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Income Taxes | 12 Months Ended
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Dec. 31, 2021
Income Tax Disclosure [Abstract] |
Income Taxes | Income Taxes On March 27, 2020, the Coronavirus Aid, Relief and Economic Security (“CARES”) Act was signed into law. The CARES Act includes provisions relating to delaying certain payroll tax payments, refundable payroll tax credits, net operating loss carryback periods, modifications to the net interest deduction limitations and technical corrections to the tax depreciation methods for qualified improvement property. The tax law changes in the CARES Act did not have a material impact on the Company’s income tax provision. The components of the Company’s income before income taxes and equity in earnings of non-consolidated affiliates by taxing jurisdiction for the years ended December 31, were:
| 2021 |  | 2020 |  |
Income (Loss): |  |  |  |  |
U.S. | $ | 38,717 |  |  | $ | 95,939 |  |  |
Non-U.S. | 20,841 |  |  | (18,599) |  |  |
| $ | 59,558 |  |  | $ | 77,340 |  |  |
The provision (benefit) for income taxes by taxing jurisdiction for the years ended December 31, were:
| 2021 |  | 2020 |  |
Current tax provision |  |  |  |  |
U.S. federal | $ | 7,259 |  |  | $ | 5,812 |  |  |
U.S. state and local | 7,459 |  |  | 3,242 |  |  |
Non-U.S. | 12,498 |  |  | 2,346 |  |  |
| 27,216 |  |  | 11,400 |  |  |
Deferred tax provision (benefit): |  |  |  |  |
U.S. federal | (143) |  |  | (1,951) |  |  |
U.S. state and local | (2,521) |  |  | 389 |  |  |
Non-U.S. | (1,154) |  |  | (3,901) |  |  |
| (3,818) |  |  | (5,463) |  |  |
Income tax expense | $ | 23,398 |  |  | $ | 5,937 |  |  |
A reconciliation of income tax expense (benefit) using the U.S. federal income tax rate compared with actual income tax expense for the years ended December 31, is as follows:
| 2021 |  | 2020 |  |
Income before income taxes, equity in non-consolidated affiliates and noncontrolling interest | $ | 59,558 |  |  | $ | 77,340 |  |  |
Statutory income tax rate | 21.0 | % |  | 21.0 | % |  |
Tax expense using U.S. statutory income tax rate | $ | 12,507 |  |  | $ | 16,241 |  |  |
Impact of disregarded entity structure | (6,954) |  |  | (16,049) |  |  |
Foreign, net | 1,055 |  |  | 752 |  |  |
State taxes, net | 4,359 |  |  | 1,980 |  |  |
Stock compensation | 4,009 |  |  | — |  |  |
Changes in tax rates | 4,908 |  |  | — |  |  |
Valuation allowance | (15) |  |  | 1,286 |  |  |
Other, net | 3,529 |  |  | 1,727 |  |  |
Income tax expense | $ | 23,398 |  |  | $ | 5,937 |  |  |
Effective income tax rate | 39.3 | % |  | 7.7 | % |  |
Income tax expense for the twelve months ended December 31, 2021 was $23,398 (associated with a pre-tax income of $59,558) compared to an income tax expense of $5,937 (associated with pre-tax income of $77,340) for the twelve months ended December 31, 2020. Prior to merger on August 2, 2021, the Company was a limited liability company classified as a disregarded entity for U.S. federal income tax purposes, and as such was not subject to taxes from a U.S. federal income tax perspective. After the merger on August 2, 2021, the Company is a corporation with an investment in a limited liability company classified as a partnership for U.S. federal income tax purposes, and as such a portion of the consolidated income is not subject to taxes from a U.S. federal income tax perspective. The tax rate of 21% has been used to capture the U.S. federal taxes of the Company and the corporations owned by the Company and recorded in the Consolidated Statements of Operations and Comprehensive Income. The significant drivers of the effective tax rate for 2021 relate to the segmentation of the income between the portion subject to entity level tax and the portion of income reported directly by the non-controlling interests, state income taxes, and non-deductible stock based compensation. The significant drivers of the effective tax rate for 2020 relate to the segmentation of income between the portion subject to entity level tax and the portion of income reported directly by the Member, state income taxes, as well as valuation allowances established during the period. Income taxes receivable were $790 and $0 at December 31, 2021 and 2020, respectively, and were included in other current assets on the balance sheet. Income taxes payable were $24,643 and $4,244 at December 31, 2021 and 2020, respectively, and were included in accrued and other liabilities on the balance sheet. It is the Company’s policy to classify interest and penalties arising in connection with unrecognized tax benefits as a component of income tax expense. The tax effects of significant temporary differences representing deferred tax assets and liabilities at December 31, were as follows:
| 2021 |  | 2020
Deferred tax assets: |  |  |
Net operating losses | $ | 33,112 |  |  | $ | 10,229 |
Tax credits | 6,644 |  |  | 583 |
Operating lease liability | 48,173 |  |  | 4,141 |
Interest deductions | 30,760 |  |  | — |
Accruals and other liabilities | 3,720 |  |  | — |
Other | 15,160 |  |  | 3,344 |
Gross deferred tax asset | 137,569 |  |  | 18,297 |
Less: valuation allowance | (5,825) |  |  | (5,551) |
Net deferred tax assets | $ | 131,744 |  |  | $ | 12,746 |
Deferred tax liabilities: |  |  |
Right of use asset - operating leases | 37,001 |  |  | 3,577 |
Property and equipment, net | 4,212 |  |  | 463 |
Goodwill and intangibles | 83,607 |  |  | 21,959 |
Residual basis differences | 102,297 |  |  | — |
Other | 6,854 |  |  | 2,639 |
Total deferred tax liabilities | 233,971 |  |  | 28,638 |
Net deferred tax liability | $ | (102,227) |  |  | $ | (15,892) |
Deferred tax assets | $ | 866 |  |  | $ | 158 |
Deferred tax liabilities | (103,093) |  |  | (16,050) |
| $ | (102,227) |  |  | $ | (15,892) |
Stagwell Inc. itself has net operating loss carryforwards of $133,859 which expire years 2031 through 2041. These definite lived net operating loss carryforwards consist of $17,862 relating to U.S federal, and $115,997 relating to U.S. states. Stagwell Inc. also had indefinite net operating loss carryforwards of $119,415 which consist of $37,367 relating to U.S. federal, and $82,048 relating to U.S. states. Stagwell Inc. also has foreign tax credit and general business carryovers of $6,644 which expire between 2024 and 2031. Stagwell Inc.’s consolidated corporate subsidiaries also have net operating loss carryforwards of $49,026 which expire in years 2022 through 2044. These definite lived net operating loss carryforwards consist of $17,411 relating to U.S. federal, $28,879 relating to U.S. states and $2,736 relating to non-U.S. The corporate subsidiaries also have indefinite net operating loss carryforwards of $21,639. These indefinite loss carryforwards consist of $8,840 relating to U.S. federal, and $12,799 relating to non-U.S. The majority of the consolidated corporate subsidiaries' U.S. tax attributes are subject to an annual limitation as a result of historic acquisitions which constituted a change of ownership as defined under Internal Revenue Code 382. The Company records a valuation allowance against deferred income tax assets when management believes it is more likely than not that some portion or all of the deferred income tax assets will not be realized. Management evaluates all positive and negative evidence and considers factors such as the reversal of taxable temporary differences, taxable income in eligible carryback years, future taxable income, and tax planning strategies. A change to these factors could impact the estimated valuation allowance and income tax expense. The Company maintained a valuation allowance of $5,825 as of December 31, 2021 relating to both U.S. and foreign deferred tax assets, and $5,551 as of December 31, 2020 relating to U.S. and foreign deferred tax assets. The Company is permanently reinvested with respect to its foreign earnings in certain jurisdictions, and no deferred taxes have been recorded related to such earnings as the determination of the amount is not practicable. The Company currently does not intend to distribute previously taxed income. Upon distribution in the future, the Company may incur state and foreign withholding taxes on such income, the amount of which is not practicable to compute. As of December 31, 2021 and 2020, the Company recorded a liability for unrecognized tax benefits as well as applicable penalties and interest in the amount of $1,120 and $0, respectively. As of December 31, 2021 and 2020, accrued penalties and interest included in unrecognized tax benefits were approximately $82 and $0, respectively. If these unrecognized tax benefits were to be recognized, it would affect the Company’s effective tax rate.
| 2021 |  | 2020 |  |
A reconciliation of the change in unrecognized tax benefits is as follows: |  |  |  |  |
Unrecognized tax benefit - Beginning Balance | $ | — |  |  | $ | — |  |  |
Current year positions | — |  |  | — |  |  |
Prior period positions | 1,038 |  |  | — |  |  |
Settlements | — |  |  | — |  |  |
Lapse of statute of limitations | — |  |  | — |  |  |
Unrecognized tax benefits - Ending Balance | $ | 1,038 |  |  | $ | — |  |  |
It is reasonably possible that the amount of unrecognized tax benefits could decrease by a range of $300 to $400 in the next twelve months as a result of expiration of certain statute of limitations. The Company is subject to taxation and files income tax returns in the U.S. federal jurisdiction and in many state and foreign jurisdictions. The statute of limitations for tax years prior to 2018 are closed for U.S. federal purposes. The statute of limitations for tax years prior to 2011 have also expired in non-U.S. jurisdictions.

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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 http://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 http://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 http://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 http://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 http://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 http://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 http://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 http://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 http://asc.fasb.org/extlink&oid=120395691&loc=d3e23780-122690 + Details
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