Quarterly report pursuant to Section 13 or 15(d)

Income Taxes

v3.22.2.2
Income Taxes
 9 Months Ended
Sep. 30, 2022
Income Tax Disclosure [Abstract]  
Income Taxes
Note L – Income Taxes
A reconciliation of the U.S. federal statutory income tax expense to actual income tax expense is as follows:
Three Months Ended Nine Months Ended
September 30, 2022 September 30, 2021 September 30, 2022 September 30, 2021
Effective tax rate 17.0  % 18.7  % 6.2  % 14.3  %
The effective tax rate for the nine months ended September 30, 2022 differs from the U.S. federal income tax rate of 21.0% primarily due to nondeductible compensation costs on the Class P Unit Incentive plan, the valuation of warrants, nondeductible impairment, and a valuation allowance on the realization of the deferred tax assets. The effective tax rate for the nine months ended September 30, 2021 differs from the U.S. federal income tax rate of 21.0% primarily due to nondeductible compensation costs on the Class P Unit Incentive plan, contingent earnout payments from the MIS acquisition, and state income tax expense.

The Company assesses the deferred tax assets for recoverability on a quarterly basis. In assessing the realizability of deferred income tax assets, the Company considers whether it is more-likely-than-not that some or all of the deferred income tax assets will not be realized. The ultimate realization of the deferred income tax assets is dependent upon the generation of future taxable income during the periods in which the net operating loss (“NOL”) carryforwards are available. For the nine months ended September 30, 2022, the Company concluded that a portion of its deferred tax assets would more-likely-than-not be realized, whereas the Company concluded that substantially all of the deferred tax assets are more-likely-than-not realizable for the nine months ended September 30, 2021. The change from the nine months ended September 30, 2021 to the nine months ended September 30, 2022 was driven by the additional amount of deferred tax assets expected to be generated on taxable losses in 2022, which resulted in an increase to the valuation allowance of $3.6 million recognized through income tax expense (benefit) on the condensed consolidated statements of operations and comprehensive income (loss).

The effective tax rate was 6.2% compared to 14.3% for the nine months ended September 30, 2022 and September 30, 2021, respectively. The difference in effective tax rate between periods was primarily related to the nondeductible impairment and valuation of warrants during the nine months ended September 30, 2022.