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Income Taxes
 12 Months Ended
Dec. 31, 2022
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 income (loss) before taxes are as follows:
Year ended December 31,
(in thousands)
202220212020
Domestic (including U.S. exports)$50,231 $52,733 $28,830 
Foreign subsidiaries36,843 15,397 (1,658)
$87,074 $68,130 $27,172 
Components of the Company’s income tax provision are as follows:
Year ended December 31,
(in thousands)202220212020
Current taxes
Federal$30,167 $21,659 $8,305 
State7,421 4,792 2,187 
Foreign11,907 5,234 4,804 
Total current taxes49,495 31,685 15,296 
Deferred taxes:
Federal(4,647)(9,648)671 
State2,447 (1,819)402 
Foreign(2,266)1,538 (2,763)
Total deferred taxes(4,466)(9,929)(1,690)
Total tax provision$45,029 $21,756 $13,606 
The tax effects of temporary differences that have resulted in the creation of deferred tax assets and deferred tax liabilities at December 31, 2022 and 2021 are as follows:
December 31,
(in thousands)
20222021
Deferred tax assets:
Tax credits$10,030 $7,645 
Accounts receivable and allowances2,118 1,834 
Net operating loss carryforwards27,095 29,979 
Accrued expenses8,470 8,191 
Interest expense limitation carryforwards7,419 2,651 
Lease liabilities40,535 30,717 
Held-for-sale effect— 8,601 
Other24,503 12,706 
Total deferred tax assets$120,170 $102,324 
Valuation allowance (1)
(21,104)(9,413)
Net deferred tax assets$99,066 $92,911 
Deferred tax liabilities:
Intangible assets$(193,408)$(135,922)
Property and equipment(25,724)(26,114)
Repatriation of foreign earnings(38)(38)
Right of use assets(35,675)(27,898)
Prepaid and other expenses(863)(702)
Total deferred tax liabilities$(255,708)$(190,674)
Total net deferred tax liability$(156,642)$(97,763)

(1)Primarily relates to the Trust and 5.11, Arnold and Ergo operating segments.
For the years ending December 31, 2022 and 2021, the Company recognized approximately $255.7 million and $190.7 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 domestic and foreign net operating losses, domestic and foreign tax credits and the limitation on the deduction of interest expense of $21.1 million was provided at December 31, 2022 and a valuation allowance related to the realization of domestic and 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. 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 2022, 2021 and 2020 are as follows:
Year ended December 31,
202220212020
United States Federal Statutory Rate21.0 %21.0 %21.0 %
State income taxes (net of Federal benefits)5.3 2.7 7.6 
Foreign income taxes 2.7 5.3 6.1 
Expenses of Compass Group Diversified Holdings LLC representing a pass through to shareholders (1)
— 18.9 17.6 
Impact of subsidiary employee stock options0.8 — 1.6 
Non-deductible acquisition costs0.6 0.4 1.9 
Impairment expense1.0 — — 
Non-recognition of various carryforwards at subsidiaries13.4 (2.3)(4.0)
United States tax on foreign income0.6 (1.5)(0.8)
Dividend (net of dividend received deduction)3.6 — — 
Utilization of tax credits(9.2)(4.0)(1.1)
Effect of classification of assets held for sale9.9 (10.7)— 
Other2.0 2.1 0.2 
Effective income tax rate51.7 %31.9 %50.1 %

(1)The effective income tax rate for each of the years 2021 and 2020 include 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 2022, 2021 and 2020 are as follows (in thousands):
Balance at January 1, 2020$993 
Additions for current years’ tax positions14 
Additions for prior years’ tax positions 427 
Reductions for prior years’ tax positions (73)
Reductions for expiration of statute of limitations$(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 
Additions for current years’ tax positions91 
Additions for prior years’ tax positions 15 
Reductions for prior years' tax positions(71)
Reductions for expiration of statute of limitations(73)
Balance at December 31, 2022$1,216 
Included in the unrecognized tax benefits at both December 31, 2022 and 2021 is $1.2 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, 2022, 2021 and 2020 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 2018 through 2022 tax years generally remain subject to examinations by the taxing authorities.