Income Taxes	6 Months Ended
Jun. 30, 2020
Income Tax Disclosure [Abstract]
Income Taxes	14. Income Taxes The Company's sole material asset is Purple LLC, which is treated as a partnership for U.S. federal income tax purposes and for purposes of certain state and local income taxes. Purple LLC's net taxable income and any related tax credits are passed through to its members and are included in the members' tax returns, even though such net taxable income or tax credits may not have actually been distributed. While the Company consolidates Purple LLC for financial reporting purposes, the Company will be taxed on its share of earnings of Purple LLC not attributed to the noncontrolling interest holders, which will continue to bear their share of income tax on its allocable earnings of Purple LLC. The income tax burden on the earnings taxed to the noncontrolling interest holders is not reported by the Company in its consolidated financial statements under GAAP. As a result, the Company's effective tax rate differs materially from the statutory rate. The primary factors impacting the expected tax are the allocation of tax benefit to noncontrolling interest and the impact of the valuation allowance. In prior periods the Company had maintained a full valuation allowance on its net deferred tax assets which are comprised primarily of basis differences in Purple LLC. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income sufficient to utilize the deferred tax assets on income tax returns. In prior periods, management had determined that its net deferred tax assets were not more likely than not going to be realized due to existence of critical negative evidence that the Company was in a three-year cumulative loss position. Considering this and other factors, a valuation allowance of $44.3 million was maintained through the period ending March 31, 2020. For the period ended June 30, 2020, and in assessing the realizability of deferred tax assets, management determined that it is now more likely than not that its net deferred tax assets will be realized and that a full valuation allowance for its deferred tax assets is no longer appropriate. As of the period ended June 30, 2020, the Company is no longer in a three-year cumulative loss position. As a result of the removal of this negative evidence and other items of positive evidence, the Company has determined that the deferred tax assets are now more likely than not to be realized. Accordingly, $32.8 million of the valuation allowance associated with the Company's federal and state deferred tax assets was released and recorded as an income tax benefit during the period ended June 30, 2020. An additional $2.7 million of remaining valuation allowance will be released in subsequent quarters as taxes are recorded. In addition, and in conjunction with the removal of the valuation allowance, the Company recorded an additional $59.0 million in deferred tax assets primarily related to tax basis increases resulting from exchanges of Class B Paired Securities during the six months ended June 30, 2020. The deferred tax assets at June 30, 2020 are $112.1 million with $11.5 million of remaining valuation allowance recorded against the deferred tax assets, which will be released in subsequent quarters. $8.8 million of valuation allowance has been recorded against the residual outside partnership basis for the amount the Company believes is not more likely than not realizable. The Company currently estimates its annual effective income tax rate to be 0.4%. The annualized effective tax rate for the Company differs from the federal rate of 21% primarily due to (1) the release of a portion of the valuation allowance through the current year's annual effective tax rate calculation, and (2) NCI in Purple LLC that is allocated to InnoHold and others. The effective tax rate as of June 30, 2020, is (166)% primarily due to the tax benefit from the release of the valuation allowance. For the three months and six months ended June 30, 2020, the Company has recorded an income tax benefit of $35.4 million and $35.7 million, respectively. In response to the COVID-19 pandemic, the Coronavirus Aid, Relief and Economic Security Act (CARES Act) was signed into law in March 2020. The CARES Act lifts certain deduction limitations originally imposed by the Tax Cuts and Jobs Act of 2017 (2017 Tax Act). Corporate taxpayers may carryback net operating losses (NOLs) originating during 2018 through 2020 for up to five years, which was not previously allowed under the 2017 Tax Act. The CARES Act also eliminates the 80% of taxable income limitations by allowing corporate entities to fully utilize NOL carryforwards to offset taxable income in 2018, 2019 or 2020. Taxpayers may generally deduct interest up to the sum of 50% of adjusted taxable income plus business interest income (30% limit under the 2017 Tax Act) for tax years beginning January 1, 2019 and 2020. The CARES Act allows taxpayers with alternative minimum tax credits to claim a refund in 2020 for the entire amount of the credits instead of recovering the credits through refunds over a period of years, as originally enacted by the 2017 Tax Act. In addition, the CARES Act raises the corporate charitable deduction limit to 25% of taxable income and makes qualified improvement property generally eligible for 15-year cost-recovery and 100% bonus depreciation. The enactment of the CARES Act resulted in two adjustments to our income tax provision for the six months ended June 30, 2020, relating to increased 2019 NOL utilization and tax benefits from NOL carrybacks. We have recorded a discrete benefit of $0.5 million in our income tax provision for the six months ended June 30, 2020 related to the CARES Act. In connection with the Business Combination, the Company entered into the TRA with InnoHold, which provides for the payment by the Company to InnoHold of 80% of the net cash savings, if any, in U.S. federal, state and local income tax that the Company actually realizes (or is deemed to realize in certain circumstances) in periods after the Closing as a result of (i) any tax basis increases in the assets of Purple LLC resulting from the distribution to InnoHold of the cash consideration, (ii) the tax basis increases in the assets of Purple LLC resulting from the redemption by Purple LLC or the exchange by the Company, as applicable, of Class B Paired Securities or cash, as applicable, and (iii) imputed interest deemed to be paid by the Company as a result of, and additional tax basis arising from, payments it makes under the TRA. As noncontrolling interest holders exercise their right to exchange or cause Purple LLC to redeem all or a portion of their Class B Units, a TRA Liability is recorded based on 80% of the estimated future cash tax savings that the Company may realize as a result of increases in the basis of the assets of Purple LLC attributed to the Company as a result of such exchange or redemption. The amount of the increase in asset basis, the related estimated cash tax savings and the attendant TRA Liability to be recorded will depend on the price of the Company's Class A Stock at the time of the relevant redemption or exchange. The estimation of liability under the TRA is by its nature imprecise and subject to significant assumptions regarding the amount and timing of future taxable income. As a result of the initial merger transaction and 26.6 million to date exchanges of Class B Units for Class A Stock, the potential future TRA liability is $81.5 million, of which $78.7 million has been recorded through the second quarter of 2020. Due to the release of the Company's valuation allowance on the deferred tax assets to which the Tax Receivable Agreement liability relates, only $78.7 of the $81.5 million has been recorded to date ($0.5 million in 2019 and an incremental $78.2 million through June 30, 2020). Of the total liability recorded during 2020, $45.3 million relates to current year exchanges and was recorded as an adjustment to equity and $32.9 was recorded to expense in order to reestablish the TRA related to prior year exchanges. The additional $2.8 million is expected to be recorded in the third and fourth quarters of the year ending December 31, 2020. The effects of uncertain tax positions are recognized in the consolidated financial statements if these positions meet a "more-likely-than-not" threshold. For those uncertain tax positions that are recognized in the consolidated financial statements, liabilities are established to reflect the portion of those positions it cannot conclude "more-likely-than-not" to be realized upon ultimate settlement. The Company's policy is to recognize interest and penalties related to unrecognized tax benefits on the income tax expense line in the accompanying consolidated statement of operations. Accrued interest and penalties would be included on the related tax liability line in the consolidated balance sheet. As of June 30, 2020, no uncertain tax positions were recognized as liabilities in the condensed consolidated financial statements.

Income Taxes

6 Months Ended

Jun. 30, 2020

14. Income Taxes

The Company's sole material asset is Purple LLC, which is treated as a partnership for U.S. federal income tax purposes and for purposes of certain state and local income taxes. Purple LLC's net taxable income and any related tax credits are passed through to its members and are included in the members' tax returns, even though such net taxable income or tax credits may not have actually been distributed. While the Company consolidates Purple LLC for financial reporting purposes, the Company will be taxed on its share of earnings of Purple LLC not attributed to the noncontrolling interest holders, which will continue to bear their share of income tax on its allocable earnings of Purple LLC. The income tax burden on the earnings taxed to the noncontrolling interest holders is not reported by the Company in its consolidated financial statements under GAAP. As a result, the Company's effective tax rate differs materially from the statutory rate. The primary factors impacting the expected tax are the allocation of tax benefit to noncontrolling interest and the impact of the valuation allowance.

In prior periods the Company had maintained a full valuation allowance on its net deferred tax assets which are comprised primarily of basis differences in Purple LLC. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income sufficient to utilize the deferred tax assets on income tax returns. In prior periods, management had determined that its net deferred tax assets were not more likely than not going to be realized due to existence of critical negative evidence that the Company was in a three-year cumulative loss position. Considering this and other factors, a valuation allowance of $44.3 million was maintained through the period ending March 31, 2020.

For the period ended June 30, 2020, and in assessing the realizability of deferred tax assets, management determined that it is now more likely than not that its net deferred tax assets will be realized and that a full valuation allowance for its deferred tax assets is no longer appropriate. As of the period ended June 30, 2020, the Company is no longer in a three-year cumulative loss position. As a result of the removal of this negative evidence and other items of positive evidence, the Company has determined that the deferred tax assets are now more likely than not to be realized. Accordingly, $32.8 million of the valuation allowance associated with the Company's federal and state deferred tax assets was released and recorded as an income tax benefit during the period ended June 30, 2020. An additional $2.7 million of remaining valuation allowance will be released in subsequent quarters as taxes are recorded. In addition, and in conjunction with the removal of the valuation allowance, the Company recorded an additional $59.0 million in deferred tax assets primarily related to tax basis increases resulting from exchanges of Class B Paired Securities during the six months ended June 30, 2020. The deferred tax assets at June 30, 2020 are $112.1 million with $11.5 million of remaining valuation allowance recorded against the deferred tax assets, which will be released in subsequent quarters. $8.8 million of valuation allowance has been recorded against the residual outside partnership basis for the amount the Company believes is not more likely than not realizable.

The Company currently estimates its annual effective income tax rate to be 0.4%. The annualized effective tax rate for the Company differs from the federal rate of 21% primarily due to (1) the release of a portion of the valuation allowance through the current year's annual effective tax rate calculation, and (2) NCI in Purple LLC that is allocated to InnoHold and others.

The effective tax rate as of June 30, 2020, is (166)% primarily due to the tax benefit from the release of the valuation allowance. For the three months and six months ended June 30, 2020, the Company has recorded an income tax benefit of $35.4 million and $35.7 million, respectively.

In response to the COVID-19 pandemic, the Coronavirus Aid, Relief and Economic Security Act (CARES Act) was signed into law in March 2020. The CARES Act lifts certain deduction limitations originally imposed by the Tax Cuts and Jobs Act of 2017 (2017 Tax Act). Corporate taxpayers may carryback net operating losses (NOLs) originating during 2018 through 2020 for up to five years, which was not previously allowed under the 2017 Tax Act. The CARES Act also eliminates the 80% of taxable income limitations by allowing corporate entities to fully utilize NOL carryforwards to offset taxable income in 2018, 2019 or 2020. Taxpayers may generally deduct interest up to the sum of 50% of adjusted taxable income plus business interest income (30% limit under the 2017 Tax Act) for tax years beginning January 1, 2019 and 2020. The CARES Act allows taxpayers with alternative minimum tax credits to claim a refund in 2020 for the entire amount of the credits instead of recovering the credits through refunds over a period of years, as originally enacted by the 2017 Tax Act.

In addition, the CARES Act raises the corporate charitable deduction limit to 25% of taxable income and makes qualified improvement property generally eligible for 15-year cost-recovery and 100% bonus depreciation. The enactment of the CARES Act resulted in two adjustments to our income tax provision for the six months ended June 30, 2020, relating to increased 2019 NOL utilization and tax benefits from NOL carrybacks. We have recorded a discrete benefit of $0.5 million in our income tax provision for the six months ended June 30, 2020 related to the CARES Act.

In connection with the Business Combination, the Company entered into the TRA with InnoHold, which provides for the payment by the Company to InnoHold of 80% of the net cash savings, if any, in U.S. federal, state and local income tax that the Company actually realizes (or is deemed to realize in certain circumstances) in periods after the Closing as a result of (i) any tax basis increases in the assets of Purple LLC resulting from the distribution to InnoHold of the cash consideration, (ii) the tax basis increases in the assets of Purple LLC resulting from the redemption by Purple LLC or the exchange by the Company, as applicable, of Class B Paired Securities or cash, as applicable, and (iii) imputed interest deemed to be paid by the Company as a result of, and additional tax basis arising from, payments it makes under the TRA.

As noncontrolling interest holders exercise their right to exchange or cause Purple LLC to redeem all or a portion of their Class B Units, a TRA Liability is recorded based on 80% of the estimated future cash tax savings that the Company may realize as a result of increases in the basis of the assets of Purple LLC attributed to the Company as a result of such exchange or redemption. The amount of the increase in asset basis, the related estimated cash tax savings and the attendant TRA Liability to be recorded will depend on the price of the Company's Class A Stock at the time of the relevant redemption or exchange.

The estimation of liability under the TRA is by its nature imprecise and subject to significant assumptions regarding the amount and timing of future taxable income. As a result of the initial merger transaction and 26.6 million to date exchanges of Class B Units for Class A Stock, the potential future TRA liability is $81.5 million, of which $78.7 million has been recorded through the second quarter of 2020. Due to the release of the Company's valuation allowance on the deferred tax assets to which the Tax Receivable Agreement liability relates, only $78.7 of the $81.5 million has been recorded to date ($0.5 million in 2019 and an incremental $78.2 million through June 30, 2020). Of the total liability recorded during 2020, $45.3 million relates to current year exchanges and was recorded as an adjustment to equity and $32.9 was recorded to expense in order to reestablish the TRA related to prior year exchanges. The additional $2.8 million is expected to be recorded in the third and fourth quarters of the year ending December 31, 2020.

The effects of uncertain tax positions are recognized in the consolidated financial statements if these positions meet a "more-likely-than-not" threshold. For those uncertain tax positions that are recognized in the consolidated financial statements, liabilities are established to reflect the portion of those positions it cannot conclude "more-likely-than-not" to be realized upon ultimate settlement. The Company's policy is to recognize interest and penalties related to unrecognized tax benefits on the income tax expense line in the accompanying consolidated statement of operations. Accrued interest and penalties would be included on the related tax liability line in the consolidated balance sheet. As of June 30, 2020, no uncertain tax positions were recognized as liabilities in the condensed consolidated financial statements.

- Definition

The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.

+ References + Details