URBAN ONE, INC.UONE
URBAN ONE, INC. Income Taxes Disclosure
16. INCOME TAXES
A reconciliation of the statutory federal income taxes to the recorded provision for income taxes from continuing operations is as follows:
| For the Years Ended December 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| (in thousands) | |||||||||||
| Statutory federal tax expense | $ | (19,742) | $ | 2,627 | |||||||
| Effect of state taxes, net of federal benefit | (6,849) | 1,134 | |||||||||
| Effect of state rate and tax law changes | (419) | 79 | |||||||||
| Non-deductible officer’s compensation | 645 | 1,738 | |||||||||
| Non-deductible employment agreement award | (2,184) | — | |||||||||
| Interest carryforward adjustment | — | 771 | |||||||||
| Change in valuation allowance | 32,369 | 1,443 | |||||||||
| Internal revenue code ("IRC") Section 382 adjustments | 762 | (404) | |||||||||
| Net operating loss ("NOL") expirations | 100 | 203 | |||||||||
| Uncertain tax positions | 3,745 | (77) | |||||||||
| Return to provision adjustments | 704 | 223 | |||||||||
| Other | 628 | 207 | |||||||||
| Provision for income taxes | $ | 9,759 | $ | 7,944 | |||||||
The statutory federal tax rate used for the years ended December 31, 2024 and 2023 is 21.0%. Major components of the effective tax rate for the years ended December 31, 2024 and 2023 are related to change in valuation allowance, non-deductible employment awards, limitation of officer's compensation under IRC Section 162(m), uncertain tax positions, and state income taxes.
The components of the provision for income taxes from continuing operations are as follows:
| For the Years Ended December 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| (in thousands) | |||||||||||
| Federal: | |||||||||||
| Deferred | 5,244 | 3,952 | |||||||||
| State: | |||||||||||
| Current | 1,391 | 2,796 | |||||||||
| Deferred | 3,124 | 1,196 | |||||||||
| Provision for income taxes | $ | 9,759 | $ | 7,944 | |||||||
Deferred Income Taxes
Deferred income taxes reflect the impact of temporary differences between the assets and liabilities recognized for financial reporting purposes and amounts recognized for tax purposes. Deferred taxes are based on tax laws as currently enacted. Deferred tax assets are reduced by a valuation allowance if, based upon the weight of available evidence, it is not more likely than not that the Company will realize some portion or all of the deferred tax assets. The significant components of the Company’s deferred tax assets and liabilities are as follows:
| As of December 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| (in thousands) | |||||||||||
| Deferred tax assets: | |||||||||||
| Allowance for doubtful accounts | $ | 1,091 | $ | 2,084 | |||||||
| Accruals | 2,908 | 3,245 | |||||||||
| Stock-based compensation | 876 | 615 | |||||||||
| Net operating loss carryforwards | 45,017 | 57,030 | |||||||||
| Lease liabilities | 7,699 | 8,084 | |||||||||
| Interest expense carryforward | 28,672 | 21,977 | |||||||||
| Other assets | 1,027 | 708 | |||||||||
| Total deferred tax assets | 87,290 | 93,743 | |||||||||
| Valuation allowance for deferred tax assets | (33,842) | (1,473) | |||||||||
| Total deferred tax asset, net of valuation allowance | 53,448 | 92,270 | |||||||||
| Deferred tax liabilities: | |||||||||||
| Intangible assets | (73,004) | (103,349) | |||||||||
| Fixed assets | (1,037) | (873) | |||||||||
| Right of use assets | (7,518) | (7,748) | |||||||||
| Partnership interests | (290) | (283) | |||||||||
| Deferred financing costs | (451) | (734) | |||||||||
| Other liabilities | (453) | (221) | |||||||||
| Total deferred tax liabilities | (82,753) | (113,208) | |||||||||
| Deferred tax liabilities, net | $ | (29,305) | $ | (20,938) | |||||||
As of December 31, 2024, the Company had pre-tax federal and state NOL carryforward amounts of approximately $332.0 million and $248.6 million, respectively. Certain of the federal and state NOLs are subject to annual limitations under Internal Revenue Code Section 382. Additionally, the amount of the state NOLs may change if future apportionment factors differ from current factors. The Company continues to assess potential tax strategies, which if successful, may reduce the impact of the annual limitations and potentially recover NOLs that otherwise would expire before being applied to reduce future income tax liabilities. If successful, the Company may be able to recover additional federal and state NOLs in future periods, which could be material. If the Company concludes that it is more likely than not that the Company will be able to realize additional federal and state NOLs, the tax benefit could materially impact future quarterly and annual periods. However, if these potential tax strategies do not meet the more likely than not threshold, the Company may claim these additional NOLs as unrecognized tax benefits. The federal NOLs expire in various years from 2026 to 2035. The state NOLs expire in various years from 2025 through 2044, and certain of our state NOLs may be carried forward indefinitely.
In assessing the realizability of deferred tax assets, management considered whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. 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.
The Company considered all available evidence, both positive and negative, to determine whether, based on the weight of the evidence, a valuation allowance for deferred tax assets was necessary. The Company reached the conclusion it was appropriate to record a valuation allowance against a portion of its federal deferred tax assets based on the available evidence. During the year ended December 31, 2024, the Company recorded an additional $32.3 million of valuation allowances against its deferred tax assets. The increase in valuation allowance relates to non-deductible interest expense and state operating loss carryforwards.
As of December 31, 2024, the gross deferred tax assets of approximately $87.3 million were primarily the result of federal and state net operating losses and the IRC Section 163(j) interest expense carryforward. Valuation allowances of $33.8 million and $1.5 million were recorded against the Company’s gross deferred tax asset balance as of December 31, 2024 and 2023, respectively, and is primarily related to interest expense carryforward which are not more likely than not to be realized, and state jurisdictions where it is not more likely than not the deferred tax assets will be realized.
Unrecognized Tax Benefits
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
| 2024 | 2023 | ||||||||||
| (in thousands) | |||||||||||
| Balance as of January 1 | $ | 575 | $ | 654 | |||||||
| Additions for tax positions related to prior years | 4,367 | — | |||||||||
| Deductions for tax positions as a result of the lapse of applicable statutes of limitation | (53) | (79) | |||||||||
| Balance as of December 31 | $ | 4,889 | $ | 575 | |||||||
At December 31, 2024 and 2023, there are $4.1 million and $0.5 million of unrecognized tax benefits that if recognized would affect the annual effective tax rate. It is reasonably possible that further adjustments to our unrecognized tax benefits may be made within the next twelve months due to audit settlements and regulatory interpretations of existing tax laws. The Company believes that it is reasonably possible that a decrease of up to $1.5 million of unrecognized tax benefits related to federal and state tax exposures may be necessary within the coming year. The Company recognizes accrued interest and penalties related to unrecognized tax benefits as a component of tax expense. There is no material amount of interest and penalties recognized in the statement of operations and the consolidated balance sheets for the year ended December 31, 2024.
The Company files income tax returns in the U.S. federal jurisdiction, various state and local jurisdictions and is subject to examination by the various taxing authorities. The Company’s open tax years for federal income tax examinations include the tax years ended December 31, 2021 through 2024. For state and local purposes, the open years for tax examinations include the tax years ended December 31, 2020 through 2024.About Income Taxes Disclosures
The income tax disclosure reveals how much a company actually pays in taxes versus what the statutory rate would predict. Analysts focus on the effective tax rate (ETR) reconciliation, which breaks down every item driving the gap between the 21% federal rate and the company's reported ETR — including R&D credits, foreign rate differentials, and state taxes. Deferred tax assets (DTAs) and their valuation allowances signal management's confidence in future profitability: a rising allowance suggests the company doubts it can use accumulated tax benefits. Uncertain tax benefit (UTB) reserves quantify exposure to IRS challenges on aggressive positions.
Key signals to watch: sudden ETR drops without clear operational reasons, large increases in valuation allowances, growing UTB balances, and significant unremitted foreign earnings. Post-TCJA, pay attention to GILTI and BEAT provisions that affect multinational tax structures. Compare the cash taxes paid (from the cash flow statement) against the income tax provision to gauge earnings quality.