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Income Taxes
 9 Months Ended 12 Months Ended
Sep. 30, 2020
Dec. 31, 2019
Income Taxes
11. Income Taxes

 

The Company recorded income tax benefits associated with the amortization of intangible assets of $16.1 million and $1.0 million during the three months ended September 30, 2020 and 2019, respectively, and $20.6 million and $3.2 million during the nine months ended September 30, 2020 and 2019, respectively. The Company’s current provision for income taxes consists of state and foreign income taxes and is immaterial in all periods presented.

 

The Company regularly evaluates the realizability of its deferred tax assets and establishes a valuation allowance if it is more likely than not that some or all the deferred tax assets will not be realized. In making such a determination, the Company considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, loss carryback and tax-planning strategies. Generally, more weight is given to objectively verifiable evidence, such as the cumulative loss in recent years, as a significant piece of negative evidence to overcome. At September 30, 2020 and December 31, 2019, the Company continued to maintain that the realization of its deferred tax assets has not achieved a more likely than not threshold therefore, the net deferred tax assets have been fully offset by a valuation allowance. The following is a rollforward of the Company’s deferred tax liability from January 1, 2020 to September 30, 2020 (in thousands):

 

Balance at December 31, 2019   $ 30,879  
Income tax benefit (associated with the amortization of intangible assets)     (1,038 )
Deconsolidation of Nexway     (1,162 )
Balance at March 31, 2020   $ 28,679  
Acquisition of fuboTV Pre-Merger     65,613  
Income tax benefit (associated with the amortization of intangible assets)     (3,498 )
Balance at June 30, 2020   $ 90,794  
Income tax benefit (associated with the amortization of intangible assets)     (16,071 )
Measurement period adjustment     (65,295 )
Balance at September 30, 2020   $ 9,428  
  
Fubo TV Pre-Merger [Member]    
Income Taxes  

11. Income Taxes

 

The provision for income taxes for the periods presented in the Consolidated Statements of Operations and Comprehensive Loss is comprised of state and foreign income taxes. Income tax expense for the years ended December 31, 2019 and 2018 differed from statutory federal rate expense primarily due to the Company’s inability to benefit from its tax losses.

 

    December 31,  
    2019     2018  
             
Income tax provision at federal statutory rate   $ (36,475 )   $ (27,155 )
State income taxes, net of federal benefit     7       12  
Other non-deductible expense     276       309  
Change in valuation allowance     36,205       26,836  
Foreign rate differential     (4 )     (4 )
Law changes (federal effect)     -       -  
                 
Total tax provision (benefit)   $ 9     $ (2 )

 

The Company’s foreign subsidiary is located in Spain with tax rate of 25%. Activities for the period ended December 31, 2019 are minimal and resulted in a small loss reported in Spain therefore, there is no GILTI inclusion.

 

The Company’s deferred tax assets and liabilities consisted of the following:

 

    December 31,  
    2019     2018  
Deferred tax assets:                
Net operating loss carryforwards   $ 88,759     $ 49,307  
Accruals and deferrals     1,864       943  
Stock based compensation     102       57  
Interest expense limitation     432       -  
Other     6       -  
Total deferred tax assets     91,163       50,307  
Valuation allowance     (91,144 )     (50,190 )
Deferred tax liabilities:                
Property and equipment     (19 )     (117 )
Total deferred tax liabilities     (19 )     (117 )
                 
Net deferred tax assets   $ —     $ —  

 

At December 31, 2019 and 2018 the Company’s management considered new evidence, both positive and negative, that could impact management’s view with regard to future realization of deferred tax assets. At December 31, 2019 and 2018, the Company continued to maintain that the realization of its deferred tax assets has not achieved a more-likely than-not threshold therefore, the net deferred tax assets have been fully offset by a valuation allowance. The valuation allowance increased by $40,837 and $26,257 for the years ended December 31, 2019 and 2018, respectively.

 

At December 31, 2019 and 2018, the Company had approximately $375,864 and $209,813 of federal net operating loss carryforwards, respectively, of which $85,567 will begin to expire in 2034 and $290,297 has an indefinite life.

 

At December 31, 2019 and 2018, the Company had approximately $187,509 and $95,411 of state net operating loss carryforwards in various states with varying expiration dates beginning in the year 2034.

 

The Company began operations in Spain in 2018. At December 31, 2019 and 2018, the Company had approximately $100 and $66 of foreign net operating loss carryforwards, respectively. These losses do not expire as they have an indefinite life.

 

Utilization of the net operating loss carryforwards may be subject to a substantial annual limitation due to ownership change limitations that may have occurred or that could occur in the future, as required by the Internal Revenue Code (the “Code”), as well as similar state provisions. In general, an “ownership change” as defined by the Code results from a transaction or series of transactions over a three-year period resulting in an ownership change of more than 50 percentage points of the outstanding stock of a company by certain stockholders or public groups. Since the Company’s formation, the Company has raised capital through the issuance of capital stock on several occasions which may have resulted in such an ownership change or could result in an ownership change in the future. The annual limitation may result in the expiration of net operating loss carryforwards before utilization.

 

The Company has not completed a study to assess whether an ownership change has occurred or whether there have been multiple ownership changes since the Company’s formation due to the complexity and cost associated with such a study, and the fact that there may be additional such ownership changes in the future. If the Company has experienced an ownership change at any time since its formation, utilization of the net operating loss carryforwards to offset future taxable income and taxes, respectively, would be subject to an annual limitation under the Code, which is determined by first multiplying the value of the Company’s stock at the time of the ownership change by the applicable long-term, tax-exempt rate, and then could be subject to additional adjustments, as required. Any limitation may result in expiration of a portion of the net operating loss carryforwards before utilization. Until a study is completed and any limitation known, no amounts are being considered as an uncertain tax position or disclosed as unrecognized tax benefits since no benefits have been realized to date. The Company maintains a full valuation allowance for other deferred tax assets due to its historical losses and uncertainties surrounding its ability to generate future taxable income to realize these assets. Due to the existence of the valuation allowance, future changes to unrecognized deferred tax assets after the completion of an ownership change analysis are not expected to impact the Company’s effective tax rate.

 

The Company follows the provisions of FASB Accounting Standards Codification (ASC 740-10), Accounting for Uncertainty in Income Taxes. ASC 740-10 prescribes a comprehensive model for the recognition, measurement, presentation and disclosure in financial statements of uncertain tax positions that have been taken or expected to be taken on an income tax return. No liability related to uncertain tax positions was required to be recorded in the financial statements as of December 31, 2019 and 2018.

 

The Company’s policy is to recognize penalties and interest expense related to income taxes as a component of tax expense, but as of December 31, 2019 and 2018, no such provision was required.

 

The Company files U.S federal and state income tax returns as well as returns in foreign tax jurisdictions. Because the statute of limitations does not expire until after net operating loss carryforwards are actually used, the statute is open for all tax years from inception.