Accrued expenses and other current liabilities

12 Months Ended

Dec. 31, 2022

Accrued expenses and other current liabilities

9. Accrued expenses and other current liabilities

Accrued expenses and other current liabilities consist of the following (in thousands):


	December 31,		December 31,
	2022		2021
Accrued expenses	$	8,494	$	7,326
Indirect tax reserves	6,627		18,392
Indirect tax payables	9,137		10,786
Deferred rent, current	—		803
Other current liabilities	6,989		2,833
Accrued expenses and other current liabilities	$	31,247	$	40,140

Indirect tax payables relate to amounts collected from customers on behalf of third-party taxing authorities, primarily on sales in the U.S. and in international jurisdictions. Indirect tax payables also include withholding taxes on payments made to the Company’s instructors before remitting these amounts to the taxing authorities.

As of December 31, 2022, indirect tax reserves consist of the residual interest payable on the Company’s instructor withholding tax reserves and other indirect tax reserves.

Instructor withholding tax reserves— The Company conducts operations in many tax jurisdictions throughout the United States and the rest of the world. The Company has an obligation to comply with information reporting and tax withholding requirements with regards to certain payments made to its U.S. and non-U.S. instructors. Under United States federal tax rules, in the case where the Company withholds less than the correct amount of tax or fails to report it, it is liable for the correct amount that it was required to withhold, plus interest and potential penalties. The Company may be entitled to relief on certain payments if the Company can obtain documentation (e.g. taxpayer identification forms) from instructors establishing that the instructor payee qualifies for reduced withholding tax rates, or that the instructor payee reported the payments and paid the corresponding taxes owed.

Prior to March 2020, the Company had not obtained appropriate taxpayer identification forms from instructors, nor remitted applicable tax withholding amounts to the U.S. Internal Revenue Service (“IRS”) where required. In accordance with GAAP, the Company recorded a provision for its tax exposure when it was both probable that a liability had been incurred and the amount of the exposure could be reasonably estimated. Given the significant quantity of instructor payments that the Company makes in its operations, the Company had applied a statistical sampling approach that is analogous to methods commonly used by the IRS during IRS audits when determining the extent of withholding tax obligations for the historical instructor payments.

Beginning in March 2020, the Company began collecting appropriate taxpayer identification forms from its instructors, assessing whether the forms justified a reduced rate of withholding or withholding exemption, and remitting withholding tax payments to the IRS where required. The Company also began reporting payments to its non-U.S. instructors and the IRS annually where required to do so.

In 2020, the Company approached the IRS to address the historical tax withholding amounts for instructors and engaged in a voluntary disclosure program. As of December 31, 2022, the Company has filed all outstanding withholding tax returns and has paid the associated tax obligation to the IRS. The estimated interest associated with the reserve is still outstanding.

Changes in the estimated amount the Company has determined it will owe are recorded in general and administrative expenses in the accompanying consolidated statements of operations. Estimated interest is recorded in interest income (expense), net in the accompanying consolidated statement of operations.

Changes to the instructor withholding tax reserve are as follows (in thousands):


	Fiscal Year Ended December 31,
	2022		2021		2020
Balance, beginning of period	$	17,036	$	22,166	$	20,926
Amounts charged to (released from) expense	(781)		(5,130)		2,826
Net payments and settlements	(13,727)		—		(1,586)
Balance, end of period	$	2,528	$	17,036	$	22,166