Income Tax

12 Months Ended

Dec. 31, 2022

Income Tax Disclosure [Abstract]

Income Tax

Note 9. INCOME TAX

The Company holds an economic interest in MSP Recovery, LLC and consolidates its financial position and results. The remaining ownership of MSP Recovery, LLC not held by the Company is considered a noncontrolling interest. MSP Recovery, LLC is treated as a partnership for income tax reporting and its members, including the Company, are liable for federal, state, and local income taxes based on their share of the LLC’s taxable income.

There was no provision for income tax for the years ended December 31, 2022, 2021, and 2020.

A reconciliation of the United States statutory income tax rate to the Company’s effective tax rate for the year ended December 31, 2022, 2021, and 2020 is as follows for the years indicated:

	December 31, 2022			December 31, 2021			December 31, 2020
Federal Statutory rate		21.00	%		21	%		21	%
Noncontrolling interests/effect of pass-through entities		-20.70	%		-21	%		-21	%
Valuation allowance		-0.40	%		0	%		0	%
Other		0.10	%		0	%		0	%
Effective Income tax rate		0.00	%		0	%		0	%

Details of the Company’s deferred tax assets and liabilities at December 31, 2022 and 2021 are as follows for the years indicated:

	December 31, 2022		December 31, 2021
Deferred tax assets
Net operating loss carryforward	$	423		53
Investment in MSP Recovery, LLC		38,263		-
Start-up Costs		917		804
Transaction Costs		3,224		-
Total deferred tax assets		42,827		857
Valuation Allowance		-42,827		-857
Total Deferred tax assets (liability)	$	-		-

The Company has a deferred tax asset for the difference between the financial reporting and the tax basis of its investment in MSP Recovery, LLC. The deferred tax asset above does not consider the iterative impact of the TRA liability as the entire liability has not been recorded as of December 31, 2022.

As of December 31, 2022 and 2021, the Company had $3,854,829 and $446,481 of U.S. gross federal and state net operating loss carryovers available to offset future taxable income, respectively.

In assessing the realization of the deferred tax assets, management considers whether it is more likely than not that some portion of all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which temporary differences representing net future deductible amounts become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. After consideration of all of the information available, management believes that significant uncertainty exists with respect to future realization of the deferred tax assets and has therefore established a full valuation allowance.

As of December 31, 2022 and 2021, the Company has not recorded any unrecognized tax benefits. The Company files income tax returns in the U.S. federal jurisdiction and Florida which remain open and subject to examination by the various taxing authorities. As of December 31, 2022, the Company’s federal and state and local income tax years 2019 through 2022 remain open and are subject to examination.