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Income Taxes | 12 Months Ended
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Dec. 31, 2022
Income Tax Disclosure [Abstract] |
Income Tax Disclosure | 17. Income Taxes 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:
| 2022 |  | 2021 |  | 2020
Income (Loss): |  |  |  |  |
U.S. | $ | 29,597 |  |  | $ | 38,717 |  |  | $ | 95,939 |
Non-U.S. | 43,904 |  |  | 20,841 |  |  | (18,599) |
| $ | 73,501 |  |  | $ | 59,558 |  |  | $ | 77,340 |
The provision (benefit) for income taxes by taxing jurisdiction for the years ended December 31, were:
| 2022 |  | 2021 |  | 2020
Current tax provision |  |  |  |  |
U.S. federal | $ | 3,913 |  |  | $ | 7,259 |  |  | $ | 5,812 |
U.S. state and local | 5,588 |  |  | 7,459 |  |  | 3,242 |
Non-U.S. | 16,398 |  |  | 12,498 |  |  | 2,346 |
| 25,899 |  |  | 27,216 |  |  | 11,400 |
Deferred tax provision (benefit): |  |  |  |  |
U.S. federal | (8,049) |  |  | (143) |  |  | (1,951) |
U.S. state and local | (6,439) |  |  | (2,521) |  |  | 389 |
Non-U.S. | (3,831) |  |  | (1,154) |  |  | (3,901) |
| (18,319) |  |  | (3,818) |  |  | (5,463) |
Income tax expense | $ | 7,580 |  |  | $ | 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:
| 2022 |  | 2021 |  | 2020
Income before income taxes, equity in non-consolidated affiliates and noncontrolling interest | $ | 73,501 |  |  | $ | 59,558 |  |  | $ | 77,340 |
Statutory income tax rate | 21.0 | % |  | 21.0 | % |  | 21.0 | %
Tax expense using U.S. statutory income tax rate | $ | 15,435 |  |  | $ | 12,507 |  |  | $ | 16,241 |
Impact of disregarded entity structure | (3,355) |  |  | (6,954) |  |  | (16,049) |
Foreign, net | 2,111 |  |  | 5,995 |  |  | 752 |
State taxes, net | (850) |  |  | 4,327 |  |  | 1,980 |
Stock compensation | (1,342) |  |  | 4,009 |  |  | — |
Valuation allowance | 2,760 |  |  | (15) |  |  | 1,286 |
Revaluation of TRA step up | (6,952) |  |  | — |  |  | — |
Return to provision adjustments | (16,159) |  |  | — |  |  | — |
Goodwill impairments | 14,645 |  |  | — |  |  | — |
Other, net | 1,287 |  |  | 3,529 |  |  | 1,727 |
Income tax expense | $ | 7,580 |  |  | $ | 23,398 |  |  | $ | 5,937 |
Effective income tax rate | 10.3 | % |  | 39.3 | % |  | 7.7 | %
Prior to merger, 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, 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 21.0% 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. 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. In August 2022, the United States enacted to the Inflation Reduction Act of 2022 (“IRA”), which creates a new book minimum tax of at least 15% of consolidated GAAP pre-tax income for corporations with average book income in excess of $1 billion. We do not expect an increase in our tax liability from this new book minimum tax in 2023. Income taxes receivable were $15,191 and $790 at December 31, 2022 and 2021, respectively, and were included in other current assets on the balance sheet. Income taxes payable were $6,850 and $24,643 at December 31, 2022 and 2021, respectively, and were included in accrued and other liabilities on the balance sheet. The tax effects of significant temporary differences representing deferred tax assets and liabilities at December 31, were as follows:
| 2022 |  | 2021 |  | 2020
Deferred tax assets: |  |  |  |  |
Net operating losses | $ | 38,871 |  |  | $ | 33,112 |  |  | $ | 10,229 |
Tax credits | 7,104 |  |  | 6,644 |  |  | 583 |
Operating lease liability | 52,442 |  |  | 48,173 |  |  | 4,141 |
Interest deductions | 29,530 |  |  | 30,760 |  |  | — |
Accruals and other liabilities | 2,794 |  |  | 3,720 |  |  | — |
TRA and related step-up, net of amortization | 32,890 |  |  | — |  |  | — |
Other | 14,557 |  |  | 15,160 |  |  | 3,344 |
Gross deferred tax asset | 178,188 |  |  | 137,569 |  |  | 18,297 |
Less: valuation allowance | (12,223) |  |  | (5,825) |  |  | (5,551) |
Net deferred tax assets | $ | 165,965 |  |  | $ | 131,744 |  |  | $ | 12,746 |
Deferred tax liabilities: |  |  |  |  |
Right-of-use lease asset - operating leases | 40,012 |  |  | 37,001 |  |  | 3,577 |
Property and equipment, net | 6,839 |  |  | 4,212 |  |  | 463 |
Goodwill and intangibles | 90,599 |  |  | 83,607 |  |  | 21,959 |
Residual basis differences | — |  |  | 102,297 |  |  | — |
Other | 940 |  |  | 6,854 |  |  | 2,639 |
Total deferred tax liabilities | 138,390 |  |  | 233,971 |  |  | 28,638 |
Net deferred tax asset (liability) | $ | 27,575 |  |  | $ | (102,227) |  |  | $ | (15,892) |
Deferred tax assets | $ | 67,684 |  |  | $ | 866 |  |  | $ | 158 |
Deferred tax liabilities | (40,109) |  |  | (103,093) |  |  | (16,050) |
| $ | 27,575 |  |  | $ | (102,227) |  |  | $ | (15,892) |
The preliminary deferred tax liability for the Company’s residual basis difference in OpCo of $102,297 reflected in the table above as of December 31, 2021 was adjusted to zero as of December 31, 2022 to reflect the finalization of the Company’s book and tax basis in OpCo. This deferred tax liability had a balance of $119,470 as of September 30, 2022 that should have been zero. In addition, a deferred tax liability of $16,700, and the associated reduction to additional paid-in-capital was not recorded when the exchanges of Paired Units for Class A Common Stock occurred in February 2022. The correction has been reflected as of December 31, 2022. Tax Receivables Agreement In connection with the closing of the Transaction, we entered into the Tax Receivables Agreement (“TRA”) with OpCo and Stagwell Media, pursuant to which we are required to make cash payments to Stagwell Media equal to 85% of certain U.S. federal, state and local income tax or franchise tax savings, if any, that we actually realize, or in certain circumstances are deemed to realize, as a result of (i) increases in the tax basis of OpCo’s assets resulting from exchanges of Paired Units (defined in Note 11) for shares of Class A Common Stock or cash, as applicable, and (ii) certain other tax benefits related to us making payments under the TRA. The Company accounts for amounts payable under the TRA in accordance with ASC 450-Contingencies. We will evaluate the likelihood that we will realize the benefit represented by the deferred tax asset and, to the extent that we estimate that it is more likely than not that we will not realize the benefit, we will reduce the carrying amount of the deferred tax asset with a valuation allowance and a corresponding reduction to the TRA liability. The amounts to be recorded for both the deferred tax assets and the liability under the TRA will be estimated at the time of any purchase or exchange as a reduction to shareholders’ equity, and the effects of changes in any of our estimates after this date will be included in net income or loss. Similarly, the effect of subsequent changes in the enacted tax rates will be included in net income or loss. In the first quarter of 2022, the Company had its first exchange of Paired Units for shares of Class A Common Stock and recorded its initial TRA liability. Further exchanges have been made in the subsequent quarters. As of December 31, 2022 the Company has recorded a TRA liability of $28,694 and a deferred tax asset, net of amortization of $32,890 in connection with the exchanges of the Paired Units and the projected obligations under the TRA. Stagwell Inc. itself has net operating loss carryforwards of $57,553 relating to U.S. states which expire years 2024 through 2042. Stagwell Inc. also had indefinite net operating loss carryforwards which consist of $44,048 relating to U.S. federal, and $140,608 relating to states. Stagwell Inc. also has foreign tax credit and general business carryovers of $7,104 which expire between 2024 and 2031. Stagwell Inc.’s consolidated corporate subsidiaries also have net operating loss carryforwards which expire in years 2022 through 2044. These definite lived net operating loss carryforwards consist of $18,730 relating to U.S. federal, $21,403 relating to states and $20,099 relating to non-U.S. The corporate subsidiaries also have indefinite net operating loss carryforwards which consist of $10,555 relating to U.S. federal, and $15,363 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 $12,223 as of December 31, 2022 relating to both U.S. and foreign deferred tax assets, and $5,825 as of December 31, 2021 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, 2022 and 2021, the Company recorded a liability for unrecognized tax benefits as well as applicable penalties and interest in the amount of $2,159 and $1,120, respectively. 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. As of December 31, 2022 and 2021, accrued penalties and interest included in unrecognized tax benefits were approximately $23 and $82, respectively. If these unrecognized tax benefits were to be recognized, it would affect the Company’s effective tax rate.
| 2022 |  | 2021 |  |
A reconciliation of the change in unrecognized tax benefits is as follows: |  |  |  |  |
Unrecognized tax benefit - Beginning Balance | $ | 1,038 |  |  | $ | — |  |  |
Current year positions | — |  |  | — |  |  |
Prior period positions | 1,850 |  |  | 1,038 |  |  |
Settlements | (477) |  |  | — |  |  |
Lapse of statute of limitations | (275) |  |  | — |  |  |
Unrecognized tax benefits - Ending Balance | $ | 2,136 |  |  | $ | 1,038 |  |  |
It is reasonably possible that the amount of unrecognized tax benefits could decrease by a range of $104 to $286 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 2019 are closed for U.S. federal purposes. The statute of limitations for tax years prior to 2016 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 https://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 https://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 https://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 https://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 https://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 https://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 https://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 https://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 https://asc.fasb.org/extlink&oid=120395691&loc=d3e23780-122690 + Details
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