Income Taxes

9 Months Ended

Sep. 30, 2021

Income Taxes

Income Taxes

10. Income Taxes

The “Provision for income taxes” in the accompanying Condensed Consolidated Statements of Income (Loss) is based on an estimate of the Company’s annualized effective income tax rate, except for the loss on settlement of the pre-existing master franchise contracts of $40.5 million (as discussed in Note 5, Acquisitions), which was evaluated discretely. This loss has no tax provision under GAAP; hence, the year-to-date tax provision is an expense (as opposed to a benefit) for the nine months ended September 30, 2021, even though the Company has a pre-tax year-to-date loss.

Uncertain Tax Positions

The company has recognized uncertain tax position liabilities and related tax expense for certain foreign tax matters, along with a receivable for amounts of such foreign taxes expected to be creditable in the U.S. Based upon the settlement of certain of these matters, the Company adjusted its liability to reflect the amounts ultimately paid during the three months ended June 30, 2021. This resulted in a reduction to income tax expense of $1.4 million (including interest and penalties) in the Condensed Consolidated Statements of Income (Loss) for the three months ended June 30, 2021.

During the three months ended September 30, 2021 and in connection with the INTEGRA acquisition, the Company assumed an uncertain tax position related to certain U.S. tax matters and also recorded a largely offsetting related indemnification asset. See Note 5 for further details.

While the Company believes the liabilities recognized for uncertain tax positions are adequate to cover reasonable expected tax risks, there can be no assurance that an issue raised by a tax authority will be resolved at a cost that does not exceed the liability recognized.

Uncertain tax position liabilities represent the aggregate tax effect of differences between the tax return positions and the amounts otherwise recognized in the consolidated financial statements and are recognized in “Income taxes payable” in the Condensed Consolidated Balance Sheets. Interest and penalties are accrued on the uncertain tax positions and included in the “Provision for income taxes” in the accompanying Consolidated Statements of Income.

A reconciliation of the beginning and ending amount, excluding interest and penalties is as follows:

	As of September 30,
	2021		2020
Balance, January 1	$	5,300	$	4,810
Increases related to prior period tax positions		96		338
Decrease related to prior year tax positions		(815)		—
Increase related to tax positions from acquired companies		1,587		—
Settlements		(3,776)		—
Foreign currency transaction gains/losses		351		—
Balance, September 30	$	2,743	$	5,148

Of the Company’s remaining uncertain tax positions, $1.9 million have a reasonable possibility of being settled within the next 12 months.