PRA GROUP INCPRAA
PRA GROUP INC Income Taxes Disclosure
Income Taxes:
Income tax expense/(benefit) for the years ended December 31, 2024, 2023 and 2022 was as follows (amounts in thousands):
| Federal | State | International | Total | ||||||||||||||||||||
| 2024 | |||||||||||||||||||||||
| Current tax expense/(benefit) | $ | (2,169) | $ | 210 | $ | 25,129 | $ | 23,170 | |||||||||||||||
| Deferred tax expense/(benefit) | 6,250 | 177 | (8,565) | (2,138) | |||||||||||||||||||
| Total income tax expense | $ | 4,081 | $ | 387 | $ | 16,564 | $ | 21,032 | |||||||||||||||
| 2023 | |||||||||||||||||||||||
| Current tax expense | $ | 160 | $ | 1,697 | $ | 17,953 | $ | 19,810 | |||||||||||||||
| Deferred tax benefit | (25,921) | (7,956) | (2,066) | (35,943) | |||||||||||||||||||
| Total income tax expense/(benefit) | $ | (25,761) | $ | (6,259) | $ | 15,887 | $ | (16,133) | |||||||||||||||
| 2022 | |||||||||||||||||||||||
| Current tax expense | $ | 8,797 | $ | 385 | $ | 26,998 | $ | 36,180 | |||||||||||||||
| Deferred tax expense/(benefit) | (2,848) | (386) | 3,841 | 607 | |||||||||||||||||||
| Total income tax expense/(benefit) | $ | 5,949 | $ | (1) | $ | 30,839 | $ | 36,787 | |||||||||||||||
The following table provides a reconciliation of the Company's expected tax expense/(benefit) at the U.S. statutory federal tax rate to actual tax expense/(benefit) for the years ended December 31, 2024, 2023 and 2022 (amounts in thousands):
| 2024 | 2023 | 2022 | |||||||||||||||
| Income tax expense/(benefit) at the statutory federal rate | $ | 23,017 | $ | (17,406) | $ | 32,505 | |||||||||||
| State tax expense/(benefit), net of federal tax benefit | 387 | (4,886) | (18) | ||||||||||||||
| Tax impact on international earnings, excluding uncertain tax positions | (2,630) | 2,058 | 1,175 | ||||||||||||||
| Nondeductible legal settlement expenses | — | 3,017 | — | ||||||||||||||
| Nondeductible compensation | 1,181 | 117 | 3,025 | ||||||||||||||
| Other | (923) | 967 | 100 | ||||||||||||||
| Total income tax expense/(benefit) | $ | 21,032 | $ | (16,133) | $ | 36,787 | |||||||||||
| Effective tax rate | 19.2 | % | 19.5 | % | 23.8 | % | |||||||||||
As of December 31, 2024 and 2023, the components of deferred tax assets and liabilities were as follows (amounts in thousands):
| 2024 | 2023 | ||||||||||
| Deferred tax assets: | |||||||||||
| Net operating loss carryforward | 164,070 | 159,699 | |||||||||
| Employee compensation | $ | 6,758 | $ | 6,044 | |||||||
| Interest | 6,626 | 11,959 | |||||||||
| Lease liability | 6,087 | 8,615 | |||||||||
| Other | 746 | 6,315 | |||||||||
| Valuation allowance | (52,418) | (70,245) | |||||||||
| Total deferred tax asset | 131,869 | 122,387 | |||||||||
| Deferred tax liabilities: | |||||||||||
| Finance receivable revenue recognition - domestic | (22,970) | (6,197) | |||||||||
| Finance receivable revenue recognition - international | (22,116) | (31,538) | |||||||||
| Deferred income | (11,625) | (8,230) | |||||||||
| Intangible assets and goodwill | (6,983) | (6,053) | |||||||||
| ROU asset | (5,314) | (7,775) | |||||||||
| Foreign exchange - statutory | (4,540) | (4,951) | |||||||||
| Total deferred tax liability | (73,548) | (64,744) | |||||||||
| Net deferred tax asset | $ | 58,321 | $ | 57,643 | |||||||
As of December 31, 2024, $49.9 million of the valuation allowance related to the Company's federal, state and foreign net operating loss carryforwards. The decrease in the valuation allowance from the prior year was primarily due to changes in future income expectations and audit settlements in 2024. The federal net operating loss carryforward has an indefinite carryforward period, while the state and foreign net operating losses generally have a to 20 year carryforward period and will expire if not utilized.
As of December 31, 2024, the cumulative unremitted earnings of the Company's international subsidiaries were approximately $209.2 million. The Company intends for predominantly all international earnings to be indefinitely reinvested in its international operations; therefore, no deferred tax liabilities were recorded for such unremitted earnings. If international earnings were repatriated or deemed repatriated due to intercompany loans, the Company may need to accrue and pay taxes, although foreign tax credits and exemptions may be available to partially reduce or eliminate income and withholding taxes. Any deemed repatriations from intercompany loans would be expected to have little or no tax impact. It is impracticable to determine the total amount of unrecognized deferred taxes with respect to these indefinitely reinvested earnings.
Unrecognized tax benefits
Aggregate changes in the balance of unrecognized tax benefits for the years ended December 31, 2024, 2023 and 2022 were as follows (amounts in thousands):
| 2024 | 2023 | 2022 | |||||||||||||||
| Balance as of the beginning of year | $ | 105,704 | $ | 101,703 | $ | 114,294 | |||||||||||
Increase related to tax positions taken during a prior year (1) | 978 | 4,001 | — | ||||||||||||||
Decrease related to tax positions taken during a prior year (1) | — | — | (12,591) | ||||||||||||||
| Balance as of the end of year | $ | 106,682 | $ | 105,704 | $ | 101,703 | |||||||||||
(1)Relates to international transactions and is primarily due to foreign exchange rate fluctuations.
As of December 31, 2024 and 2023, the total amount of after-tax unrecognized tax benefits that, if recognized, would affect the effective tax rate, was $20.7 million and $20.5 million, respectively. As of December 31, 2024 and 2023, the Company had accrued for potential interest and penalties related to unrecognized tax benefits in the amounts of $4.8 million and $3.9 million, respectively.
The Company operates within multiple taxing jurisdictions and is subject to audit in these jurisdictions. The Internal Revenue Service and other tax authorities routinely audit the Company's tax returns, and these audits can involve complex
issues that may require an extended period of time to resolve. The Company records income tax liabilities based on estimates of the additional income taxes that may be due upon the conclusion of these audits. Due to the uncertain and complex application of income tax regulations, the ultimate resolution of such audits may result in liabilities that are materially different from those estimates, and the Company records additional income tax expense or income tax benefit in the period in which the matter is resolved.
As of December 31, 2024, tax years under examination in certain international jurisdictions include 2014 and subsequent years. The Company has received tax assessments from the Norwegian Tax Administration related to certain intercompany transactions that took place during the 2014 and 2015 tax years. The Company filed appeals for these assessments and believes that it is more-likely-than-not that its position will be sustained, and therefore, has not recorded tax liabilities in relation to these assessments.
The Company believes that it has sufficient accrued liabilities as of December 31, 2024 for its tax exposures and the related interest expense for all open tax years in each jurisdiction, however, it is reasonably possible that these accruals could increase or decrease during the next 12 months.
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About Income Taxes Disclosures
The income tax disclosure reveals how much a company actually pays in taxes versus what the statutory rate would predict. Analysts focus on the effective tax rate (ETR) reconciliation, which breaks down every item driving the gap between the 21% federal rate and the company's reported ETR — including R&D credits, foreign rate differentials, and state taxes. Deferred tax assets (DTAs) and their valuation allowances signal management's confidence in future profitability: a rising allowance suggests the company doubts it can use accumulated tax benefits. Uncertain tax benefit (UTB) reserves quantify exposure to IRS challenges on aggressive positions.
Key signals to watch: sudden ETR drops without clear operational reasons, large increases in valuation allowances, growing UTB balances, and significant unremitted foreign earnings. Post-TCJA, pay attention to GILTI and BEAT provisions that affect multinational tax structures. Compare the cash taxes paid (from the cash flow statement) against the income tax provision to gauge earnings quality.