XML 28 R18.htm IDEA: XBRL DOCUMENT v3.23.1
INCOME TAXES
 6 Months Ended
Jun. 30, 2022
Income Tax Disclosure [Abstract]  
INCOME TAXES INCOME TAXES
The Company is the managing member of S1 Holdco and, as a result, consolidates the financial results of S1 Holdco in the consolidated financial statements. S1 Holdco is a pass-through entity for U.S. federal and most applicable state and local income tax purposes. Any taxable income or loss generated by S1 Holdco is passed through to its members, including the Company.

The following table presents the Company’s Income tax (benefit) provision and the effective income tax rate:


SuccessorPredecessorSuccessorPredecessor
(in thousands, except percentages)Three Months Ended June 30, 2022Three Months Ended June 30, 2021Period from January 27, 2022 through June 30, 2022Period from January 1, 2022 through January 26, 2022Six Months Ended June 30, 2021
Income tax (benefit) provision
$(454)$77$(15,103)$(629)$228
Effective tax rate1 %1 %16 %2 %1 %

The provision for income taxes differs from the amount of income tax computed by applying the U.S. statutory federal tax rate of 21% to the loss before income taxes due to income (loss) from non-taxable pass-through entities related to non-controlling interests, state taxes, foreign rate differential, non-deductible expenses, outside basis adjustments, and Global Intangible Low-taxed Income.

In assessing the ability to realize deferred tax assets for the period from January 1, 2022, through January 26, 2022 (Predecessor), the period from January 27, 2022, through June 30, 2022 (Successor), and for the six months ended June 30, 2021 (Predecessor), respectively, management considered whether it is more-likely-than-not some portion or all the deferred tax assets will be realized, as prescribed by ASC 740. The ultimate realization of deferred tax assets is primarily dependent upon the generation of future taxable income. Based on the weight of both positive and negative evidence, the Company determined that it was more-likely-than-not that the net deferred tax assets would be realizable, with the exception of Privacy One Group Limited, for which the Company does not anticipate future income. Management cannot conclude that it is more-likely-than-not that the deferred tax assets of Privacy One will be realized. As such, a full valuation allowance has been retained on the net deferred tax assets of Privacy One Group Limited.

The unrecognized tax benefits of $69 relates to R&D tax credits for the period from January 27, 2022, through June 30, 2022 (Successor).

The Company files income tax returns in the U.S. federal, states, and various foreign countries. For U.S. federal income tax purposes, as of June 30, 2022 (Successor), the year 2018 and later tax years remain open for examination by the tax authorities. For foreign income tax purposes, as of June 30, 2022 (Successor), the year 2016 and later tax years remain open for examination by the tax authorities under the Netherland’s five-year statute of limitations.

The Company contributed all the net assets of CouponFollow to a lower entity taxed as a partnership, System1 OpCo, LLC. The contribution qualified as a transaction among or with noncontrolling shareholders, which is accounted for as an equity transaction. As a result, the Company recorded $2,595 to additional paid-in-capital for the tax effects of the contribution with an offsetting entry to deferred tax liability in accordance with ASC 740-20-45-11(c).