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Income Taxes | 12 Months Ended
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Dec. 31, 2022
Income Tax Disclosure [Abstract] |
Income Taxes | (10) Income Taxes U.S. and international components of (loss) income before income taxes (in thousands) were comprised of the following for the periods indicated:
|  | Years Ended December 31, |
|  | 2022 |  |  | 2021 |  |  | 2020 |
U.S. |  | $ | (1,362,230 | ) |  | $ | (854,610 | ) |  | $ | (53,250 | )
Foreign |  |  | 39,765 |  |  |  | 43,221 |  |  |  | 33,297 |
Total |  | $ | (1,322,465 | ) |  | $ | (811,389 | ) |  | $ | (19,953 | )
The provision for (benefit from) income taxes (in thousands) consisted of the following for the periods indicated:
|  | Years Ended December 31, |
|  | 2022 |  |  | 2021 |  |  | 2020 |
Current: |  |  |  |  |  |  |  |  |  |  |  |
Federal |  | $ | 9,278 |  |  | $ | (4,622 | ) |  | $ | 1,861 |
State |  |  | 5,362 |  |  |  | 2,184 |  |  |  | 1,445 |
Foreign |  |  | 8,139 |  |  |  | 5,533 |  |  |  | 5,221 |
|  | $ | 22,779 |  |  | $ | 3,095 |  |  | $ | 8,527 |
Deferred: |  |  |  |  |  |  |  |  |  |  |  |
Federal |  | $ | 89,581 |  |  | $ | (204,784 | ) |  | $ | (15,038 | )
State |  |  | 34,521 |  |  |  | (74,796 | ) |  |  | (6,269 | )
Foreign |  |  | 451 |  |  |  | 576 |  |  |  | 351 |
|  | $ | 124,553 |  |  | $ | (279,004 | ) |  | $ | (20,956 | )
Total provision (benefit) |  | $ | 147,332 |  |  | $ | (275,909 | ) |  | $ | (12,429 | )
The provision for or benefit from income taxes differs from the amount computed by applying the federal statutory income tax rate to the Company’s loss or income before income taxes as follows for the periods indicated:
|  | Years Ended December 31, |
|  | 2022 |  |  | 2021 |  |  | 2020 |
Income tax expense at federal statutory rate |  |  | 21.0 | % |  |  | 21.0 | % |  |  | 21.0 | %
State taxes, net of federal tax effect |  |  | 7.3 | % |  |  | 9.1 | % |  |  | 18.0 | %
Foreign earnings taxed at different rates |  |  | 0.1 | % |  |  | 0.4 | % |  |  | 21.7 | %
Withholding tax |  |  | (0.1 | )% |  |  | (0.1 | )% |  |  | (12.5 | )%
Other international components |  |  | 0.0 | % |  |  | (0.2 | )% |  |  | 0.3 | %
Change in valuation allowance |  |  | (38.6 | )% |  |  | 0.0 | % |  |  | 2.7 | %
Non-deductible officers compensation |  |  | (0.3 | )% |  |  | (1.0 | )% |  |  | (12.5 | )%
Research and development tax credit |  |  | 0.1 | % |  |  | 0.8 | % |  |  | 19.9 | %
Share-based compensation |  |  | (0.1 | )% |  |  | 4.0 | % |  |  | 11.8 | %
Other permanent differences |  |  | (0.5 | )% |  |  | 0.0 | % |  |  | (8.1 | )%
Total |  |  | (11.1 | )% |  |  | 34.0 | % |  |  | 62.3 | %
The Company’s U.S. and foreign effective tax rates for (loss) income before income taxes were as follows for the periods indicated:
|  | Years Ended December 31, |
|  | 2022 |  |  | 2021 |  |  | 2020 |
U.S. |  |  | (10.2 | )% |  |  | 33.0 | % |  |  | 33.8 | %
Foreign |  |  | 21.6 | % |  |  | 14.1 | % |  |  | 16.7 | %
Combined |  |  | (11.1 | )% |  |  | 34.0 | % |  |  | 62.3 | %
The change in the Company’s effective tax rate in 2022, as compared to 2021, was primarily due to the establishment of a valuation allowance on the Company’s deferred tax asset related to the impairment on its bitcoin holdings, resulting from the decrease in the market value of bitcoin as of December 31, 2022. As of December 31, 2022 and 2021, the amount of cash and cash equivalents held by the Company’s U.S. entities was $14.8 million and $13.1 million, respectively, and by the Company’s non-U.S. entities was $29.0 million and $50.3 million, respectively. The Company earns a significant amount of its revenues outside the United States. The Company repatriated foreign earnings and profits of $44.7 million during 2022 and $57.5 million during 2021. Beginning in the third quarter of 2020, the Company determined to no longer permanently reinvest its foreign earnings and profits. As of December 31, 2022, the Company recorded a deferred tax liability of $2.2 million on undistributed foreign earnings related to foreign withholding tax and U.S. state income taxes. Deferred income taxes reflect the net tax effects of the temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred tax assets and liabilities (in thousands) were as follows for the periods indicated:
|  | December 31, |
|  | 2022 |  |  | 2021 |
Deferred tax assets, net: |  |  |  |  |  |  |  |
Net operating loss carryforwards |  | $ | 723 |  |  | $ | 968 |
Tax credits |  |  | 1,677 |  |  |  | 3,844 |
Intangible assets, including capitalized R&D |  |  | 41,082 |  |  |  | 20,963 |
Deferred revenue |  |  | 24,747 |  |  |  | 13,954 |
Accrued compensation |  |  | 6,602 |  |  |  | 6,290 |
Share-based compensation expense |  |  | 23,305 |  |  |  | 15,493 |
Digital asset impairment losses |  |  | 607,659 |  |  |  | 258,458 |
Disallowed interest |  |  | 1,239 |  |  |  | 5,532 |
Other |  |  | 721 |  |  |  | 1,889 |
Deferred tax assets before valuation allowance |  |  | 707,755 |  |  |  | 327,391 |
Valuation allowance |  |  | (511,412 | ) |  |  | (999 | )
Deferred tax assets, net of valuation allowance |  |  | 196,343 |  |  |  | 326,392 |
Deferred tax liabilities: |  |  |  |  |  |  |  |
Prepaid expenses and other |  |  | 4,372 |  |  |  | 2,101 |
Property and equipment |  |  | 1,786 |  |  |  | 2,936 |
Deferred tax on undistributed foreign earnings |  |  | 2,231 |  |  |  | 1,682 |
Total deferred tax liabilities |  |  | 8,389 |  |  |  | 6,719 |
Total net deferred tax asset |  | $ | 187,954 |  |  | $ | 319,673 |
Reported as: |  |  |  |  |  |  |  |
Non-current deferred tax assets, net |  |  | 188,152 |  |  |  | 319,782 |
Non-current deferred tax liabilities |  |  | (198 | ) |  |  | (109 | )
Total net deferred tax asset |  | $ | 187,954 |  |  | $ | 319,673 |
As of December 31, 2022, the Company had gross unrecognized income tax benefits of $6.1 million, including accrued interest, all of which was recorded in “Other long-term liabilities” in the Company’s Consolidated Balance Sheets. The change in unrecognized income tax benefits (in thousands) is presented in the table below for the periods indicated:
|  | 2022 |  |  | 2021 |  |  | 2020 |
Unrecognized income tax benefits at beginning of year |  | $ | 5,960 |  |  | $ | 4,293 |  |  | $ | 1,563 |
(Decrease) increase related to positions taken in prior period |  |  | (67 | ) |  |  | 1,082 |  |  |  | 2,580 |
Increase related to positions taken in current period |  |  | 318 |  |  |  | 1,146 |  |  |  | 283 |
Decrease related to settlement with tax authorities |  |  | (40 | ) |  |  | 0 |  |  |  | 0 |
Decrease related to expiration of statute of limitations |  |  | (360 | ) |  |  | (561 | ) |  |  | (133 | )
Unrecognized income tax benefits at end of year |  |  | 5,811 |  |  |  | 5,960 |  |  |  | 4,293 |
Accrued interest |  |  | 276 |  |  |  | 272 |  |  |  | 295 |
Gross unrecognized income tax benefits at end of year |  | $ | 6,087 |  |  | $ | 6,232 |  |  | $ | 4,588 |
If recognized, $5.9 million of the gross unrecognized income tax benefits as of December 31, 2022 would impact the Company’s effective tax rate. Over the next 12 months, the amount of the Company’s liability for unrecognized income tax benefits shown above is not expected to change materially. The Company recognizes estimated accrued interest related to unrecognized income tax benefits in the provision for (benefit from) income taxes. During the years ended December 31, 2022, 2021, and 2020, the Company released or recognized an immaterial amount of accrued interest. The amount of accumulated accrued interest related to the above unrecognized income tax benefits was approximately $0.3 million and $0.3 million as of December 31, 2022 and 2021, respectively. The Company files tax returns in numerous foreign countries as well as the United States and its tax returns may be subject to audit by tax authorities in all countries in which it files. Each country has its own statute of limitations for making assessment of additional tax liabilities. The Company’s U.S. tax returns for tax years from 2019 and forward are subject to potential examination by the Internal Revenue Service. However, due to the Company’s use of state NOL carryovers in the United States, state tax authorities may attempt to reduce or fully offset the amount of state NOL carryovers from tax years ended 2011 and forward that the Company used in later tax years. The Company’s major foreign tax jurisdictions and the tax years that remain subject to potential examination are Italy and Poland for tax years 2017 and forward; Spain and Germany for tax years 2019 and forward, and the United Kingdom for tax years 2021 and forward. To date there have been no material audit assessments related to audits in the United States or any of the applicable foreign jurisdictions. The Company had no U.S. NOL carryforwards as of December 31, 2022 and 2021. The Company had $3.3 million and $4.1 million of foreign NOL carryforwards as of December 31, 2022 and 2021, respectively. The Company’s valuation allowance of $511.4 million at December 31, 2022 primarily related to the Company’s deferred tax asset related to the impairment on its bitcoin holdings that, in the Company’s present estimation, more likely than not will not be realized. The Company’s valuation allowance of $1.0 million at December 31, 2021 primarily related to certain foreign tax credit carryforward tax assets that, in the Company’s present estimation, more likely than not will not be realized. In determining the Company’s provision for (benefit from) income taxes, net deferred tax assets, liabilities, and valuation allowances, management is required to make estimates and judgments related to projections of domestic and foreign profitability, the timing and extent of the utilization of NOL carryforwards, applicable tax rates, transfer pricing methods, and prudent and feasible tax planning strategies. As a multinational company, the Company is required to calculate and provide for estimated income tax liabilities for each of the tax jurisdictions in which it operates. This process involves estimating current tax obligations and exposures in each jurisdiction, as well as making judgments regarding the future recoverability of deferred tax assets. Changes in the estimated level of annual pre-tax income (loss), changes in tax laws, particularly changes related to the utilization of NOLs in various jurisdictions, and changes resulting from tax audits can all affect the overall effective income tax rate which, in turn, impacts the overall level of income tax expense or benefit and net income (loss). Estimates and judgments related to the Company’s projections and assumptions are inherently uncertain. Therefore, actual results could differ materially from projections. Currently, the Company expects to use its deferred tax assets, subject to Internal Revenue Code limitations, within the carryforward periods. Valuation allowances have been established where the Company has concluded that it is more likely than not that such deferred tax assets are not realizable. If the market value of bitcoin continues to decline or the Company is unable to regain profitability in future periods, the Company may be required to increase further the valuation allowance against its deferred tax assets, which could result in a charge that would materially adversely affect net income (loss) in the period in which the charge is incurred. To the extent the market value of bitcoin rises, the Company may decrease the valuation allowance against its deferred tax asset. The Company will continue to regularly assess the realizability of deferred tax assets.

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- 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 Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 21 -URI https://asc.fasb.org/extlink&oid=121826272&loc=d3e32857-109319 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section S99 -Paragraph 2 -Subparagraph (SAB Topic 11.C) -URI https://asc.fasb.org/extlink&oid=122134291&loc=d3e330215-122817 Reference 3: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 17 -Subparagraph (b) -URI https://asc.fasb.org/extlink&oid=121826272&loc=d3e32809-109319 Reference 4: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SAB TOPIC 6.I.5.Q1) -URI https://asc.fasb.org/extlink&oid=122134291&loc=d3e330036-122817 Reference 5: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 14 -URI https://asc.fasb.org/extlink&oid=121826272&loc=d3e32705-109319 Reference 6: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 270 -Section 50 -Paragraph 1 -URI https://asc.fasb.org/extlink&oid=6424409&loc=d3e44925-109338 Reference 7: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI https://asc.fasb.org/topic&trid=2144680 Reference 8: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 30 -Section 50 -Paragraph 2 -Subparagraph (a) -URI https://asc.fasb.org/extlink&oid=6424122&loc=d3e41874-109331 Reference 9: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08(h)(2)) -URI https://asc.fasb.org/extlink&oid=120395691&loc=d3e23780-122690 + Details
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