XML 30 R16.htm IDEA: XBRL DOCUMENT v3.21.2
Income Taxes
 9 Months Ended
Sep. 30, 2021
Income Tax Disclosure [Abstract]  
Income Taxes Income Taxes
OppFi-LLC is treated as a partnership for U.S. federal and most applicable state and local income tax purposes. As a partnership, OppFi-LLC is not subject to U.S. federal and certain state and local income taxes. Any taxable income or loss generated by OppFi-LLC is passed through to and included in the taxable income or loss of its members, including OppFi, on a pro rata basis. OppFi is subject to U.S. federal income taxes, in addition to state and local income taxes with respect to our allocable share of any taxable income or loss of OppFi-LLC, as well as any stand-alone income or loss generated by OppFi.

For the three months ended September 30, 2021, OppFi recorded an income tax expense of $703 thousand and reported consolidated income before taxes of $31,095 thousand, resulting in a 2.3% effective income tax rate. Prior to the Closing Date, OppFi-LLC was classified as a partnership for income tax purposes and was therefore not subject to federal income tax and did not record an expense for income taxes.

Because no income tax was recorded prior to the Closing Date, for the nine months ended September 30, 2021, OppFi recorded an income tax expense of $703 thousand and reported consolidated income before taxes of $73,466 thousand, resulting in an effective income tax rate of 1.0%.

As OppFi-LLC was classified as a partnership for federal income tax purposes, OppFi-LLC did not record an income tax expense for the three and nine months ended September 30, 2020. A pro forma income tax provision has been disclosed as if OppFi-LLC was a taxable corporation for the three and nine months ended September 30, 2020. For the three and nine months ended September 30, 2020, the unaudited pro forma income tax expense was $561 thousand and $1,779 thousand, respectively, resulting in an effective tax rate of 2.9%.

The effective tax rates for the three and nine months ended September 30, 2021 and for the pro forma 2020 differ from the statutory income tax rate of 21% primarily due to the noncontrolling interest in the Up-C partnership structure, nondeductible expenses, and state income taxes. OppFi is subject to a 21% federal income tax rate on its activities and its distributive share of income from OppFi-LLC, as well as various state and local income taxes. As of September 30, 2021, OppFi owns 12.2% of the outstanding units of OppFi-LLC and considers appropriate tax accounting only on this portion of OppFi-LLC’s activity. Additionally, OppFi’s income tax rate varies from the 21% statutory federal income tax rate primarily due to a permanent difference related to the adjustment of the warrant liability recorded by OppFi. This fair market value adjustment of the warrant liability represents a large portion of OppFi’s pre-tax book income or loss and is a permanent difference between GAAP and taxable income, which impacts OppFi’s effective income tax rate.

OppFi recorded a deferred tax asset and additional paid-in capital for the difference between the book value and the tax basis of OppFi’s investment in OppFi-LLC. Based on the Company’s cumulative earnings history and forecasted future sources of taxable income, the Company believes that it will be able to realize the deferred tax assets in the future. As the Company reassesses this position in the future, changes in cumulative earnings history, excluding non-recurring charges, or changes to forecasted taxable income may alter this expectation and may result in an increase in the valuation allowance and an increase in the effective tax rate.

The CARES Act was enacted on March 27, 2020 in the United States to provide emergency assistance to individuals and businesses affected by the COVID-19 pandemic. The CARES Act includes temporary changes to both income and non-income based tax laws. For the three months ended September 30, 2021 the impact of the CARES Act was immaterial to the Company’s tax provision. However, under the CARES Act, the Company is deferring the employer portion of payroll tax payments through December 31, 2021. Future regulatory guidance under the CARES Act or additional legislation enacted by Congress in connection with the COVID-19 pandemic could impact the Company’s tax provision in future periods.

In connection with the Business Combination, the Company entered into the TRA, which provides for payment to the Members of 90% of the U.S. federal, state and local income tax savings realized by the Company as a result of the increases in tax basis and certain other tax benefits related to the transactions contemplated under the Business Combination Agreement and the exchange of Retained OppFi Units for Class A Common Stock or cash. The Company has in effect an election under Section 754 of the Internal Revenue Code and will have such an election effective for each taxable year in which a redemption or exchange (including deemed exchange) of OppFi-LLC interests for shares of Class A Common Stock or cash occurs. The Company will retain the benefit of the remaining 10%. As of September 30, 2021, the Company recorded a TRA liability of $22,866 thousand related to exchanges that occurred during the period.
There were no unrecognized tax benefits as of September 30, 2021 or September 30, 2020. ASC 740 prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. The Company recognizes accrued interest and penalties related to unrecognized tax benefits as income tax expense. No amounts were accrued for the payment of interest and penalties as of September 30, 2021. The Company is currently not aware of any issues under review that could result in significant payments, accruals or material deviation from its position. The Company is subject to income tax examinations by major taxing authorities since inception.