Income Taxes

9 Months Ended

Sep. 30, 2023

Income Taxes

Income Taxes

9. 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 (“EITR”), except for the valuation allowance on its U.S. net deferred tax assets of $59.2 million, as discussed below, the impact of the $55.0 million settlement of the Nationwide Claims (see Note 11, Commitments and Contingencies) and the net impact of the reduction in force and reorganization charges incurred during 2023 and the restructuring charges incurred during 2022, which were evaluated discretely.

Valuation Allowance

During the third quarter of 2023, the Company evaluated the need for a valuation allowance against its deferred tax assets and determined that in accordance with ASC 740 Income Taxes (“ASC 740”), the objective negative evidence of a three-year cumulative pre-tax net loss, primarily due to the settlement of the Nationwide Claims, prevented the use of the Company’s subjective positive evidence of expected future profitability in evaluating the realizability of its net deferred tax assets. As a result, during the third quarter of 2023, the Company recorded a $59.2 million valuation allowance against its U.S. net deferred tax assets.

Tax Receivable Agreements (“TRAs”)

As of September 30, 2023 and December 31, 2022, the Company’s total liability under the TRAs was $1.6 million and $26.6 million, respectively, which includes both short-term and long-term components. In relation to the deferred tax asset valuation allowance described above, the Company also remeasured the liability under the TRAs as of September 30, 2023 and recorded a $24.9 million gain on reduction in TRA liability, during the third quarter of 2023.

Uncertain Tax Positions

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 Condensed Consolidated Statements of Income (Loss).

While the Company believes the liabilities recognized for uncertain tax positions are adequate to cover reasonably 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.

A reconciliation of the beginning and ending uncertain tax position amounts, excluding interest and penalties is as follows:

	As of September 30,
	2023		2022
Balance, January 1	$	1,014	$	1,587
Decrease related to prior year tax positions		(756)		—
Increase related to tax positions from acquired companies		—		309
Balance, September 30	$	258	$	1,896

A portion of the Company’s uncertain tax positions have a reasonable possibility of being settled within the next 12 months.