N-able Inc

14. Income Taxes

U.S. and international components of income before income taxes were as follows:

Income tax expense was composed of the following:

The difference between the income tax expense (benefit) derived by applying the federal statutory income tax rate to our income before income taxes and the amount recognized in our Consolidated Financial Statements is as follows:

The components of the net deferred tax amounts recognized in the accompanying Consolidated Balance Sheets were:

As of December 31, 2021, we had net operating loss carry forwards for U.S. federal income tax purposes of approximately $5.8 million, all of which was utilized during fiscal year ended December 31, 2022. Pursuant to the Separation and Distribution that occurred on July 19, 2021, all pre-Separation and Distribution federal net operating losses remain with SolarWinds. The U.S. federal net operating losses generated after the Separation and Distribution are available to offset future U.S. federal taxable income and do not expire.

As of December 31, 2023 and 2022, we had net operating loss carry forwards for certain state income tax purposes of approximately $3.9 million. Pursuant to the Separation and Distribution that occurred on July 19, 2021, all pre-Separation and Distribution combined state net operating losses remain with SolarWinds. These state net operating losses are available to offset future state taxable income and begin to expire in 2029.

As of December 31, 2023 and 2022, we had foreign net operating loss carry forwards of approximately $6.3 million. As of December 31, 2020, we had foreign net operating loss carry forwards of approximately $14.8 million, which were available to offset future foreign taxable income and began to expire in 2022. These foreign net operating loss carry forwards primarily related to the United Kingdom and Canada and were fully utilized during the year ended December 31, 2021.

We establish valuation allowances when necessary to reduce deferred tax assets to amounts expected to be realized. As of December 31, 2023, we recorded a valuation allowance of $4.9 million in the U.S. As of December 31, 2022, we recorded a valuation allowance of $2.0 million in the U.S. and $1.6 million outside the U.S., respectively.

The Tax Act imposes a mandatory transition tax on accumulated foreign earnings as of December 31, 2017. Effective January 1, 2018, the Tax Act creates a new territorial tax system in which we will recognize the tax impact of including certain foreign earnings in U.S. taxable income as a period cost. For the year ended December 31, 2021, we did not incur a global intangible low-taxed income, or GILTI, liability; however, to the extent that we incur expense under the GILTI provisions, we will treat it as a component of income tax expense in the period incurred. As a result of the Tax Act, our accumulated foreign earnings as of December 31, 2017 and 2018 have been subjected to U.S. tax. Moreover, all future foreign earnings will be subject to a new territorial tax system and dividends received deduction regime in the U.S. As of December 31, 2023, the undistributed earnings of our foreign subsidiaries of approximately $146.9 million are permanently reinvested outside the U.S. Accordingly, no provision for foreign withholding tax or state income taxes associated with a distribution of these earnings has been made. Determination of the amount of the unrecognized deferred tax liability on these unremitted earnings is not practicable.

As of December 31, 2023, we do not have any accrued interest and penalties related to unrecognized tax benefits.

The aggregate changes in the balance of our gross unrecognized tax benefits, excluding accrued interest and penalties, were as follows:

We do not believe that it is reasonably possible that our unrecognized tax benefits will significantly change in the next twelve months.

We file U.S., state and foreign income tax returns in jurisdictions with varying statutes of limitations. The 2012 through 2021 tax years generally remain open and subject to examination by federal, state and foreign tax authorities. We are currently under examination by the IRS for the tax years 2013 through the period ending February 2016. During the three months ended March 31, 2021, we finalized a settlement agreement with the IRS for the tax years 2011 to 2012. We are currently under audit by the Massachusetts Department of Revenue for the 2015 through February 2016 tax years, and the Texas Comptroller for the 2015 through 2018 tax years. We are not currently under audit in any other taxing jurisdictions.