|6 Months Ended
Jun. 30, 2023
|Income Tax Disclosure [Abstract]
6. Income Taxes
To qualify as a RIC, the Company is required to meet certain income and asset diversification tests in addition to distributing dividends of an amount generally at least equal to 90% of its investment company taxable income, as defined by the Code and determined without regard to any deduction for distributions paid, to its stockholders. The amount to be paid out as a distribution is determined by the Board each quarter and is based upon the annual earnings estimated by the management of the Company. To the extent that the Company’s earnings fall below the amount of dividend distributions declared, however, a portion of the total amount of the Company’s distributions for the fiscal year may be deemed a return of capital for tax purposes to the Company’s stockholders.
As previously noted, the determination of taxable income pursuant to U.S. federal income tax regulations differs from U.S. GAAP. As a result, permanent differences are reclassified among capital accounts in the financial statements to reflect their appropriate tax character. During the year ended December 31, 2022, the Company reclassified $3.0 million from accumulated net realized gains (losses) to additional paid-in capital for book purposes primarily related to net realized gains from portfolio companies which are held in taxable subsidiaries and are not consolidated with the Company for income tax purposes.
Taxable income for the three months ended June 30, 2023, was approximately $60.9 million or $0.43 per share. Taxable net realized gains for the same period were $20.2 million or approximately $0.14 per share. Taxable income for the three months ended June 30, 2022, was approximately $40.0 million or $0.32 per share. Taxable net realized gains for the same period were $(1.7) million or approximately $(0.02) per share.
Taxable income for the six months ended June 30, 2023, was approximately $125.0 million or $0.90 per share. Taxable net realized gains for the same period were $27.4 million or approximately $0.20 per share. Taxable income for the six months ended June 30, 2022, was approximately $73.1 million or $0.60 per share. Taxable net realized gains for the same period were $2.0 million or approximately $0.02 per share.
The aggregate gross unrealized appreciation of the Company’s investments over cost for U.S. federal income tax purposes was $92.5 million and $72.2 million, as of June 30, 2023 and December 31, 2022, respectively. The aggregate gross unrealized depreciation of the Company’s investments under cost for U.S. federal income tax purposes was $92.0 million and $112.0 million, as of June 30, 2023 and December 31, 2022, respectively. The net unrealized appreciation over cost for U.S. federal income tax purposes was $0.5 million as of June 30, 2023 and the net unrealized depreciation over cost for U.S. federal income tax purposes was $39.8 million as of December 31, 2022. The aggregate cost of securities for U.S. federal income tax purposes was $3.1 billion and $3.0 billion as of June 30, 2023 and December 31, 2022, respectively.
As a RIC, the Company is subject to a 4% non-deductible U.S. federal excise tax on certain undistributed income unless the Company makes distributions treated as dividends for U.S. federal income tax purposes in a timely manner to its stockholders in respect of each calendar year of an amount at least equal to the sum of (1) 98% of its ordinary income (taking into account certain deferrals and elections) for each calendar year, (2) 98.2% of its capital gain net income (adjusted for certain ordinary losses) for the 1-year period ending October 31 of each such calendar year and (3) any ordinary income and capital gain net income realized, but not distributed, in preceding calendar years (the "Excise Tax Avoidance Requirement"). The Company will not be subject to this excise tax on any amount on which the Company incurred U.S. federal income tax (such as the tax imposed on a RIC’s retained net capital gains).
Depending on the level of taxable income earned in a taxable year, the Company may choose to carry over taxable income in excess of current taxable year distributions from such taxable income into the next taxable year and incur a 4% excise tax on such taxable income, as required. The maximum amount of excess taxable income that may be carried over for distribution in the next taxable year under the Code is the total amount of distributions paid in the following taxable year, subject to certain declaration and payment guidelines. To the extent the Company chooses to carry over taxable income into the next taxable year, distributions declared and paid by the Company in a taxable year may differ from the Company’s taxable income for that taxable year as such distributions may include the distribution of current taxable year taxable income, the distribution of prior taxable year taxable income carried over into and distributed in the current taxable year or returns of capital.
For the three and six months ended June 30, 2023, the Company paid approximately $0.4 million and $5.2 million of income tax, including excise tax, and had $3.4 million of accrued, but unpaid tax expense as of June 30, 2023. For the three and six months ended June 30, 2022, the Company paid approximately $0.2 million and $7.3 million of income tax, including excise tax, and had $2.4 million of accrued, but unpaid tax expense as of June 30, 2022.
Additionally, the Company has taxable subsidiaries which hold certain portfolio investments in an effort to limit potential legal liability and/or comply with source-income type requirements contained in the RIC tax provisions of the Code. These taxable subsidiaries are consolidated for U.S. GAAP and the portfolio investments held by the taxable subsidiaries are included in the Company’s consolidated financial statements and are recorded at fair value. These taxable subsidiaries are not consolidated with the Company for income tax purposes and may generate income tax expense, or benefit, and tax assets and liabilities as a result of their ownership of certain portfolio investments. Any income generated by these taxable subsidiaries generally would be subject to tax at normal U.S. federal tax rates based on its taxable income.
In accordance with ASC 740, the Company evaluates tax positions taken in the course of preparing the Company’s tax returns to determine whether the tax positions are “more-likely-than-not” to be sustained by the applicable tax authority. Tax benefits of positions not deemed to meet the more-likely-than-not threshold, or uncertain tax positions, would be recorded as a tax expense in the current year. It is the Company’s policy to recognize accrued interest and penalties, if any, related to unrecognized tax benefits as a component of provision for income taxes. Based on an analysis of the Company’s tax position, there are no uncertain tax positions that met the recognition or measurement criteria. The Company is currently not undergoing any tax examinations. The Company does not anticipate any significant increase or decrease in unrecognized tax benefits for the next twelve months. The 2019 - 2021 federal tax years for the Company remain subject to examination by the Internal Revenue Service. The 2018 – 2021 state tax years for the Company remain subject to examination by the state taxing authorities.