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Income Taxes
 12 Months Ended
Dec. 31, 2023
Income Tax Disclosure [Abstract]  
Income Taxes Income Taxes
RSILP is treated as a partnership for U.S. federal and most applicable state and local income tax purposes. As a partnership, RSILP is not subject to U.S. federal and certain state and local income taxes. Any taxable income or loss generated by RSILP is passed through to and included in the taxable income or loss of its partners, including the Company, on a pro rata basis. The Company is subject to U.S. federal income taxes and state and local income taxes with respect to our allocable share of any taxable income or loss of RSILP, as well as any stand-alone income or loss generated by the Company.
Income Tax Expense
The components of the income tax expense are:
Years Ended
December 31,
($ in thousands)202320222021
Current income taxes:
Federal$(188)$(118)$149 
State and local9 (34)25 
Foreign11,602 9,137 4,551 
11,423 8,985 4,725 
Deferred income taxes:
Federal— — — 
State and local— — — 
Foreign(214)(24)(37)
(214)(24)(37)
Income tax expense$11,209 $8,961 $4,688 
Reconciliations of income tax expense computed at the U.S. federal statutory income tax rate to the recognized income tax expense and the U.S. statutory income tax rate to our effective tax rates are as follows:
Years Ended
December 31,
($ in thousands)202320222021
Net loss before income taxes$(48,846)$(125,371)$(66,404)
Less: net loss before income taxes attributable to non-controlling interest
(33,820)(89,224)(48,258)
Net loss attributable to Rush Street Interactive Inc. before income taxes(15,026)(36,147)(18,146)
Income tax benefit at the federal statutory rate
(3,155)(7,591)(3,811)
State income taxes, net of federal benefit(46)(34)25 
Nondeductible stock compensation
1,351 — — 
Foreign operations11,387 9,113 4,514 
Change in valuation allowance2,589 8,025 4,027 
Other(917)(552)(67)
Income tax expense$11,209 $8,961 $4,688 
Deferred Tax Assets and Liabilities
The Company’s deferred tax position reflects the net tax effects of the temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax reporting. The net
deferred tax assets are recognized in other assets on the Company’s consolidated balance sheets. Significant components of the deferred tax assets and liabilities are as follows:
Years Ended
December 31,
($ in thousands)20232022
Deferred tax assets:
Investment in subsidiaries$134,283 $134,586 
Net operating losses29,724 26,394 
Imputed interest2,120 1,638 
Share-based compensation1,160 366 
Other assets422 165 
Total gross deferred tax assets167,709 163,149 
Valuation allowance(167,305)(163,029)
Total deferred tax assets, net of valuation allowance404 120 
Deferred tax liabilities:
Investment in subsidiaries— — 
Total gross deferred tax liabilities— — 
Net deferred tax assets$404 $120 
As of December 31, 2023, the Company had approximately $94.5 million and $83.4 million of federal and state net operating loss carryovers, respectively. As of December 31, 2022, the Company had approximately $73.3 million and $69.4 million of federal and state net operating loss carryovers, respectively. If not utilized, the entire federal net operating loss carryforward can be carried forward indefinitely. State net operating loss carryovers will expire in varying amounts beginning in 2032. As of December 31, 2023 and 2022, the Company has foreign net operating losses of approximately $15.2 million and $30.9 million, respectively, the majority of which will begin to expire beginning in 2043 if not utilized.
The Company regularly reviews its deferred tax assets, including net operating loss carryovers, for recoverability, and a valuation allowance is provided when it is more-likely-than-not that some portion or all of a deferred tax asset may not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which the temporary differences are deductible. In assessing the need for a valuation allowance, the Company makes estimates and assumptions regarding projected future taxable income, its ability to carry back operating losses to prior periods, the reversal of deferred tax liabilities and the implementation of tax planning strategies. Based on our cumulative earnings history and forecasted future sources of taxable income, the Company has determined it is not more-likely-than-not to realize existing deferred tax assets and thus has recorded a valuation allowance. As the Company reassesses these assumptions in the future, changes in forecasted taxable income may alter this expectation and may result in changes to the valuation allowance and the effective tax rate.
In August 2022, the U.S. Inflation Reduction Act of 2022 and the CHIPS and Science Act of 2022 were signed into law. These acts include, among other provisions, a corporate alternative minimum tax of 15%, an excise tax on the repurchase of corporate stock, various climate and energy provisions, and incentives for investment in semiconductor manufacturing. These provisions are not expected to have a material impact on the Company’s results of operations or financial position.
In 2021, the OECD established an Inclusive Framework on Base Erosion and Profit Shifting and agreed on a two-pillar solution (“Pillar Two”) to global taxation, focusing on global profit allocation and a 15% global minimum effective tax rate. On December 15, 2022, the European Union member states agreed to implement the OECD’s global minimum tax rate of 15%. The OECD issued Pillar Two model rules and continues to release guidance on these rules. The Inclusive Framework calls for tax law changes by participating countries to take effect in 2024 and 2025. Various countries have enacted or have announced plans to enact new tax laws to implement the global minimum tax. The Company considered the applicable tax law changes on Pillar Two implementation in the relevant countries, and there is no impact to our tax provision for the year ended December 31, 2023. The Company will continue to evaluate the impact of these tax law changes on future reporting periods.
Uncertain Tax Positions
The Company evaluates its tax positions and recognizes tax benefits that, more-likely-than-not, will be sustained upon examination based on the technical merits of the position. The Company did not have any unrecognized tax benefits as of December 31, 2023 or December 31, 2022. The Company filed an initial year federal and state tax returns for tax year 2020, which was the first tax year subject to examination by taxing authorities. Additionally, although RSILP is treated as a partnership for U.S. federal and state income taxes purposes, it is still required to file an annual U.S. Return of Partnership Income, which is subject to examination by the Internal Revenue Service. The statute of limitations has expired for tax years through 2019 for RSILP.
Tax Receivable Agreement
Pursuant to RSILP’s election under Section 754 of the Internal Revenue Code (the “Code”), the Company expects to obtain an increase in our share of the tax basis in the net assets of RSILP when RSILP Units are redeemed or exchanged by the unit holders and other qualifying transactions. The Company plans to make an election under Code Section 754 for each taxable year in which a redemption or exchange of RSILP Units occur. The Company intends to treat any redemptions and exchanges of RSILP Units by the unit holders as direct purchases of RSILP Units for U.S. federal income tax purposes. These increases in tax basis may reduce the amounts that the Company would otherwise pay in the future to various tax authorities. These increases in tax basis may also decrease gains (or increase losses) on future dispositions of certain capital assets to the extent tax basis is allocated to those capital assets.
In connection with the Business Combination, the Special Limited Partner entered into the TRA, which generally provides for the payment by it of 85% of certain net tax benefits, if any, that the Company (including the Special Limited Partner) realize (or in certain cases is deemed to realize) as a result of these increases in tax basis and tax benefits related to the Business Combination and the exchange of Retained RSILP Units for Class A Common Stock (or cash at the Company’s option) pursuant to the RSILP A&R LPA and tax benefits related to entering into the TRA, including tax benefits attributable to payments under the TRA. These payments are the obligation of the Special Limited Partner and not of RSILP. The actual increase in the Special Limited Partner’s allocable share of RSILP’s tax basis in its assets, as well as the amount and timing of any payments under the TRA, will vary depending upon a number of factors, including the timing of exchanges, the market price of Class A Common Stock at the time of the exchange and the amount and timing of the recognition of the Company’s and its consolidated subsidiaries’ (including the Special Limited Partner’s) income. While many of the factors that will determine the amount of payments that the Special Limited Partner will make under the TRA are outside of the Company’s control, the Company expects that the payments the Special Limited Partner will make under the TRA will be substantial and could have a material adverse effect on the Company’s financial condition.
Based primarily on historical losses of RSILP, management has determined it is more-likely-than-not that the Company will be unable to utilize its deferred tax assets subject to the TRA; therefore, management has not recorded the deferred tax asset or a corresponding liability under the TRA related to the tax savings the Company may realize from the utilization of tax deductions related to basis adjustments created by the Business Combination and subsequent exchanges. The unrecognized TRA liability as of December 31, 2023 and 2022 is $63.7 million and $58.7 million, respectively. The increase in the liability was primarily caused by exchanges of RSILP units covered by the TRA. Due to the fact that the Company’s deferred tax assets and corresponding TRA liability are unrecognized, this increase had no impact on the consolidated statements of operations.