31, 2024, the Company also had federal research and development tax credit carryforwards of $0.2 million which may be available to offset future income tax liabilities and begin to expire in 2042.

 

(*)

The Company revised certain balances in the deferred tax assets and liabilities schedule to correct immaterial errors. Deferred tax assets for net-operating losses carryforward were increased and stock based compensation was decreased for a reclassification of the benefits associated with vested RSU’s that should have increased NOLs in prior periods and stock based compensation were decreased for expired stock options benefits that were no longer available for tax deduction purpose. The decrease in total deferred tax assets was equally offset by the decrease in the valuation allowance with no effect to the deferred tax asset or the consolidated financial statements.

 

The change in the total deferred tax assets had no effect on total assets, net loss, stockholders’ equity or cash flows.

 

The amounts revised are presented below:

 

		Year Ended December 31, 2023
		As Reported				Correction				As Adjusted
Net operating losses		$	33,124			$	1,343			$	34,467
Stock based compensation		$	9,754			$	(9,311	)		$	443
Total deferred tax assets		$	57,166			$	(7,967	)		$	49,199
Valuation allowance		$	(55,946	)		$	7,967			$	(47,979	)

Utilization of the U.S. NOL carryforwards and research and development tax credit carryforwards may be subject to a substantial annual limitation under Section 382 of the Internal Revenue Code of 1986, and corresponding provisions of state law, due to ownership changes that have occurred previously or that could occur in the future. These ownership changes may limit the amount of carryforwards that can be utilized annually to offset future taxable income. In general, an ownership change, as defined by Section 382, results from transactions increasing the ownership of certain stockholders or public groups in the stock of a corporation by more than 50% over a three-year period. If the Company experiences an ownership change, as defined by Section 382, at any time since inception, utilization of the NOL carryforwards or research and development tax credit carryforwards would be subject to an annual limitation under Section 382, which is determined by first multiplying the value of the Company’s stock at the time of the ownership change by the applicable long-term tax-exempt rate, and then could be subject to additional adjustments, as required. Any limitation may result in expiration of a portion of the NOL carryforwards or research and development tax credit carryforwards before utilization. The Company determined an ownership change occurred on September 10, 2013, and any NOLs generated prior to this date are therefore limited by Section 382. Any carryforwards that will expire prior to utilization due to this limitation were removed from deferred tax assets, with a corresponding reduction of the valuation allowance. The Company has not yet determined if any additional ownership changes occurred after September 10, 2013. Any past or future ownership changes may limit the Company’s ability to utilize remaining tax attributes. Due to the existence of the valuation allowance, limitations created by the 2013 ownership change and any potential future ownership changes will not impact the Company’s effective tax rate.

 

As of December 31, 2024 and 2023, no liability for unrecognized tax benefit was required to be reported. The Company’s policy is to record interest and penalties related to income taxes outside of its income tax provision and classify as interest and penalties in general and administrative expense in the statement of operations. As of December 31, 2024 or 2023, the Company had no accrued interest or penalties related to uncertain tax positions and no amounts had been recognized in the Company’s statement of operations. The Company does not expect any significant changes in its unrecognized tax benefits in the next year. The Company files U.S. federal and state income tax returns (New York, New York City, Virginia, and Texas). As of December 31, 2024, the statute of limitations for assessment by the Internal Revenue Service and state tax authorities remains open for all years since 2021. To the extent the Company has tax attribute carryforwards, the tax years in which the attribute was generated may still be adjusted upon examination by the Internal Revenue Service or state authorities to the extent utilized in a future period. There are no audits pending in any of the above-mentioned jurisdictions during 2024 and 2023. The Company believes that its income tax positions would be sustained upon an audit and does not anticipate any adjustments that would result in material changes to its consolidated financial position.