INCOME TAXES

12 Months Ended

Dec. 31, 2022

Income Tax Disclosure [Abstract]

INCOME TAXES

INCOME TAXES

We had no income tax expense (benefit) for the years ended December 31, 2022, 2021 and 2020:

	2022		2021		2020
	(dollars in millions)
Current:
Federal	$	—	$	—	$	—
State	—		—		—
Total current	—		—		—
Deferred:
Federal	—		—		—
State	—		—		—
Total deferred	—		—		—
Total income tax expense (benefit)	$	—	$	—	$	—

The income tax expense (benefit) differed from the amounts computed by applying the statutory U.S. federal income tax rate of 21% in 2022, 2021 and 2020 to pretax income as a result of the following:

	2022				2021				2020
	(dollars in millions)
Loss before income taxes	$	(297.7)			$	(521.1)			$	(363.0)
Statutory U.S. federal income tax benefit	(62.5)		21.0	%	(109.4)		21.0	%	(76.2)		21.0	%
Valuation allowance on deferred tax assets	65.8		(22.1)		116.7		(22.4)		61.5		(16.9)
Warrants fair value adjustment	—		—		—		—		11.5		(3.2)
Share-based compensation	4.9		(1.6)		(3.3)		0.6		5.0		(1.4)
Nondeductible compensation	1.3		(0.4)		1.8		(0.3)		—		—
Return to provision permanent adjustments	(3.5)		1.2		(0.5)		0.1		—		—
State net operating loss	(7.1)		2.4		(4.9)		0.9		(3.1)		0.9
Other	1.1		(0.5)		(0.4)		0.1		1.3		(0.4)
Income tax expense (benefit)	$	—	—	%	$	—	—	%	$	—	—	%

The following table sets forth the tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 2022 and 2021:

	2022		2021
	(dollars in millions)
Deferred tax assets:
Unpaid losses and loss adjustment expenses	$	1.9	$	2.5
Unearned premium reserves	2.7		3.8
Nondeductible accruals	0.4		0.5
Deferred rent	1.5		2.0
Research and development credits	0.9		0.9
Disallowed interest carryforward	16.5		9.6
Bad debt expense	0.7		1.2
Excess ceding commission	2.8		2.2
Deferred compensation	6.1		2.5
Stock and warrant compensation	9.5		5.4
Unrealized losses	1.4		—
Other	0.1		2.6
State net operating loss carryforward	17.4		10.2
Net operating loss carryforward	266.4		217.4
Gross deferred assets	328.3		260.8
Less valuation allowance	(322.3)		(255.0)
Total deferred tax assets, less valuation allowance	6.0		5.8
Deferred tax liabilities:
Internally developed software	2.0		2.7
Fixed assets	1.3		2.2
Deferred acquisition costs	1.5		0.6
Unrealized gains	—		0.1
Other	1.2		0.2
Deferred tax liabilities	6.0		5.8
Net deferred tax asset	$	—	$	—

The above amounts were calculated in accordance with ASC 740, Income Taxes. The application of ASC 740 requires a company to evaluate the recoverability of deferred tax assets and to establish a valuation allowance if necessary to reduce the carrying value of the deferred tax asset to an amount which is more likely than not to be realized. Considerable judgment is required in determining whether a valuation allowance is necessary, and if so, the amount of such valuation allowance. In evaluating the need for a valuation allowance we include many factors, including: (1) the nature of the deferred tax assets and liabilities; (2) whether they are ordinary or capital; (3) the timing of expected reversal; (4) taxable income in prior carry back years as well as projected taxable earnings exclusive of reversing temporary differences and carry forwards; (5) the length of time that carryovers can be used; (6) unique tax rules that would impact the utilization of the deferred tax assets; and (7) any tax planning strategies that we would employ to avoid a tax benefit expiring unused. Although lack of realization is not assured, we believe it is more likely than not that the deferred tax assets will not be realized. As such, a valuation allowance of $322.3 million has been established.

We have experienced an ownership change under Section 382 of the Internal Revenue Code, or the Code. Accordingly, use of a portion of our net operating losses, or NOLs, and tax credit carryforwards are subject to an annual limitation under Section 382 of the Code. We do not expect any of our deferred tax assets related to our NOLs or tax credit carryforwards to expire unutilized as a result of this limitation.

The following table sets forth carryforwards related to NOLs and tax credits:

	Carryforward with Expiration		Carryforward Indefinitely		Total		Years of Expiration
	(dollars in millions)
Federal	$	640.7	$	628.2	$	1,268.9	2035 - 2042
State (gross, apportioned)	238.4		55.7		294.1		2024 - 2042
Research and development credits	0.9		—		0.9		2036 - 2038
Total	$	880.0	$	683.9	$	1,563.9

We file a consolidated federal income tax return and certain state income tax returns. Tax years 2019 and forward are still subject to U.S. federal examinations. The federal statute of limitations is generally three years. Currently all state income and franchise tax returns are within each taxing authorities statute of limitations and are subject to examination.