INCOME TAXES AND TAX RECEIVABLE AGREEMENT |
3 Months Ended |
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Mar. 31, 2026 | |
| Income Tax Disclosure [Abstract] | |
| INCOME TAXES AND TAX RECEIVABLE AGREEMENT | INCOME TAXES AND TAX RECEIVABLE AGREEMENT Overview of Income Taxes Brilliant Earth Group, Inc. is taxed as a subchapter C corporation and is subject to federal and state income taxes. Brilliant Earth Group, Inc.'s sole material asset is its ownership interest in Brilliant Earth, LLC, which is a limited liability company that is taxed as a partnership for U.S. federal and certain state and local income tax purposes. Brilliant Earth, LLC's net taxable income or loss and related tax credits, if any, are passed through to its members on a pro-rata basis and included in the member's tax returns. The income tax burden on the income taxed to the non-controlling interest holders is not reported by the Company in its unaudited condensed consolidated financial statements under GAAP. The Company files U.S. federal and certain state income tax returns. The income tax returns of the Company are subject to examination by U.S. federal and state taxing authorities for various time periods, depending on those jurisdictions' rules, generally after the income tax returns are filed. Tax Provision and Deferred Tax Asset At the end of each interim period, Brilliant Earth Group, Inc. estimates the effective tax rate expected to be applicable for the full fiscal year. This differs from the method utilized at the end of an annual period. The Company's effective tax rates of 0% and 3.86% for the three months ended March 31, 2026 and 2025, respectively, differs from the U.S. federal statutory tax rate of 21% primarily due to income associated with the non-controlling interest, state tax expense and other permanent items. The Company recognized a net change to its deferred tax asset and the related deferred tax asset valuation allowance of $0.2 million during the three months ended March 31, 2026. The decrease was related to changes related primarily to the outside basis difference of Brilliant Earth Group, Inc's investment in Brilliant Earth, LLC. In assessing the realizability of deferred tax assets for the three months ended March 31, 2026, management determined that it was more likely than not that the deferred tax assets will not be realized, and accordingly, has continued to record a full valuation allowance. Tax Receivable Agreement As each of the Continuing Equity Owners elect to convert their LLC Interests into Class A common stock or Class D common stock, as applicable, Brilliant Earth Group, Inc. will succeed to their aggregate historical tax basis which will create a net tax benefit to the Company. These tax benefits are expected to be amortized over 15 years pursuant to Sections 743(b) and 197 of the Code. The Company will only recognize a deferred tax asset for financial reporting purposes when it is more likely than not that the tax benefit will be realized. In addition, as part of the IPO, the Company entered into the TRA with the Continuing Equity Owners to pay 85% of the tax savings from the tax basis adjustment to them as such savings are realized. Amounts payable under the TRA are contingent upon, among other things, generation of sufficient future taxable income during the term of the TRA. The amounts to be recorded for both the deferred tax assets and the liability for our obligations under the TRA will be estimated at the time of any purchase or redemption as a reduction to shareholders' equity, and the effects of changes in any of our estimates after this date will be included in net loss. Similarly, the effect of subsequent changes in the enacted tax rates will be included in net loss. In connection with the Company concluding it was more likely than not that its deferred tax assets would not be realized and a full valuation allowance for its deferred tax assets was required, it was also determined a TRA liability was not probable at the current time.
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