Limbach Holdings, Inc.

Note 13 – Income Taxes

The Company is taxed as a C Corporation. The historical audited financial results and other Predecessor financial information included herein reflect the Predecessor results as a limited liability company, which was taxed as a partnership for federal income tax purposes and not at the entity level. Following the Business Combination, LHLLC was treated as a disregarded entity (i.e., a business entity that is separate from its owner for liability purposes but is the same as its owner for income tax purposes); therefore, the financial results include the effects of federal and state income taxes at the parent level.

The provision (benefit) for income taxes for the 2016 Successor period consists of the following:

	Successor
	July 20, 2016
	through
	December 31,
(in thousands)	2016
Current tax provision
U.S. Federal	$	-
State and local		17
Total current tax provision		17

Deferred tax benefit
U.S. Federal		(3,219)
State and local		(669)
Total deferred tax benefit		(3,888)
Provision (benefit) for income taxes	$	(3,871)

Prior to the Business Combination, the Company had a deferred tax asset of $2.4 million which was offset by an equivalent valuation allowance. The valuation allowance was recorded due to management’s assumptions and judgments regarding the recoverability of the deferred tax asset, based on the more likely than not criterion. After considering the Business Combination on July 20, 2016, the projected post-combination results and all available evidence, the Successor released $2.4 million of valuation allowance that was previously provided against the Company’s deferred tax assets. In accordance with ASC 805 740-30-3, the Company recorded this release as income tax benefit during the period from July 20, 2016 through December 31, 2016 (Successor). This resulted in $2.4 million of deferred income tax benefit. No valuation allowance was required as of December 31, 2016.

The components of deferred tax assets (liabilities) were as follows:

	Successor
	As of
	December 31,
(in thousands)	2016
Deferred tax assets:
Accrued expenses	$	340
Allowance for doubtful accounts		74
Intangibles		974
Goodwill		6,832
Startup costs		176
Deferred rent		84
Percentage of completion		38
Net operating losses		280
Total deferred tax assets		8,798

Deferred tax liabilities:
Fixed assets		(4,530)
Total deferred tax liabilities		(4,530)

Net deferred tax asset	$	4,268

The Company performed an analysis of its tax positions and determined that no material uncertain tax positions exist. Accordingly, there is no liability for uncertain tax positions as of December 31, 2016. Based on the provisions of ASC 740, the Company had no material unrecognized tax benefits as of December 31, 2016.

A reconciliation of the federal statutory income tax rate to the Company’s effective tax rate is as follows:

	Successor
	July 20, 2016
	through
	December 31,
	2016
Federal statutory income tax rate		34.0	%
State income taxes, net of federal tax effect		4.6	%
Change in valuation allowance		49.0	%
Permanent differences		-9.6	%
Other		-0.4	%
Effective tax rate		77.6	%