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Contingent Liabilities | 9 Months Ended
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Sep. 30, 2020
Commitments and Contingencies Disclosure [Abstract] |
Contingent Liabilities | Contingent Liabilities Litigation The Company is subject to various lawsuits and other claims in the normal course of business. In addition, from time to time, the Company receives communications from government or regulatory agencies concerning investigations or allegations of noncompliance with laws or regulations in jurisdictions in which the Company operates. The Company establishes reserves for the estimated losses on specific contingent liabilities, for regulatory and legal actions where the Company deems a loss to be probable and the amount of the loss can be reasonably estimated. In other instances, the Company is not able to make a reasonable estimate of liability because of the uncertainties related to the outcome or the amount or range of potential loss. The Company does not expect that the ultimate resolution of pending regulatory and legal matters in future periods will have a material adverse effect on the Company's condensed consolidated statements of operations, balance sheets or cash flows. New York Tax Cases: There are two matters; one case involving the period December 1, 2009, through May 31, 2012 (the “First Case”), and another case involving the period June 1, 2012, through May 31, 2016 (the “Second Case”). The issue in both matters is whether the hand delivery of the Company's telephone directories by Product Development Corporation (“PDC”) and Directory Distributing Associates, Inc. (“DDA”) in New York constitutes causing the directories to be mailed or shipped “by means of a common carrier, United States postal service or like delivery service” pursuant to Tax Law Section 1115(n)(4). If so, then no tax would be due as an exemption from tax would apply. The Company previously successfully litigated this issue for Verizon Yellow Pages Company and the Division of Taxation did not appeal the Administrative Law Judge's (“ALJ”) determination. The Division, however, subsequently litigated the issue against another taxpayer, Yellow Book, and was successful. On May 25, 2017, the Administrative Law Judge issued a Determination in the New York tax appeal and upheld the Notice of Determination issued by the Division of Taxation in the First Case. The Division asserted that $3.2 million of tax and interest is due for the period December 1, 2009 through May 31, 2012. In the Determination, the ALJ concluded that “PDC and DDA were not acting as common carriers in their delivery of the directories but were acting as contract carriers.” The Company subsequently filed an Exception with the Tax Appeals Tribunal (which reviews ALJ Determinations based on the record made before the ALJ). The Tax Appeals Tribunal issued an adverse ruling on or about September 20, 2018. The Company filed an appeal with the Appellate Division on January 17, 2019, and the Commissioner filed an answer in February 2019. In connection with the appeal, the Company paid $5.1 million to the State of New York for the tax assessed plus interest. If the Company prevails, it will be entitled to recover the payment. The New York Supreme Court, Appellate Division, heard arguments in the sales tax appeal on January 16, 2020 and issued a ruling on February 27, 2020, affirming the determination against the Company. The Company filed the Motion for Leave to Appeal the Appellate Division’s ruling on or about May 7, 2020 and the motion was denied on September 10, 2020. In addition, the Company has appealed the Division’s Notice of Determination for the Second Case, in which the Division has asserted that an additional $3.3 million of tax and interest is due. The ALJ approved a stipulation between DexYP and the Division under which the parties agreed that the outcome of the ultimate decision in the First Case will be binding on the parties with respect to the Second Case. In light of the Appellate Division’s denial of the Motion for Leave to Appeal, Thryv will pay past taxes and interest that are due after the State provides it with updated interest amounts. The total combined exposure of both cases is approximately $8.7 million, inclusive of the $5.1 million payment that is referenced above, leaving an additional unpaid balance of $3.5 million which is accrued on the Company's condensed consolidated balance sheet at September 30, 2020. Section 199 and Research and Development Tax Case: Section 199 of the Tax Code provides for exemptions for manufacturing performed in the U.S. The government has taken the position that directory providers are not entitled to take advantage of the exemption because printing vendors are taking deductions under the same exemption. The Tax Code also provides for tax credits related to research and development expenditures. The government took the position that the expenditures have not been sufficiently documented to be eligible as a credit. The Company disagrees with these positions. The government has challenged the Company's positions and sent 90-day notices to DexYP on August 29, 2018. In response, the Company has filed three petitions (Print Media, LLC, YP Holdings, LLC, and YP LLC) in the Tax Court and the IRS has filed answers to these petitions. The three cases have been assigned to IRS case managers. The first petition that was filed is being sent to IRS Appeals. The Company continues to negotiate with the IRS to move the cases to Appeals so that they can be resolved. The initial appeals conference for Print Media was held on August 7, 2020. Discussions continue. The appeals conferences for YP LLC and YP Holdings, LLC will likely occur in the fall of 2020. The parties reached a tentative agreement regarding the research and development credits for the tax years at issue whereby the IRS will allow a portion of the credits. As of September 30, 2020, and December 31, 2019, the Company has reserved approximately $33.7 million and $46.0 million in connection with the 199 disallowance and $0.7 million and $7.1 million related to the research and development tax credit disallowance, respectively. The decrease in the reserve balance is primarily attributable to a partial release of uncertain tax positions due to favorable developments with ongoing U.S. federal tax examinations. Pursuant to the acquisition transaction whereby the Company acquired certain entities from the YP Acquisition, the Company is entitled to (i) a dollar for dollar indemnification for the research and development tax liability, and (ii) a dollar for dollar indemnification for the 199-tax liability after the Company pays the first $8.0 million in liability. The indemnification, however, is subject to a provision in the YP Acquisition agreement that limits the seller’s liability to certain stock that was escrowed in connection with the YP Acquisition. The value of that escrowed stock is estimated to be approximately $25.9 million and $29.8 million at September 30, 2020 and December 31, 2019, respectively. Walker v. Directory Distributing Associates, Inc. et al.: United States Bankruptcy Court for the Eastern District of Missouri; United States District Court for the Eastern District of Missouri (“Missouri District Court”) (originally filed August 25, 2011 in Harris County, Texas). This is an action brought under the Fair Labor Standards Act (FLSA), alleging that DDA misclassified Texas delivery workers as independent contractors and that those delivery workers were jointly employed by DDA and AT&T Corp. Plaintiffs seek unpaid minimum wage for work they claim was uncompensated, as well as alleged unpaid overtime compensation, liquidated damages, attorney’s fees, and costs on behalf of approximately 2,500 opt-in plaintiffs for the time period of June 25, 2009 to December 21, 2012. On October 14, 2016, DDA filed a chapter 11 bankruptcy petition in the United States Bankruptcy Court for the Eastern District of Missouri (the “Missouri Bankruptcy Court”), which caused the Texas action to be removed to federal court and transferred to the Missouri Bankruptcy Court. Soon after, the Missouri Bankruptcy Court appointed a chapter 11 trustee for DDA (“Trustee”), displacing DDA management. The Missouri Bankruptcy Court also stayed Walker in its entirety as to all parties. In October 2017, the Bankruptcy Court granted the Trustee’s motion to require the parties to mediate the Walker and Krawczyk matters. Settlement negotiations followed, and on May 1, 2019, the parties reached an agreement in principal to settle the FLSA cases. Thereafter, the Parties negotiated the terms necessary to finalize the settlement agreement, which was memorialized in a DDA chapter 11 plan of liquidation. The settlement included dismissal with prejudice of the Walker and Krawczyk cases on the effective date of the plan. It also capped the Company’s exposure at approximately $1.5 million, but the ultimate amount was dependent on the opt-in population. The chapter 11 plan, along with related pleadings, was transmitted to approximately 46,000 former carriers. The Missouri Bankruptcy Court approved the plan at a hearing on July 20, 2020, and the confirmation order was entered on July 21. The court issued a dismissal with prejudice on August 12, 2020 and the Company’s total liability equated to $0.8 million, which the Company paid in August 2020. Krawczyk v. Directory Distributing Associates, Inc. et al.: Filed on May 10, 2016 in the United States District Court for the Northern District of California. This is a proposed nationwide FLSA collective action alleging that delivery workers across the country were misclassified as independent contractors and that those delivery workers were jointly employed by several AT&T and YP defendants (AT&T Inc.; AT&T Services, Inc.; AT&T Corp.; YP Holdings LLC; YP Advertising & Publishing LLC, successor to AT&T Advertising, L.P., incorrectly sued as AT&T Advertising, LP d/b/a AT&T Advertising and Publishing, d/b/a AT&T Advertising Solutions, d/b/a Pacific Bell Directory, d/b/a YP Western Directory LLC; and YP LLC, successor to YP Shared Services LLC, incorrectly sued as YP Shared Services, LP). On October 14, 2016, DDA filed a chapter 11 bankruptcy petition in the Missouri Bankruptcy Court. In January 2017, the Missouri Bankruptcy Court stayed this matter in its entirety. In February 2017, the Missouri Bankruptcy Court appointed a Trustee, displacing DDA management. The Missouri Bankruptcy Court also stayed the Krawczyk action in its entirety as to all parties. In October 2017, the Missouri Bankruptcy Court granted the Trustee’s motion to require the parties to mediate the Walker and Krawczyk matters. Settlement negotiations followed, and on May 1, 2019, the parties reached an agreement in principal to settle the FLSA cases. Thereafter, the Parties negotiated the terms necessary to finalize the settlement agreement, which was memorialized in a DDA chapter 11 plan of liquidation. The settlement included dismissal with prejudice of the Walker and Krawczyk cases on the effective date of the plan. It also capped the Company’s exposure at approximately $1.5 million, but the ultimate amount was dependent on the opt-in population. The chapter 11 plan, along with related pleadings, was transmitted to approximately 46,000 former carriers. The Missouri Bankruptcy Court approved the plan at a hearing on July 20, 2020, and the confirmation order was entered on July 21. The court issued a dismissal with prejudice on August 12, 2020 and the Company’s total liability equated to $0.8 million. which the Company paid in August 2020. Other Texas Sales, Excise, and Use Tax Audit: We conduct operations in many tax jurisdictions. In many jurisdictions, non-income-based taxes, such as sales and use tax and other indirect taxes, are assessed on our operations. Although we are diligent in collecting and remitting such taxes, there is uncertainty as to how each taxing jurisdiction will ultimately classify the Company's digital products and services for sales and use tax purposes. On June 24, 2020, the Texas Comptroller of Public Accounts issued a notice to the Company assigning a routine audit of the Company's sales, excise, and use tax account. The Company has reserved $2.4 million for the total combined exposure for the periods open to audit examination, which is accrued on the Company's condensed consolidated balance sheet as of September 30, 2020. New York Sales, Excise, and Use Tax Audit: On August 19, 2020, the New York State Department of Taxation and Finance issued a notice to the Company assigning a routine audit of the Company's sales, excise, and use tax account for the audit period covering March 1, 2017 through May 31, 2020. The Company has reserved $1.9 million for the total combined exposure for the respective period, which is accrued on the Company's condensed consolidated balance sheet as of September 30, 2020.

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