INCOME TAXES

12 Months Ended

Dec. 31, 2022

Income Tax Disclosure [Abstract]

INCOME TAXES

NOTE 9: INCOME TAXES

The components of income (loss) before income taxes were as follows:

	Year Ended December 31,
(in millions)	2020		2021		2022
Domestic	$	14	$	(3,687)	$	(1,028)
Foreign	(1)		2		1
Income (loss) before income taxes	$	13	$	(3,685)	$	(1,027)

The components of the provision for (benefit from) income taxes were as follows:

	Year Ended December 31,
(in millions)	2020		2021		2022
Current:
Federal	$	3	$	—	$	—
State	4		5		1
Foreign	—		—		—
Total current tax expense (benefit)	7		5		1
Deferred:
Federal	—		(1)		—
State	—		(2)		—
Foreign	(1)		—		—
Total deferred tax expense (benefit)	(1)		(3)		—
Total provision for (benefit from) income taxes	$	6	$	2	$	1

The reconciliation of statutory federal income tax rate and our effective income tax rate was as follows (in percentages):

	Year Ended December 31,
	2020		2021		2022
Federal tax benefit at statutory rate	21.0	%	21.0	%	21.0	%
State tax benefit, net of federal benefit	(6.2)	%	3.6	%	1.8	%
Foreign rate differential	—	%	—	%	—	%
Share-based compensation	(19.2)	%	(0.5)	%	(12.3)	%
Tender offer compensation	26.1	%	—	%	—	%
Research and development credits	(75.8)	%	1.3	%	3.6	%
Non-deductible regulatory settlements	—	%	(11.7)	%	(0.3)	%
Non-deductible change in convertible notes and warrant	151.8	%	(0.3)	%	—	%
Permanent differences	3.8	%	—	%	(0.1)	%
Other	0.4	%	—	%	0.1	%
Change in valuation allowance	(55.8)	%	(13.5)	%	(13.9)	%
Total provision for (benefit from) income taxes	46.1	%	(0.1)	%	(0.1)	%

Significant components of our deferred tax assets and liabilities consisted of the following:

	Year Ended December 31,
	2021		2022
Deferred tax assets:
User cryptocurrencies safeguarding obligation	$	—	$	2,167
Net operating loss carryforwards	251		266
Tax credit carryforwards	81		134
Share-based compensation	135		85
Research and Experimentation expenditure amortization	—		83
Lease liability	40		38
Accruals and other liabilities	24		21
Other	22		15
Total deferred tax assets	$	553	$	2,809
Deferred tax liabilities:
Asset related to user cryptocurrencies safeguarding obligation	$	—	$	(2,167)
Right of use assets	(34)		(24)
Depreciation and amortization	(23)		(10)
Total deferred tax liabilities	(57)		(2,201)
Valuation Allowance	(495)		(607)
Net deferred tax assets	$	1	$	1

The reconciliation of the beginning and ending amount of the deferred tax asset valuation allowance was as follows:

	Year ended December 31,
(in millions)	2020		2021		2022
Balance at beginning of period	$	35	$	27	$	495
Charged/(credited) to net income	(8)		471		112
Charges utilized/(write-offs)	—		(3)		—
Balance at end of period	$	27	$	495	$	607

The realization of tax benefits of net deferred assets is dependent upon future levels of taxable income, of an appropriate character, in the periods the items are expected to be deductible or taxable. Based on all available evidence for the year ending December 31, 2022, we believe it is more likely than not that the tax benefits of the remaining U.S. federal, state, and certain foreign net deferred tax assets may not be realized, and accordingly, the net deferred tax assets have been fully offset by a valuation allowance. The valuation allowance increased by approximately $112 million for the year ended December 31, 2022.

As of December 31, 2022, we have $1,012 million of U.S. federal, $836 million of state, and $4 million of non-U.S. net operating loss carryforwards available to reduce future taxable income. Of the U.S. federal net operating loss carryforwards, $1 million will begin to expire in 2037 and the $1,011 million will carryforward indefinitely. Our state net operating losses begin to expire in 2023, while our non-U.S. net operating losses do not expire. We have U.S. federal tax credit carryforwards of $125 million that will begin to expire in 2039, if not utilized, and state tax credit carryforwards of $78 million that will begin to expire in 2026.

Utilization of the net operating loss and credit carryforwards may be subject to a substantial annual limitation due to the ownership change limitations provided by the Internal Revenue Code of 1986, as amended, and similar state provisions. The annual limitation may result in the expiration of net operating losses and tax credits before utilization.

We had unrecognized tax benefits of approximately $46 million and $58 million as of December 31, 2021 and 2022. These unrecognized tax benefits, if recognized, would not affect the effective tax rate. We record interest and penalties related to unrecognized tax benefits in income tax expenses. There were no interest or penalties accrued during the years ended December 31, 2021 and 2022.

The reconciliation of the beginning and ending amount of unrecognized tax benefits were as follows (in millions):

	Year Ended December 31,
	2021		2022
Unrecognized benefit - beginning of period	$	7	$	46
Gross increases - current year tax positions	38		16
Gross increases - prior year tax positions	1		—
Gross decrease - prior year tax positions	—		(4)
Unrecognized benefit - end of period	$	46	$	58

We file in U.S. federal, various state, and foreign jurisdictions. The tax years from 2013 remain open to examination by the U.S. federal and state authorities, due to carryover of unused net operating losses and tax credits. The tax years from 2019 remain open for the most significant foreign jurisdiction.