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Income Taxes
 12 Months Ended
Dec. 31, 2021
Income Tax Disclosure [Abstract]  
Income Taxes Income Taxes
Effective September 1, 2021, the Company’s parent (i.e., the Trust) elected to be treated as a corporation for U.S federal income tax purposes. Prior to September 1, 2021, the Company’s items of income, gain, loss and deduction flowed through to owners of the parent Trust without being subject to income taxes at the Trust level. Consequently, the Company’s earnings did not reflect a provision for income taxes except those for foreign, state, city and local income taxes incurred at the entity level. From and after September 1, 2021, the parent Trust will be subject to entity-level U.S. federal, state, and local corporate income taxes on the Company’s earnings that flow through to the Trust.
Components of the Company's pretax income (loss) before taxes are as follows:
Year ended December 31,
(in thousands)
202120202019
Domestic (including U.S. exports)$27,799 $6,092 $(72,264)
Foreign subsidiaries15,397 (1,658)12,164 
$43,196 $4,434 $(60,100)
Components of the Company’s income tax provision are as follows:
Year ended December 31,
(in thousands)202120202019
Current taxes
Federal$18,439 $5,979 $5,450 
State4,122 1,620 1,537 
Foreign5,234 4,804 4,984 
Total current taxes27,795 12,403 11,971 
Deferred taxes:
Federal(9,271)241 (2,471)
State(1,725)294 663 
Foreign1,538 (2,763)(249)
Total deferred taxes(9,458)(2,228)(2,057)
Total tax provision$18,337 $10,175 $9,914 
The tax effects of temporary differences that have resulted in the creation of deferred tax assets and deferred tax liabilities at December 31, 2021 and 2020 are as follows:
December 31,
(in thousands)
20212020
Deferred tax assets:
Tax credits$7,501 $4,431 
Accounts receivable and allowances1,769 1,964 
Net operating loss carryforwards29,979 32,271 
Accrued expenses8,061 5,431 
Interest expense limitation carryforwards2,651 2,079 
Lease liabilities28,906 21,310 
Held-for-sale effect8,601 — 
Other12,339 11,768 
Total deferred tax assets$99,807 $79,254 
Valuation allowance (1)
(9,413)(7,012)
Net deferred tax assets$90,394 $72,242 
Deferred tax liabilities:
Intangible assets$(123,946)$(102,748)
Property and equipment(23,966)(17,859)
Repatriation of foreign earnings(38)(37)
Right of use assets(26,087)(18,831)
Prepaid and other expenses(701)(603)
Total deferred tax liabilities$(174,738)$(140,078)
Total net deferred tax liability$(84,344)$(67,836)

(1)Primarily relates to the 5.11, Arnold and Ergo operating segments.
For the years ending December 31, 2021 and 2020, the Company recognized approximately $174.7 million and $140.1 million, respectively in deferred tax liabilities. A significant portion of the balance in deferred tax liabilities reflects temporary differences in the basis of property and equipment and intangible assets related to the Company’s purchase accounting adjustments in connection with the acquisition of certain of its businesses. For financial accounting purposes the Company has recognized a significant increase in the fair values of the intangible assets and property and equipment in certain of the businesses it acquired. For income tax purposes the existing, pre-acquisition tax basis of the intangible assets and property and equipment is utilized. In order to reflect the increase in the financial accounting basis over the existing tax basis, a deferred tax liability was recorded. This liability will decrease in future periods as these temporary differences reverse but may be replaced by deferred tax liabilities generated as a result of future acquisitions.
A valuation allowance relating to the realization of foreign net operating losses, domestic and foreign tax credits and the limitation on the deduction of interest expense of $9.4 million was provided at December 31, 2021 and a valuation allowance related to the realization of foreign net operating losses, domestic and foreign tax credits and the limitation on the deduction of interest expense of $7.0 million was provided at December 31, 2020. A valuation allowance is provided whenever it is more likely than not that some or all of deferred assets recorded may not be realized.
The reconciliation between the Federal Statutory Rate and the effective income tax rate for 2021, 2020 and 2019 are as follows:
Year ended December 31,
202120202019
United States Federal Statutory Rate21.0 %21.0 %(21.0)%
State income taxes (net of Federal benefits)4.8 34.8 3.2 
Foreign income taxes 8.2 37.5 1.1 
Expenses of Compass Group Diversified Holdings LLC representing a pass through to shareholders (1)
29.0 137.0 20.9 
Impact of subsidiary employee stock options(0.3)7.2 0.1 
Non-deductible acquisition costs0.6 11.5 — 
Impairment expense— — 9.4 
Non-recognition of various carryforwards at subsidiaries(2.3)(24.5)2.0 
Utilization of tax credits(5.2)2.6 (2.6)
Foreign-derived intangible income (FDII) and GILTI tax(2.4)(5.0)2.4 
Effect of classification of assets held for sale(16.8)— — 
Other5.9 7.4 1.0 
Effective income tax rate42.5 %229.5 %16.5 %

(1)The effective income tax rate for each of the years presented includes losses at the Company’s parent, which was taxed as a partnership through August 31, 2021. Beginning September 1, 2021, the Company's parent is taxed as a corporation.

A reconciliation of the amount of unrecognized tax benefits for 2021, 2020 and 2019 are as follows (in thousands):
Balance at January 1, 2019$894 
Additions for current years’ tax positions73 
Additions for prior years’ tax positions 26 
Reductions for prior years’ tax positions — 
Balance at December 31, 2019$993 
Additions for current years’ tax positions14 
Additions for prior years’ tax positions 427 
Reductions for prior years' tax positions(73)
Reductions for expiration of statute of limitations(27)
Balance at December 31, 2020$1,334 
Additions for current years’ tax positions31 
Additions for prior years’ tax positions 15 
Reductions for prior years' tax positions(63)
Reductions for expiration of statute of limitations(63)
Balance at December 31, 2021$1,254 
Included in the unrecognized tax benefits at both December 31, 2021 and 2020 is $1.0 million of tax benefits that, if recognized, would affect the Company’s effective tax rate. The Company accrues interest and penalties related to uncertain tax positions. The amounts accrued at December 31, 2021, 2020 and 2019 are not material to the Company. Such amounts are included in the provision (benefit) for income taxes in the accompanying consolidated statements of operations. It is expected that the amount of unrecognized tax benefits will change in the next twelve months. However, we do not expect the change to have a significant impact on the consolidated results of operations or financial position.
Each of the Company’s businesses file U.S. Federal, state and foreign income tax returns in multiple jurisdictions with varying statutes of limitations. The 2016 through 2021 tax years generally remain subject to examinations by the taxing authorities.