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INCOME TAXES | 12 Months Ended
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Dec. 31, 2023
Income Tax Disclosure [Abstract] |
INCOME TAXES | INCOME TAXES Income before income taxes, consisted of the following for the years set forth below (amounts in thousands):
| 2023 |  | 2022 |  | 2021
Domestic | $ | 20,809 |  |  | $ | 73,361 |  |  | $ | (5,862) |
Foreign | 88,939 |  |  | 128,992 |  |  | 56,902 |
| $ | 109,748 |  |  | $ | 202,353 |  |  | $ | 51,040 |
The income tax provision was as follows for the years set forth below (amounts in thousands):
| 2023 |  | 2022 |  | 2021
Current |  |  |  |  |
Federal | $ | (217) |  |  | $ | (55) |  |  | $ | (933) |
State | 1,341 |  |  | 1,897 |  |  | (160) |
Foreign | 26,999 |  |  | 44,710 |  |  | 16,422 |
| 28,123 |  |  | 46,552 |  |  | 15,329 |
Deferred |  |  |  |  |
Federal | (2,513) |  |  | (14,953) |  |  | — |
State | 1,186 |  |  | (10,959) |  |  | — |
Foreign | (754) |  |  | 2,527 |  |  | (14,180) |
| (2,081) |  |  | (23,385) |  |  | (14,180) |
Income tax provision | $ | 26,042 |  |  | $ | 23,167 |  |  | $ | 1,149 |
The income tax provision differs from the amount of income tax determined by applying the statutory U.S. federal income tax rate to pre-tax income as a result of the following:
| 2023 |  | 2022 |  | 2021
Statutory U.S. federal tax rate | 21.0 | % |  | 21.0 | % |  | 21.0 | %
Unrecognized tax positions | — |  |  | (0.3) |  |  | (1.1) |
Foreign tax rate and income differential | 9.6 |  |  | 11.7 |  |  | 13.0 |
Valuation allowance | (3.5) |  |  | (23.4) |  |  | (33.9) |
State taxes, net | 1.2 |  |  | 2.0 |  |  | 3.7 |
Nondeductible royalty | 0.8 |  |  | 0.5 |  |  | 1.9 |
Federal Benefit of Notice 2023-55 | (5.2) |  |  | — |  |  | — |
Equity based compensation | — |  |  | (0.3) |  |  | (1.0) |
Nondeductible interest | — |  |  | — |  |  | 1.5 |
Other, net | (0.2) |  |  | 0.2 |  |  | (2.8) |
Effective tax rate | 23.7 | % |  | 11.4 | % |  | 2.3 | %
The effective tax rate for the year ended December 31, 2023, was 23.7% compared to 11.4% for the year ended December 31, 2022. The effective rate for 2023 was negatively affected by the impacts of foreign income and state income taxes, which resulted in a net $10.5 million and $1.3 million tax expense, respectively. For 2023, the rate was positively impacted by the release of Notice 2023-55, resulting in a federal benefit of $5.7 million. After giving consideration to these items, the effective tax rate for 2023 of 23.7% was higher than the 21% U.S. federal statutory rate. In December 2021, the U.S. Treasury Department released final regulations concerning the U.S foreign tax credit. In November 2022, the U.S. Treasury Department and IRS released proposed regulations which provided additional guidance relating to the credits for foreign taxes. As a result, for 2022 the Company did not expect to receive a credit for Brazilian income taxes paid for U.S. tax purposes. This resulted in US tax associated with the Brazilian income, which led to a higher impact of foreign income in the rate for 2022. In July 2023, the IRS released Notice 2023-55. This notice generally allows a taxpayer that determined foreign taxes were creditable prior to the 2022 FTC final regulations to continue to treat such foreign income taxes as creditable during 2022 and 2023. Thus, this notice allows Titan to continue to take the position Brazilian income taxes are creditable taxes for 2023. Furthermore, it allowed Titan to take the position on its 2022 tax return that the Brazilian income taxes are creditable, resulting in a $5.7 million federal benefit. In jurisdictions where the Company operates, management continues to monitor the realizability of the deferred tax assets arising from losses in its cyclical business, taking into account multiple factors. As of each reporting date, management considers new evidence, both positive and negative, that could affect its view of the future realization of deferred tax assets. The Company continues to record a valuation allowance in several major jurisdictions, including various U.S. states, Italy, and Luxembourg as these amounts remain more likely than not that the deferred tax assets would not be utilized. The Company released a valuation allowance of $0.6 million and $53.3 million on the net deferred tax asset in 2023 and 2022, respectively. These amounts are primarily related to net operating losses generated from operations in these certain countries. The Company is involved in various tax matters, for some of which the outcome is uncertain. The Company believes that it has adequate tax reserves to address these open tax matters acknowledging that the outcome and timing of these events are uncertain. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred tax assets and liabilities at December 31, 2023 and 2022, were as follows (amounts in thousands):
| 2023 |  | 2022
Deferred tax assets: |  |  |
Net operating loss carryforwards | $ | 115,336 |  |  | $ | 117,646 |
Inventory | 8,492 |  |  | 7,001 |
Warranty | 6,496 |  |  | 5,587 |
Employee benefits and related costs | 8,130 |  |  | 8,394 |
Prepaid royalties | 1,576 |  |  | 2,145 |
Interest limitation | 17,851 |  |  | 16,361 |
Lease liability | 4,390 |  |  | 3,951 |
Intangible assets | 1,592 |  |  | 1,105 |
Other | 15,322 |  |  | 14,045 |
Deferred tax assets | 179,185 |  |  | 176,235 |
Deferred tax liabilities: |  |  |
Fixed assets | (11,577) |  |  | (11,978) |
Lease assets | (4,384) |  |  | (3,869) |
Pension | (3,740) |  |  | (1,169) |
Other | (4,150) |  |  | (2,851) |
Deferred tax liabilities | (23,851) |  |  | (19,867) |
Subtotal | 155,334 |  |  | 156,368 |
Valuation allowance | (119,535) |  |  | (121,057) |
Net deferred tax asset (liability) | $ | 35,799 |  |  | $ | 35,311 |
As of December 31, 2023 and 2022, certain net tax loss carryforwards of $115.3 million and $117.6 million were available with $1.7 million expiring between 2023 and 2028 and $113.6 million expiring after 2028. At December 31, 2023, a valuation allowance of $119.5 million has been established. The net change in the valuation allowance was $(1.5) million and $(52.1) million for 2023 and 2022, respectively. The majority of the valuation allowance is related to deferred tax assets in the U.S., Italy, and Luxembourg. As of December 31, 2023, the Company has $61.6 million of gross federal net operating loss carryforward, a portion of which expires starting in 2035 and a portion of which does not expire. Additionally, the Company has $290.7 million of gross state net operating losses and $356.5 million of gross foreign loss carryforwards. The Company has not changed its indefinite reinvestment assertion during the year and has not accrued any potential incremental taxes which could be incurred if any foreign earnings are repatriated. The Company has not calculated the potential foreign withholding taxes as the Company does not expect to repatriate those earnings. The Company or one of its subsidiaries files income tax returns in the U.S., Federal and State, and various foreign jurisdictions. The Company’s major locations are in the U.S., Brazil, and Italy. Open tax years for the U.S. are from 2020-2023, Brazil has open tax years from 2017-2023, and Italy has open tax years from 2017-2023. The Company has applied the provisions of ASC 740, “Income Taxes” related to unrecognized tax benefits. At December 31, 2023, 2022, and 2021, the unrecognized tax benefits were $0.0 million, $0.0 million, and $0.1 million, respectively. As of December 31, 2023, $0.0 million of unrecognized tax benefits would have affected income tax expense if the tax benefits were recognized. The majority of the accrual in unrecognized tax benefits relates to potential state tax exposures. Although management cannot predict with any degree of certainty the timing of ultimate resolution of matters under review by various taxing jurisdictions, it is possible that the Company’s gross unrecognized tax benefits balance will decrease by approximately $0.0 million within the next twelve months. A reconciliation of the total amounts of unrecognized tax benefits at December 31 were as follows (amounts in thousands):
| 2023 |  | 2022 |  | 2021
Balance at January 1 | $ | 30 |  |  | $ | 540 |  |  | $ | 1,012 |
Increases to tax positions taken during the current year | — |  |  | — |  |  | — |
Increases to tax positions taken during the prior years | — |  |  | — |  |  | — |
Decreases to tax positions taken during prior years | — |  |  | — |  |  | — |
Decreases due to lapse of statutes of limitations | (7) |  |  | (506) |  |  | (473) |
Settlements | — |  |  | — |  |  | — |
Foreign exchange | — |  |  | (4) |  |  | 1 |
Balance at December 31 | $ | 23 |  |  | $ | 30 |  |  | $ | 540 |
The Company accrues interest and penalties related to unrecognized tax benefits in income tax expense. The amount of interest and penalties related to unrecognized tax benefits recorded in income tax expense was $0.0 million, $0.0 million, and $(0.2) million at December 31, 2023, 2022 and 2021, respectively. There were no accrued interest and penalties excluded at December 31, 2023, 2022, and 2021. Brazilian Tax Credits In June 2021, the Company’s Brazilian subsidiaries received a notice that they had prevailed on an existing legal claim in regards to certain non-income (indirect) taxes that had been previously charged and paid. The matter specifically relates to companies’ rights to exclude the state tax on goods circulation (a value-added-tax or VAT equivalent, known in Brazil as “ICMS”) from the calculation of certain additional indirect taxes (specifically the program of social integration (“PIS”) and contribution for financing of social security (“COFINS”) levied by the Brazilian States on the sale of goods. During the second quarter of 2023, one of the Company’s Brazilian subsidiaries received a notice that they had prevailed on an additional legal claim in regards to the non-income (indirect) taxes credits that had been granted in a prior year ruling. The most recent ruling exempted from taxes, the interest benefit on the indirect tax credits granted in prior year. For the year ended December 31, 2023, the Company recorded indirect tax credits of $0.5 million within other income in the consolidated statements of operations. The Company also recorded a $2.6 million benefit within the provision for income taxes in the consolidated statements of operations for the year ended December 31, 2023. During the second and third quarter of 2022, the Company submitted the related supporting documentation and received the approval from the Brazilian tax authorities for two of its Brazilian subsidiaries. For the year ended December 31, 2022, the Company recorded $32.0 million within other income in the consolidated statements of operations. The Company also recorded $16.1 million of income tax expense associated with the recognition of these indirect tax credits for the year ended December 31, 2022. Of the $16.1 million income tax expense recorded, $9.4 million was recorded locally in Brazil, while the remaining $6.7 million was recorded to the US in accordance with the GILTI income tax requirements. The Company has fully utilized the credits against future PIS/COFINS and income tax obligations by the end of 2023.

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