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INCOME TAXES
 12 Months Ended
Dec. 31, 2022
Income Tax Disclosure [Abstract]  
INCOME TAXES
10. INCOME TAXES
The Company’s income tax provision and related income tax assets and liabilities are based on, among other things, an estimate of the impact of the exchanges of Common Units for Class A Shares, inclusive of an analysis of tax basis and state tax implications of the Blue Owl Operating Group and their underlying assets and liabilities. The Company’s estimate is based on the most recent information available and cannot be finally determined until the Company’s 2022 tax returns have been filed. The tax basis and state impact of the Blue Owl Operating Group and their underlying assets and liabilities are based on estimates subject to finalization of the Company’s tax returns.
The Blue Owl Operating Partnerships, and prior to the Business Combination, Owl Rock, are partnerships for U.S. federal income tax purposes subject to New York City UBT. Effective upon the consummation of the Business Combination, generally all of the income the Registrant earns will be subject to corporate-level income taxes in the United States. Further, the amount of income taxes recorded prior to the Business Combination are not representative of the expenses expected in the future. Substantially all of the Company’s income before tax is earned in the United States.
The following table presents the components of the Company’s income tax expense (benefit):
(dollars in thousands)Year Ended December 31,
202220212020
Current Income Tax Expense (Benefit)
U.S. federal$— $— $— 
State and local13,714 716 359 
Foreign853 211 14 
14,567 927 373 
Deferred Income Tax Expense (Benefit)
U.S. federal(2,644)(43,905)— 
State and local(20,794)(22,232)(475)
Foreign(509)(1)— 
(23,947)(66,138)(475)
Total Income Tax Expense (Benefit)
U.S. federal(2,644)(43,905)— 
State and local(7,080)(21,516)(116)
Foreign344 210 14 
$(9,380)$(65,211)$(102)
The following table sets forth the reconciliation of the Company’s effective rate to the statutory rate:
Year Ended December 31,
202220212020
Statutory rate(1)
21.00 %21.00 %4.00 %
Income passed through to noncontrolling interest holders-11.38 %-14.95 %— %
State and local income taxes9.49 %0.98 %-3.73 %
Non-deductible compensation expense-0.53 %-3.54 %-0.08 %
Other0.33 %— %-0.07 %
Total Effective Rate18.91 %3.49 %0.12 %
(1) The statutory rate presented is using the U.S. federal corporate tax rate for the years ended December 31, 2022 and 2021, and the UBT rate for the year ended December 31, 2020.
As of December 31, 2022 and 2021 the income tax effects of temporary differences that give rise to significant portions of deferred tax assets and liabilities were as follows:
(dollars in thousands)December 31, 2022December 31, 2021
Deferred Tax Assets
Basis difference in subsidiaries$512,407 $439,826 
Tax receivable agreement196,620 158,616 
Net operating losses45,029 36,500 
Other13,534 2,057 
Total Deferred Tax Assets$767,590 $636,999 
Deferred Tax Liabilities
Goodwill and intangible assets$39,521 $47,924 
Other12,626 2,413 
Total Deferred Tax Liabilities$52,147 $50,337 
As of December 31, 2022, the Company has U.S. federal and UBT net operating losses of $188.0 million and $15.3 million, respectively, that can be carried forward indefinitely until they are used. The Company evaluates the realizability of its deferred tax assets and may recognize or adjust any valuation allowance when it is more-likely-than-not that all or a portion of the deferred tax asset may not be realized. The Company believes it is more-likely-than-not that its deferred tax assets will be realized based on historic and projected earnings and the reversal of taxable temporary differences. As of December 31, 2022 and 2021, the Company has not recorded any valuation allowances.
The Company files its tax returns as prescribed by the tax laws of the jurisdictions in which it operates. In the normal course of business, the tax years that remain open under the statute of limitations will be subject to examinations by the appropriate tax authorities. The Company is generally no longer subject to state or local examinations by tax authorities for tax years prior to 2018.
As of December 31, 2022, the Company's unrecognized tax benefits, excluding related interest expense and penalties, were $4.8 million. If recognized, $4.8 million would reduce the effective tax rate. For the year ended December 31, 2022, interest and penalties on these unrecognized tax benefits of $0.2 million has been accrued through income tax benefit in the consolidated and combined statements of operations. Over the next 12 months, the Company expects that it is reasonably possible for the gross unrecognized tax benefits to increase by $3.0 million. Upon settlement of an audit, the change in the unrecognized tax benefit would result from payment or income statement recognition.
The following table presents the Company’s unrecognized tax benefits relating to uncertain tax positions:
(dollars in thousands) Year Ended December 31,
202220212020
Beginning balance$— $— $— 
Increases related to tax positions related to prior periods2,189 — — 
Increases related to tax positions related to the current period2,595 — — 
Ending Balance$4,784 $— $— 
In connection with and subsequent to the Business Combinations, the Company recognized various adjustments to deferred tax assets and liabilities within additional paid-in capital, as well as related impacts to the TRA liability, related to capital transactions. These adjustments primarily resulted from differences between the Company’s GAAP and tax basis in its investment in the Blue Owl Operating Partnerships, as well as portions related to the TRA liability that will eventually lead to additional tax basis in the Blue Owl Operating Partnerships upon future TRA payments. The deferred tax assets will be recovered as the basis is amortized. See the Company’s consolidated and combined statements of stockholders’ equity for these amounts.