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Income Taxes | 12 Months Ended
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Dec. 31, 2024
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, |
|  | 2024 |  |  | 2023 |  |  | 2022 |
U.S. |  | $ | (1,966,444 | ) |  | $ | (157,810 | ) |  | $ | (1,362,230 | )
Foreign |  |  | 32,098 |  |  |  | 33,285 |  |  |  | 39,765 |
Total |  | $ | (1,934,346 | ) |  | $ | (124,525 | ) |  | $ | (1,322,465 | )
The (benefit from) provision for income taxes (in thousands) consisted of the following for the periods indicated:
|  | Years Ended December 31, |
|  | 2024 |  |  | 2023 |  |  | 2022 |
Current: |  |  |  |  |  |  |  |  |
Federal |  | $ | (5,202 | ) |  | $ | 2,774 |  |  | $ | 9,278 |
State |  |  | 72 |  |  |  | 3,376 |  |  |  | 5,362 |
Foreign |  |  | 5,368 |  |  |  | 9,146 |  |  |  | 8,139 |
|  | $ | 238 |  |  | $ | 15,296 |  |  | $ | 22,779 |
Deferred: |  |  |  |  |  |  |  |  |
Federal |  | $ | (505,359 | ) |  | $ | (374,800 | ) |  | $ | 89,581 |
State |  |  | (262,441 | ) |  |  | (194,374 | ) |  |  | 34,521 |
Foreign |  |  | (123 | ) |  |  | 232 |  |  |  | 451 |
|  | $ | (767,923 | ) |  | $ | (568,942 | ) |  | $ | 124,553 |
Total (benefit) provision |  | $ | (767,685 | ) |  | $ | (553,646 | ) |  | $ | 147,332 |
The benefit from or provision for income taxes differs from the amount computed by applying the federal statutory income tax rate to the Company’s loss before income taxes as follows for the periods indicated:
|  | Years Ended December 31, |
|  | 2024 |  |  | 2023 |  |  | 2022 |
Income tax expense at federal statutory rate |  |  | 21.0 | % |  |  | 21.0 | % |  |  | 21.0 | %
State taxes, net of federal tax effect |  |  | 10.7 | % |  |  | 8.4 | % |  |  | 7.3 | %
Other international components |  |  | (0.5 | )% |  |  | (3.4 | )% |  |  | (0.1 | )%
Change in valuation allowance |  |  | 0.0 | % |  |  | 409.5 | % |  |  | (38.6 | )%
Non-deductible officers compensation |  |  | (0.9 | )% |  |  | (5.5 | )% |  |  | (0.3 | )%
Research and development tax credit |  |  | 0.5 | % |  |  | 2.7 | % |  |  | 0.1 | %
Share-based compensation |  |  | 8.7 | % |  |  | 3.4 | % |  |  | (0.1 | )%
Rate changes, including states |  |  | (0.1 | )% |  |  | 11.0 | % |  |  | (0.3 | )%
Other permanent differences (1) |  |  | 0.3 | % |  |  | (2.5 | )% |  |  | (0.1 | )%
Effective income tax rate |  |  | 39.7 | % |  |  | 444.6 | % |  |  | (11.1 | )%
(1) Included in the “Other permanent differences” category in the table above are other permanent items, each below the threshold required for separate presentation in the table. The Company’s U.S. and foreign effective tax rates for loss before income taxes were as follows for the periods indicated:
|  | Years Ended December 31, |
|  | 2024 |  |  | 2023 |  |  | 2022 |
U.S. |  |  | 39.3 | % |  |  | 356.8 | % |  |  | (10.2 | )%
Foreign |  |  | 16.3 | % |  |  | 28.2 | % |  |  | 21.6 | %
Combined |  |  | 39.7 | % |  |  | 444.6 | % |  |  | (11.1 | )%
The change in the Company’s effective tax rate in 2024, as compared to 2023, was primarily due to (i) increased tax benefits related to share-based compensation (including the income tax effects of exercises of stock options and vesting of share-settled restricted stock units), compared to (ii) the release of the valuation allowance during 2023 on the Company’s deferred tax asset related to the impairment on its bitcoin holdings, attributable to the increase in the market value of bitcoin as of December 31, 2023 compared to December 31, 2022, and (iii) the effects of changes in state tax rates in 2023. As of December 31, 2024 and 2023, the amount of cash and cash equivalents held by the Company’s U.S. entities was $8.8 million and $10.5 million, respectively, and by the Company’s non-U.S. entities was $29.3 million and $36.3 million, respectively. The Company earns a significant amount of its revenues outside the United States. The Company repatriated foreign earnings and profits of $6.5 million during 2024 and $20.3 million during 2023. As of December 31, 2024, the Company has not indefinitely reinvested any of its undistributed foreign earnings and has recorded a deferred tax liability of $4.0 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, |
|  | 2024 |  |  | 2023 |
Deferred tax assets, net: |  |  |  |  |  |
Net operating loss carryforwards |  | $ | 231,063 |  |  | $ | 727 |
Tax credit carryforwards |  |  | 6,287 |  |  |  | 1,841 |
Intangible assets, including capitalized R&D |  |  | 88,362 |  |  |  | 57,410 |
Deferred revenue |  |  | 902 |  |  |  | 1,481 |
Accrued compensation |  |  | 5,204 |  |  |  | 5,882 |
Share-based compensation expense |  |  | 14,042 |  |  |  | 30,345 |
Digital asset impairment losses |  |  | 1,165,831 |  |  |  | 652,280 |
Interest expense carryforward |  |  | 24,974 |  |  |  | 11,627 |
Lease liability |  |  | 16,734 |  |  |  | 18,197 |
Other |  |  | 1,854 |  |  |  | 4,699 |
Deferred tax assets before valuation allowance |  |  | 1,555,253 |  |  |  | 784,489 |
Valuation allowance |  |  | (494 | ) |  |  | (1,427 | )
Deferred tax assets, net of valuation allowance |  |  | 1,554,759 |  |  |  | 783,062 |
Deferred tax liabilities: |  |  |  |  |  |
Prepaid expenses and other |  |  | 8,278 |  |  |  | 3,681 |
Property and equipment |  |  | 373 |  |  |  | 1,062 |
Deferred tax on undistributed foreign earnings |  |  | 3,962 |  |  |  | 2,923 |
Right of use asset |  |  | 17,246 |  |  |  | 18,180 |
Total deferred tax liabilities |  |  | 29,859 |  |  |  | 25,846 |
Total net deferred tax asset |  | $ | 1,524,900 |  |  | $ | 757,216 |
Reported as: |  |  |  |  |  |
Non-current deferred tax assets |  |  | 1,525,307 |  |  |  | 757,573 |
Non-current deferred tax liabilities |  |  | (407 | ) |  |  | (357 | )
Total net deferred tax asset |  | $ | 1,524,900 |  |  | $ | 757,216 |
The Company had $775.9 million of U.S. NOL carryforwards as of December 31, 2024 that can be carried forward indefinitely and no U.S. NOL carryforwards as of December 31, 2023. In addition, as of December 31, 2024, the Company had $6.3 million of tax credits that will expire by 2044. The Company also had $5.9 million and $3.0 million of foreign NOL carryforwards as of December 31, 2024 and 2023, respectively. As of December 31, 2024, the Company also had gross state NOLs of $1.207 billion of which $381.1 million will expire between 2034 and 2044, and the remainder can be carried forward indefinitely. The Company’s valuation allowance of $0.5 million and $1.4 million at December 31, 2024 and 2023, respectively, primarily related to the Company’s deferred tax assets related to foreign tax credits in certain jurisdictions that, in the Company’s present estimation, more likely than not will not be realized. 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. The Company’s ability to realize its remaining deferred tax assets as of December 31, 2024 is primarily dependent upon generating sufficient taxable income of the proper character in future years. Management has concluded that there is sufficient positive evidence to support the expected realization of these deferred tax assets primarily due to the fact that the excess of the market value of the Company’s bitcoin over the cost basis of the Company’s bitcoin as of December 31, 2024 results in a significant built-in gain for tax purposes and is therefore a source of future taxable income that is expected to allow all of the U.S. net deferred tax assets to be realized. As part of the assessment of the amount of the valuation allowance, the Company considered that it has the ability and intent to execute tax planning strategies if necessary, including selling bitcoin with a built-in gain. After consideration of all available evidence, the Company has concluded that, as of December 31, 2024, it is more likely than not that its deferred tax assets, with the exception of certain foreign tax credits for which a valuation allowance has been established, will be realized. If the market value of bitcoin declines in future periods, the Company would need to assess other sources of forecasted taxable income of proper character, which could result in additional valuation allowances being recorded. As of December 31, 2024, the Company had income taxes payable of $9.5 million recorded in "Accounts payable, accrued expenses, and operating lease liabilities" in the Company’s Consolidated Balance Sheets. As of December 31, 2023, the Company had income taxes receivable of $15.3 million recorded in “Prepaid expenses and other current assets” in the Company’s Consolidated Balance Sheets. As of December 31, 2024, the Company had gross unrecognized income tax benefits of $10.2 million, including accrued interest, $2.9 million of which was recorded in “Other long-term liabilities” and $7.3 million of which was recorded in “Deferred tax assets, net” 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:
|  | 2024 |  |  | 2023 |  |  | 2022 |
Unrecognized income tax benefits at beginning of year |  | $ | 7,898 |  |  | $ | 5,811 |  |  | $ | 5,960 |
Increase (decrease) related to positions taken in prior period |  |  | 216 |  |  |  | 1,458 |  |  |  | (67 | )
Increase related to positions taken in current period |  |  | 2,898 |  |  |  | 930 |  |  |  | 318 |
Decrease related to settlement with tax authorities |  |  | 0 |  |  |  | 0 |  |  |  | (40 | )
Decrease related to expiration of statute of limitations |  |  | (959 | ) |  |  | (301 | ) |  |  | (360 | )
Unrecognized income tax benefits at end of year |  |  | 10,053 |  |  |  | 7,898 |  |  |  | 5,811 |
Accrued interest |  |  | 195 |  |  |  | 352 |  |  |  | 276 |
Gross unrecognized income tax benefits at end of year |  | $ | 10,248 |  |  | $ | 8,250 |  |  | $ | 6,087 |
If recognized, $10.0 million of the gross unrecognized income tax benefits as of December 31, 2024 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 (benefit from) provision for income taxes. During the years ended December 31, 2024, 2023, and 2022, 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 $0.2 million and $0.4 million as of December 31, 2024 and 2023, 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 2021 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 2020 and forward; and Spain, Germany, 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 U.S. enacted the IRA in August 2022. Among other things, unless an exemption by statute or regulation applies, a provision of the IRA imposes a 15% CAMT on a corporation with respect to an initial tax year and subsequent tax years, if the average annual adjusted financial statement income for any consecutive three-tax-year period preceding the initial tax year exceeds $1 billion. On September 12, 2024, the Department of Treasury and the Internal Revenue Service issued proposed regulations with respect to the application of the CAMT. Due to the Company’s adoption of ASU 2023-08, the Company is required to recognize a cumulative-effect adjustment of $12.745 billion to the opening balance of its retained earnings as of January 1, 2025. The Company will additionally be required to recognize unrealized gains or losses from changes in the fair value of digital assets in future reporting periods as income or losses. For purposes of calculating the adjusted financial statement income, the Company will be required to ratably allocate from 2025 through 2028 the increase to the Company’s retained earnings. When determining whether the Company is subject to CAMT and when calculating any related tax liability for an applicable tax year, the proposed regulations provide that, among other adjustments, the Company’s adjusted financial statement income must include this ratable amount in addition to any unrealized gains or losses reported in the applicable tax year. Accordingly, as a result of the enactment of the IRA and the Company’s adoption of ASU 2023-08 on January 1, 2025, unless the IRA is amended or the proposed regulations, when finalized, are revised to provide relief (or other interim relief is granted), the Company could become subject to CAMT in the tax years 2026 and beyond. If the Company becomes subject to the CAMT, it could result in a material tax obligation that the Company would need to satisfy in cash, which could materially affect its financial results, including its earnings and cash flow, and its financial condition.

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