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INCOME TAXES
 12 Months Ended
Dec. 31, 2024
Income Tax Disclosure [Abstract]  
INCOME TAXES INCOME TAXES
Income (loss) before income taxes, consisted of the following for the years set forth below (amounts in thousands):
 202420232022
Domestic$(32,410)$20,809 $73,361 
Foreign40,681 88,939 128,992 
 $8,271 $109,748 $202,353 

The income tax provision was as follows for the years set forth below (amounts in thousands):
 202420232022
Current   
Federal$372 $(217)$(55)
State(442)1,341 1,897 
Foreign18,289 26,999 44,710 
 18,219 28,123 46,552 
Deferred   
Federal(1,290)(2,513)(14,953)
State(1,896)1,186 (10,959)
Foreign(3,172)(754)2,527 
 (6,358)(2,081)(23,385)
Income tax provision$11,861 $26,042 $23,167 

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 (loss) as a result of the following:
 202420232022
Statutory U.S. federal tax rate21.0 %21.0 %21.0 %
Unrecognized tax positions7.3 — (0.3)
Foreign tax rate and income differential128.4 9.6 11.7 
Valuation allowance(100.3)(3.5)(23.4)
State taxes, net (18.0)1.2 2.0 
Nondeductible royalty— 0.8 0.5 
Federal Benefit of Notice 2023-55— (5.2)— 
Expired tax credits69.5 — — 
Equity based compensation1.1 — (0.3)
Return to provision25.4 0.2 0.1 
Transaction Costs9.5 — — 
Other, net(0.5)(0.4)0.1 
Effective tax rate143.4 %23.7 %11.4 %

The effective tax rate for the year ended December 31, 2024, was 143.4% compared to 23.7% for the year ended December 31, 2023. The effective rate for 2024 was negatively affected by the impacts of foreign income, which resulted in a net $10.6 million tax expense. For 2024 the rate was positively impacted by the valuation allowance and state income tax, which resulted in a federal benefit of $8.3 million and $1.5 million, respectively. After giving consideration to these items, the effective tax rate for 2024 of 143.4% 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 did not release a valuation allowance in 2024 and released a valuation allowance of $0.6 million on the net deferred tax asset in 2023. 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.

Management records a reduction to the carrying amounts of deferred tax assets by recording a valuation allowance if, based on the available evidence, it is more likely than not such assets will not be realized. The valuation of deferred tax assets requires judgment in assessing future profitability by year, including the impact of tax planning strategies, relative to the expiration dates, if any, of the assets.

Management considers both positive and negative evidence when measuring the need for a valuation allowance. The weight given to the evidence is commensurate with the extent to which it may be objectively verified. Current and cumulative financial reporting results are a source of objectively verifiable evidence. Management gives operating results during the most recent three-year period a significant weight in our analysis. Management considers whether positive cumulative operating results exist in the most recent three-year period. Management performs scheduling exercises as needed to determine if sufficient taxable income of the appropriate character exists in the periods required in order to realize our deferred tax assets with limited lives (such as tax loss carryforwards and tax credits) prior to their expiration. Management also considers prudent tax planning strategies (including an assessment of their feasibility) to accelerate taxable income if required to utilize expiring deferred tax assets. A valuation allowance is not required to the extent that, in our judgment, positive evidence exists with a magnitude and duration sufficient to result in a conclusion that it is more likely than not that our deferred tax assets will be realized.

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, 2024 and 2023, were as follows (amounts in thousands):
 20242023
Deferred tax assets:  
Net operating loss carryforwards$101,771 $104,166 
Inventory8,385 8,492 
Warranty6,347 6,496 
Employee benefits and related costs8,352 8,130 
Prepaid royalties1,006 1,576 
Interest limitation28,834 29,020 
Lease liability5,138 4,390 
Intangible assets4,732 1,592 
Foreign Tax Credit2,318 8,068 
Other7,401 7,255 
Deferred tax assets174,284 179,185 
Deferred tax liabilities:  
Fixed assets(13,939)(11,577)
Lease assets(5,181)(4,384)
Pension(6,060)(3,740)
Other(7,292)(4,150)
Deferred tax liabilities(32,472)(23,851)
Subtotal141,812 155,334 
Valuation allowance(106,496)(119,535)
Net deferred tax liability$35,316 $35,799 
As of December 31, 2024 and 2023, certain net tax loss carryforwards of $101.8 million and $104.2 million were available with $2.8 million expiring between 2024 and 2029 and $99.0 million expiring after 2029. At December 31, 2024, a valuation allowance of $106.5 million has been established. The net change in the valuation allowance was $(13.0) million and $(1.5) million for 2024 and 2023, respectively. The majority of the valuation allowance is related to deferred tax assets in the U.S., Italy, and Luxembourg.

As of December 31, 2024, the Company has $65.6 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 $324.9 million of gross state net operating losses and $291.7 million of gross foreign loss carryforwards.

The Company intends to permanently reinvest all undistributed earnings outside of the U.S. and, therefore, has not provided deferred income taxes on the outside basis differences in its investments in its foreign subsidiaries. Determination of the total amount of unrecognized deferred income taxes on undistributed earnings of foreign subsidiaries is not practicable.

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 2021-2024, Brazil has open tax years from 2018-2024, and Italy has open tax years from 2018-2024.

The Company has applied the provisions of ASC 740, “Income Taxes” related to unrecognized tax benefits. At December 31, 2024, 2023, and 2022, the unrecognized tax benefits were $1.2 million, $0.0 million, and $0.0 million, respectively. As of December 31, 2024, $1.2 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 transfer pricing items and 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):
202420232022
Balance at January 1$23 $30 $540 
     Increases to tax positions taken during the current year— — — 
     Increases to tax positions taken during the prior years3,341 — — 
     Decreases to tax positions taken during prior years— — — 
     Decreases due to lapse of statutes of limitations— (7)(506)
     Settlements(273)— — 
     Foreign exchange(12)— (4)
Balance at December 31$3,079 $23 $30 

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 $0.0 million at December 31, 2024, 2023 and 2022, respectively. There were no accrued interest and penalties excluded at December 31, 2024, 2023, and 2022.

Pillar II
The Organization for Economic Co-operation and Development (the “OECD”) has issued various proposals that would change long-standing global tax principles. These proposals include a two-pillar approach to global taxation (BEPS 2.0/ Pillar Two), focusing on global profit allocation and a global minimum tax rate. On December 12, 2022, the European Union member states agreed to implement the OECD’s global corporate minimum tax rate of 15%, which became effective January 2024. The Company is assessing the impact of this proposal as countries are actively considering changes to their tax laws to adopt certain parts of the OECD's proposal but does not expect a material impact to the financials.

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.