Income Taxes

9 Months Ended

Sep. 30, 2022

Income Taxes

Income Taxes

12. Income Taxes

For the three and nine months ended September 30, 2022, the Company recognized income tax expense of $182.4 million and $182.9 million, respectively. The income tax expense for the three and nine months ended September 30, 2022 was primarily attributed to the Company’s gain from the TRC Transaction, partially offset by the release of beginning of the year valuation allowance on US federal and state (excluding California) deferred tax assets. Of the $182.9 million tax expense, $62.3 million was a deferred tax expense related to the utilization of tax attributes that were previously offset by an unrecognized tax benefit.

The Company’s $62.7 million liability for unrecognized tax benefits can be relieved only if (i) the contingency becomes legally extinguished through either payment to the taxing authority or expiration of the statute of limitations; (ii) the recognition of the benefits associated with the position meets the more-likely-than-not threshold; or (iii) the liability becomes effectively settled through the examination process. The Company considers matters to be effectively settled once the taxing authority has completed all of its required or expected examination procedures, including all appeals and administrative reviews. The Company also accrues for potential interest and penalties related to unrecognized tax benefits in its income tax expense (benefit) calculation.

As of September 30, 2022, the amount of uncertain tax benefit, that if realized would affect the effective tax rate, was $62.7 million and was primarily due to the gain from the TRC Transaction.

No provision for income taxes has been recognized on undistributed earnings of the Company’s foreign subsidiaries as the Company considers such earnings to be indefinitely reinvested.

The Company follows the accounting guidance related to accounting for income taxes which requires that a company reduces its deferred tax assets by a valuation allowance if, based on the weight of available evidence, it is more likely than not that some portion or all of its deferred tax assets will not be realized. During the three months ended September 30, 2022, the Company concluded that the valuation allowance related to its US federal and state deferred tax (excluding California) assets was no longer needed primarily due to the current year gain and forecasted future taxable income from the TRC Transaction. Accordingly, the Company has recognized a non-recurring tax benefit of $61.9 million related to the valuation allowance reversal.

As of September 30, 2022, the Company continued to maintain a full valuation allowance on its foreign and California deferred tax assets.

The Company records liabilities related to uncertain tax positions in accordance with the income tax guidance which clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements by prescribing a minimum recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. Resolution of one or more of these uncertain tax positions in any period may have a material impact on the results of operations for that period. The Company includes any applicable interest and penalties within the provision for income taxes in the condensed consolidated statements of operations.

The Company was recently under Internal Revenue Service (“IRS”) examination for the tax year ended December 31, 2018. On July 21, 2022, the IRS informed the Company that the examination was completed and no adjustments to its 2018 tax return were necessary.

The Company’s future income tax expense may be affected by such factors as changes in tax laws, its business, regulations, tax rates, interpretation of existing laws or regulations, the impact of accounting for share-based compensation, the impact of accounting for business combinations and other transactions, its international organization, shifts in the amount of income before tax earned in the US as compared with other regions in the world, and changes in overall levels of income before tax.