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Income Taxes
 12 Months Ended
Dec. 31, 2024
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:
202420232022
Income (Loss):
U.S.$36,368 $66,432 $31,681 
Non-U.S.1,355 24,637 43,904 
$37,723 $91,069 $75,585 
The provision (benefit) for income taxes by taxing jurisdiction for the years ended December 31, were:
202420232022
Current tax provision
U.S. federal$7,139 $4,868 $13,229 
U.S. state and local4,359 3,103 8,106 
Non-U.S.12,370 13,143 22,368 
23,868 21,114 43,703 
Deferred tax provision (benefit):
U.S. federal607 18,168 (16,132)
U.S. state and local248 7,017 701 
Non-U.S.(11,541)(5,742)(2,810)
(10,686)19,443 (18,241)
Income tax expense$13,182 $40,557 $25,462 

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:
202420232022
Income before income taxes, equity in non-consolidated affiliates and noncontrolling interest$37,723$91,069$75,585
Statutory income tax rate21.0 %21.0 %21.0 %
Tax expense using U.S. statutory income tax rate$7,922$19,124$15,873
Impact of disregarded entity structure(3,384)(8,520)(3,355)
Foreign, net1,208(3,684)6,930
State taxes, net3,7018,4228,807
Stock compensation2,244400(1,342)
Valuation allowance5,19811,7914,932
Deferred acquisition consideration adjustments
(2,079)1,299(72)
Revaluation of TRA step up—(424)(5,109)
Gain on sale of business—8,347—
Prior year adjustments(3,464)5,617(17,205)
Goodwill impairments——14,645
Other, net1,836(1,815)1,358
Income tax expense$13,182$40,557$25,462
Effective income tax rate34.9 %44.5 %33.7 %

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.
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. The Company’s tax liability has not increased as a result of this new book minimum tax.
Income taxes receivable were $27.0 million and $21.6 million as of December 31, 2024, and 2023, respectively, and were included in Other current assets on the Consolidated Balance Sheets. Long-term income taxes receivable were $10.4 million and $12.5 million as of December 31, 2024, and 2023, and were included in Other assets on the Consolidated Balance Sheets. Income taxes payable were $12.1 million and $5.7 million as of December 31, 2024, and 2023, respectively, and were included in Accruals and other liabilities on the Consolidated Balance Sheets.
The tax effects of significant temporary differences representing deferred tax assets and liabilities as of December 31, were as follows:
202420232022
Deferred tax assets:
Net operating losses$38,482 $29,835 $44,001 
Tax credits6,719 6,355 7,104 
Operating lease liability44,356 50,657 52,442 
Interest deductions37,384 36,618 30,681 
Accruals and other liabilities1,010 252 2,794 
TRA and related step-up, net of amortization27,335 29,007 30,556 
Other8,128 13,568 10,584 
Gross deferred tax asset163,414 166,292 178,162 
Less: valuation allowance(30,583)(26,288)(14,395)
Net deferred tax assets$132,831 $140,004 $163,767 
Deferred tax liabilities:
Right-of-use lease asset - operating leases33,163 38,261 40,012 
Property and equipment, net5,065 11,553 9,329 
Goodwill and intangibles94,126 83,335 85,990 
Residual basis differences— — — 
Other790 205 940 
Total deferred tax liabilities133,144 133,354 136,271 
Net deferred tax asset (liability)$(313)$6,650 $27,496 
Deferred tax assets$46,926 $47,159 $68,375 
Deferred tax liabilities(47,239)(40,509)(40,879)
$(313)$6,650 $27,496 

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 15) 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 in 2022 and no further exchanges in 2023 or 2024. As of December 31, 2024, and 2023, the Company has recorded a TRA liability of $26.7 million and $26.9 million, respectively, and a deferred tax asset, net of amortization of $27.3 million and $29.0 million, respectively, 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 $62.1 million relating to U.S. states which expire years 2025 through 2042 and indefinite net operating loss carryforwards of $4.5 million relating to U.S. states. Stagwell Inc. also has foreign and state tax credits of $6.7 million which expire between 2025 and 2034.
Stagwell Inc.’s consolidated corporate subsidiaries also have net operating loss carryforwards which expire in years 2025 through 2044. These definite lived net operating loss carryforwards consist of $12.5 million relating to U.S. federal, $14.4
million relating to states and $44.4 million relating to non-U.S. The corporate subsidiaries also have indefinite net operating loss carryforwards which consist of $24.2 million relating to U.S. federal, and $2.0 million relating to U.S. states, and $69.3 million 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 $30.6 million as of December 31, 2024, relating to both U.S. and foreign deferred tax assets, and $26.3 million as of December 31, 2023 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, 2024, and 2023, the Company recorded a liability for unrecognized tax benefits as well as applicable penalties and interest in the amount of $2.1 million and $1.8 million, respectively. If these unrecognized tax benefits were to be recognized, it would affect the Company’s effective tax rate.
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, 2024, and 2023, accrued penalties and interest included in unrecognized tax benefits were $2.1 million and $1.8 million, respectively.
A reconciliation of the change in unrecognized tax benefits exclusive of penalties and interest is as follows:
20242023
A reconciliation of the change in unrecognized tax benefits is as follows:
Unrecognized tax benefit - Beginning Balance$9 $2,136 
Current year positions— 288 
Prior period positions— (1,840)
Settlements— (289)
Lapse of statute of limitations— (286)
Unrecognized tax benefits - Ending Balance$9 $9 

It is reasonably possible that the amount of unrecognized tax benefits could decrease by less than $0.1 million 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 2021 are closed for U.S. federal purposes. The statute of limitations for tax years prior to 2014 have also expired in non-U.S. jurisdictions.