Clarus Corp Income Taxes Disclosure

NOTE 17. INCOME TAXES

Consolidated loss from continuing operations before income taxes consists of the following:

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The components of the benefit for income taxes attributable to continuing operations consist of the following:

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The allocation of income tax expense (benefit) between continuing and discontinued operations was as follows:

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The Company’s foreign operations that are considered to be permanently reinvested have statutory tax rates of approximately 23% to 30%.

The following is a reconciliation of the statutory federal income tax rate to the effective rate reported in the Company’s financial statements:

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The effective income tax rate of 25.3% for the year ended December 31, 2024, differed compared to the statutory tax rates primarily due to the impact of recording a valuation allowance on the deferred tax assets and impairment of goodwill and indefinite-lived intangible assets, all of which are non-deductible for tax purposes. The deferred tax asset write-offs during the year ended December 31, 2023, relate to state NOLs that expired in 2023 that had been previously fully reserved via a valuation allowance.

Deferred income tax assets and liabilities are determined based on the difference between the financial reporting carrying amounts and tax bases of existing assets and liabilities and operating loss and tax credit carryforwards. Significant components of the Company’s existing deferred income tax assets and liabilities as of December 31, 2024 and 2023 are as follows:

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Certain deferred income tax balances are not netted as they represent deferred amounts applicable to different taxing jurisdictions. The Company has provided a full valuation allowance against all of the U.S. deferred tax assets as of December 31, 2024, because the ultimate realization of those assets does not meet the more-likely-than-not criteria.

In assessing the realizability of deferred income tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible and net operating loss and credit carryforwards expire. The estimates and judgments associated with the Company’s valuation allowance on deferred tax assets are considered critical due to the amount of deferred tax assets recorded by the Company on its consolidated balance sheets and the judgment required in determining the Company’s future taxable income. The need for a valuation allowance is reassessed at each reporting period.

The net change in the valuation allowance for deferred income tax assets was $22,630, ($2,609), and ($1,055) during the years ended December 31, 2024, 2023, and 2022, respectively. A roll forward of our valuation allowance for deferred income tax assets for the years ended December 31, 2024, 2023, and 2022 is as follows:

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As of December 31, 2024, the Company has net operating loss carryforwards (“NOLs”) and research and experimentation credit for U.S. federal income tax purposes of $0 and $5,439, respectively.

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Tax positions are recognized in the financial statements when it is more likely than not that the position will be sustained upon examination by the tax authorities. The Company conducts its business globally. As a result, the Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions and are subject to examination for the open tax years in the U.S. federal and state jurisdictions of 2018 through 2024 and in the foreign jurisdictions of 2010 through 2024. The Company recognizes interest and penalties related to unrecognized tax benefits in income tax expense.

A reconciliation of the beginning and ending amount of total unrecognized tax benefits for the years ended December 31, 2024, 2023 and 2022 is as follows:

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As of December 31, 2024 and 2023, we had unrecognized tax benefits of $2,863 and $890, respectively, of which $433 and $798 would affect the effective tax rate if recognized. Unrecognized tax benefits that reduce a net operating loss, similar tax loss or tax credit carryforward are presented as a reduction to deferred income taxes. As a result, the Company classified $2,438 and $516 of its unrecognized tax benefit as a reduction to deferred tax assets as of December 31, 2024 and 2023, respectively.

Interest and penalty expense recognized related to uncertain tax positions were not significant during the years ending December 31, 2024, 2023, and 2022, respectively. Total accrued interest and penalties as of December 31, 2024 and 2023, were not significant.