v3.22.4
Income Taxes
 12 Months Ended
Dec. 31, 2022
Income Tax Disclosure [Abstract]  
Income Taxes Income Taxes
Overview
We are subject to U.S. federal, state and foreign income taxes with respect to our allocable share of any taxable income or loss of Desert Newco, as well as any stand-alone income or loss we generate. Desert Newco is treated as a partnership for U.S. income tax purposes, and for most applicable state and local income tax purposes, and generally does not pay income taxes in most jurisdictions. Instead, Desert Newco's taxable income or loss is passed through to its members, including us. Despite its partnership treatment, Desert Newco is liable for income taxes in certain foreign jurisdictions in which it operates, in those states not recognizing its pass-through status and for certain of its subsidiaries not taxed as pass-through entities. We have acquired the outstanding stock of various domestic and foreign entities taxed as corporations, which are now wholly-owned by us or our subsidiaries. Where required or allowed, these subsidiaries also file and pay tax as a consolidated group for U.S.
federal and state income tax purposes and internationally, primarily within the United Kingdom (UK), Germany and India. We anticipate this structure to remain in existence for the foreseeable future.
Benefit (Provision) for Income Taxes
Our benefit (provision) for income taxes includes U.S. federal, state and foreign income taxes. The domestic and foreign components of our income (loss) before income taxes were as follows:
Year Ended December 31,
202220212020
U.S.$418.6 $310.3 $(423.4)
Foreign(62.1)(56.7)(72.0)
Income (loss) before income taxes$356.5 $253.6 $(495.4)
Our benefit (provision) for income taxes was as follows:
Year Ended December 31,
202220212020
Current:
Federal$(1.3)$(2.1)$(3.4)
State(0.9)(2.9)(1.1)
Foreign(16.9)(22.6)(19.3)
(19.1)(27.6)(23.8)
Deferred:
Federal(0.7)2.3 2.9 
State(0.5)0.2 1.5 
Foreign16.7 14.3 20.7 
15.5 16.8 25.1 
Benefit (provision) for income taxes$(3.6)$(10.8)$1.3 
A reconciliation of the statutory U.S. federal income tax rate to our effective income tax rate was as follows:
Year Ended December 31,
202220212020
Expected benefit (provision) at U.S. federal statutory tax rate$(74.9)$(53.3)$104.0 
Effect of investment in Desert Newco(22.0)(50.4)10.4 
Research and development credits29.2 21.9 75.0 
TRA liability adjustment— — (5.3)
Foreign earnings3.7 (0.9)(5.4)
Effect of changes in tax rates— (3.6)— 
Uncertain tax positions(10.6)(10.7)(5.6)
State taxes, net of federal benefit2.9 (31.5)44.9 
Effect of restructurings of domestic subsidiary(7.0)— — 
Other(1.9)3.8 0.9 
Effect of changes in valuation allowances77.0 113.9 (217.6)
Benefit (provision) for income taxes$(3.6)$(10.8)$1.3 
Deferred Taxes
The components of our deferred taxes were as follows:
December 31,
20222021
DTAs:
Investment in Desert Newco$800.0 $900.8 
NOLs523.2 599.7 
Tax credits134.4 101.4 
Deferred interest38.2 40.0 
Operating lease liabilities17.8 19.4 
Other9.9 6.1 
Valuation allowance(1,504.8)(1,644.6)
Total DTAs18.7 22.8 
DTLs:
Identified intangible assets(61.3)(83.7)
Operating lease assets(8.1)(9.1)
Total DTLs(69.4)(92.8)
Net DTLs$(50.7)$(70.0)
On August 16, 2022, the U.S. government enacted the Inflation Reduction Act (IRA Act), which is effective January 1, 2023 and contains provisions implementing a 15% minimum corporate income tax and a 1% excise tax on stock repurchases. While we are continuing to evaluate the impact of the IRA Act, at this time, we do not believe it will have a material impact on our consolidated financial statements.
Provisions enacted in the Tax Cuts and Jobs Act related to the capitalization for tax purposes of research and experimental expenditures became effective on January 1, 2022. These provisions require us to capitalize research and experimental expenditures and amortize them on the U.S. tax return over five or fifteen years, depending on where research is conducted. The enacted provision did not have a material impact on our consolidated financial statements.
In determining the need for a valuation allowance, we prepare quarterly estimates using historical and forecasted future operating results, based upon approved business plans, including a review of the eligible carryforward periods and tax planning strategies. Based primarily on the negative evidence outweighing the positive evidence as of December 31, 2022, we believe there is uncertainty as to when we will be able to utilize certain of our domestic net operating losses (NOLs), credit carryforwards and other deferred tax assets (DTAs). This negative evidence includes our historical tax losses, the difficulty in forecasting excess tax benefits related to equity-based compensation, as well as the difficulty in forecasting profits due to the current uncertain macroeconomic conditions, such as inflation and the possibility of a recession or an economic slowdown in the U.S. Therefore, we have recorded a valuation allowance against the DTAs for which we have concluded it is more-likely-than-not they will not be realized.
If the current uncertain macroeconomic conditions dissipate making it easier to forecast in the long-term, our operating results continue to improve and our projections show sufficient utilization of tax attributes, we will consider that as significant positive evidence and our future reassessment may result in the determination that all or a portion of the valuation allowance is no longer required. If this were to occur, any reversal of the valuation allowance would result in a corresponding non-cash income tax benefit, thereby increasing total DTAs.
As of December 31, 2022, we had U.S. federal, state and foreign gross NOLs and tax credits, a portion of which will begin to expire in 2030, as follows:
Gross NOLs and Tax CreditsPortion Subject to a Valuation Allowance
Federal$2,148.4 2,148.4 
State2,410.8 2,410.8 
Foreign33.7 21.7 
$4,592.9 $4,580.9 
As of December 31, 2022, we have provided income taxes on the earnings of foreign subsidiaries, except to the extent such earnings are considered indefinitely reinvested. We have determined the amount of unrecognized DTL related to these temporary differences to be immaterial.
Uncertain Tax Positions
Our liability for unrecognized tax benefits was as follows:
December 31,
20222021
Balance at beginning of period$120.7 $51.8 
Gross increases - tax positions in prior period7.2 41.0 
Gross increases - tax positions in current period11.8 21.5 
Current year acquisitions— 6.4 
Balance at end of period$139.7 $120.7 
The total amount of gross unrecognized tax benefits was $139.7 million as of December 31, 2022, of which $41.5 million, if fully recognized, would decrease our effective tax rate.
We recognize interest accrued related to unrecognized tax benefits and penalties as income tax expense. Other long-term liabilities includes accrued interest and penalties related to unrecognized tax benefits of $28.2 million and $19.0 million as of December 31, 2022 and 2021, respectively. We do not expect a significant decrease in our liability for unrecognized tax benefits in the next 12 months.
We have filed all income tax returns for years through 2021, other than for the UK, Germany and the Netherlands. These returns are subject to examination by the taxing authorities in the respective jurisdictions, generally for three or four years after they were filed. Although we believe the amounts reflected in our tax returns substantially comply with applicable U.S. federal, state and foreign tax regulations, the respective taxing authorities may take contrary positions based on their interpretation of the law. A tax position successfully challenged by a taxing authority could result in an adjustment to our benefit for income taxes in the period in which a final determination is made.