XML 40 R18.htm IDEA: XBRL DOCUMENT v3.24.0.1
Income Taxes
 12 Months Ended
Dec. 31, 2023
Income Tax Disclosure [Abstract]  
Income Taxes INCOME TAXES
The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the temporary differences between the recognition of revenue and expenses for income tax and financial reporting purposes and between the tax basis of assets and liabilities and their reported amounts in the consolidated financial statements. The Company records the effect of a tax rate or law change on the Company’s deferred tax assets and liabilities in the period of enactment.
The amounts and related disclosures below are based on the continuing operations of the Company.
Components of Income Before Taxes
Years Ended December 31,
(in thousands)202320222021
United States$(69,539)$146,434 $(478,148)
Foreign3,012 2,712 2,314 
Income (loss) from continuing operations before income taxes and equity in net earnings (losses) of equity method investee$(66,527)$149,146 $(475,834)
Components of Income Tax Benefit (Expense)
Years Ended December 31,
(in thousands)202320222021
Current:
Federal$(358)$(184)$(174)
State(23,434)(23,906)(9,740)
Foreign(923)(691)(570)
Current income tax benefit (expense)(24,715)(24,781)(10,484)
Deferred:
Federal(1,558)(35,720)98,880 
State21,883 23,222 43,487 
Foreign(195)(403)(226)
Deferred income tax benefit (expense)20,130 (12,901)142,141 
Income tax benefit (expense)$(4,585)$(37,682)$131,657 
Effective Tax Rate Reconciliation
Reconciliations between the actual effective tax rate on continuing operations and the statutory U.S. federal income tax rate were as follows:
Years Ended December 31,
202320222021
Statutory federal tax rate21.0 %21.0 %21.0 %
State income taxes, net of federal benefits(9.4)%6.8 %2.7 %
Non-U.S. tax(2.0)%0.8 %(0.2)%
Non-deductible and non-taxable charges(1)
(9.5)%13.3 %0.4 %
Valuation allowance— %(1.6)%0.5 %
Unrecognized tax benefits8.7 %(6.1)%— %
Share-based compensation0.2 %(1.7)%0.6 %
Non-deductible goodwill on dispositions(5.9)%— %— %
Federal credits5.6 %(8.0)%— %
Acquisitions and dispositions8.0 %(0.5)%1.2 %
Legislative changes(5.1)%(5.7)%0.8 %
Non-deductible goodwill impairment(22.8)%4.0 %— %
Prior year return adjustments5.2 %2.9 %0.3 %
Other(0.9)%0.1 %0.4 %
Effective tax rate(6.9)%25.3 %27.7 %
___________________
(1)During 2022, primarily represents the impact related to the fair value adjustment of the Forward Contract.
Deferred Tax Assets and Deferred Tax Liabilities
The components of the Company's net deferred tax assets (liabilities) were as follows:
December 31,
(in thousands)20232022
Deferred tax assets:
Accrued liabilities and reserves$90,351 $117,488 
Tax loss and credit carryforwards132,230 468,209 
Disallowed interest carryforward150,492 185,080 
Deferred revenue225,499 187,766 
Other113,095 95,008 
Total deferred tax assets711,667 1,053,551 
Valuation allowance(12,264)(57,715)
Deferred tax assets, net of valuation allowance$699,403 $995,836 
Deferred tax liabilities:
Subscriber system assets$(761,203)$(766,067)
Intangible assets(893,292)(1,023,895)
Other(71,196)(97,772)
Total deferred tax liabilities(1,725,691)(1,887,734)
Net deferred tax assets (liabilities)$(1,026,288)$(891,898)
The valuation allowance for deferred tax assets relates to the uncertainty of the utilization of certain U.S. federal and state deferred tax assets. In evaluating the Company’s ability to recover its deferred tax assets, the Company considers all available positive and negative evidence, which includes its past operating results, the existence of cumulative losses in the most recent years, and its forecast of future taxable income. In estimating future taxable income, the Company develops assumptions related to the amount of future pre-tax operating income, the reversal of temporary differences, and the implementation of feasible and prudent tax planning strategies. These assumptions require significant judgment about the forecasts of future taxable income and are consistent with the plans and estimates the Company is using to manage its underlying businesses. The Company believes that it is more-likely-than-not that it will generate sufficient future taxable income to realize its deferred tax assets, net of valuation allowance.
The changes in the valuation allowance for deferred tax assets were as follows:
Years Ended December 31,
(in thousands)202320222021
Beginning balance $(57,715)$(60,157)$(68,013)
Income tax benefit (expense)(1)
43,277 2,428 2,378 
Write-offs and other
2,174 14 5,478 
Ending balance$(12,264)$(57,715)$(60,157)
__________________
(1)During 2023, the change is primarily related to the utilization of capital loss carryforwards against which a valuation allowance was previously recorded. The utilization is attributable to capital gains generated in connection with the Commercial Divestiture.
As of December 31, 2023, the Company had approximately $242 million of U.S. federal net operating loss (“NOL”) carryforwards with expiration periods between 2036 and 2042. Although future utilization will depend on the Company’s actual profitability and the result of income tax audits, the Company anticipates that the majority of its U.S federal NOL carryforwards will be fully utilized prior to expiration. Most of the Company’s U.S. federal NOL carryforwards are subject to limitation due to “ownership changes,” which have occurred under Internal Revenue Code (“IRC”) Section 382. The Company does not, however, expect that this limitation will impact its ability to utilize the U.S. federal NOL carryforwards.
As of December 31, 2023, the Company’s valuation allowance for deferred tax assets was primarily related to capital loss carryforwards in Canada primarily generated in connection with the sale of ADT Canada during 2019.
The Tax Cuts and Jobs Act of 2017 introduced IRC Section 163(j), which limits the deductibility of interest expense and allows for the excess to be carried forward indefinitely. As of December 31, 2023, the Company has not recorded a valuation allowance against the disallowed interest carryforward as the Company believes it has sufficient sources of future taxable income to realize the related tax benefit.
Unrecognized Tax Benefits
The Company recognizes positions taken or expected to be taken in a tax return in the consolidated financial statements when it is more-likely-than-not (i.e., a likelihood of more than 50%) that the position would be sustained upon examination by tax authorities. A recognized tax position is then measured at the largest amount of benefit with greater than 50% likelihood of being realized upon ultimate settlement. The Company records liabilities for positions that have been taken but do not meet the more-likely-than-not recognition threshold. The Company adjusts the liabilities for unrecognized tax benefits in light of changing facts and circumstances; however, due to the complexity of some of these uncertainties, the ultimate resolution may result in a change to the estimated liabilities. The Company includes interest and penalties associated with unrecognized tax benefits as income tax expense and as a component of the recorded balance of unrecognized tax benefits, which is reflected in other liabilities, or net of related tax loss carryforwards in the Consolidated Balance Sheets. Interest and penalties associated with unrecognized tax benefits were not material to the Company's consolidated financial statements for the periods presented.
The following is a roll-forward of unrecognized tax benefits:
Years Ended December 31,
(in thousands)202320222021
Beginning balance$56,177 $66,221 $65,990 
Gross increase related to prior year tax positions517 5,063 373 
Decreases related to lapse of statute of limitation(7,871)(15,107)(142)
Ending balance$48,823 $56,177 $66,221 
The Company’s unrecognized tax benefits relate to tax years that are subject to audit by the taxing authorities in the U.S. federal, state and local, and foreign jurisdictions. Based on the current tax statutes and status of its income tax audits, the Company expects approximately $29 million of its unrecognized tax benefits to be resolved in the next twelve months.
Open Tax Years by Jurisdiction
JurisdictionYears Open to Audit
Federal
2020 - 2022
State
2017 - 2022
Canada
2019 - 2022
The Company files a consolidated return for its U.S. entities and separate returns for each Canadian entity. These income tax returns are subject to audit by the taxing authorities that may culminate in proposed assessments which may ultimately result in a change to the estimated income taxes.
Federal Tax Legislation
Tax Cuts and Jobs Act - Certain changes to U.S. federal tax law included in the Tax Cuts and Jobs Act of 2017 had a delayed effective date and have taken effect for 2022. Under IRC Section 163(j), the limitation on net business interest expense deductions will no longer be increased by deductions for depreciation, amortization, or depletion. Under IRC Section 174, specified research and experimentation expenditures must now be capitalized and amortized.
Inflation Reduction Act - The Inflation Reduction Act (the “IRA”) was signed into law in August 2022. The IRA, among other provisions, implements (i) a 15% corporate alternative minimum tax (“CAMT”) on book income of corporations whose average annual adjusted financial statement income during the most recently-completed three-year period exceeds $1.0 billion, (ii) a 1% excise tax on net stock repurchases, and (iii) several tax incentives to promote clean energy including an extension of the
investment tax credit. Both the CAMT and the excise tax provisions are effective for tax years beginning after December 31, 2022, and as of December 31, 2023, the Company does not anticipate any material impact.