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, 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, 2024, we have federal and state net operating loss carryforwards of approximately $60.0 million, which begin to expire in 2033, and foreign net operating loss carry forwards of approximately $6.3 million, which can be carried forward indefinitely. As of December 31, 2023, we had foreign net operating loss carry forwards of approximately $6.3 million, which can be carried forward indefinitely.

We establish valuation allowances when necessary to reduce deferred tax assets to amounts expected to be realized. As of December 31, 2024, we recorded a valuation allowance of $7.4 million in the U.S. and $0.4 million outside the U.S., respectively. As of December 31, 2023, we recorded a valuation allowance of $4.9 million in the U.S. The factors used to assess the likelihood of realization include our latest forecast of future taxable income, available tax planning strategies that could be implemented, reversal of taxable temporary differences and carryback potential to realize the net deferred tax assets.

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. In 2024, the Company decided that it would no longer permanently reinvest the majority of its undistributed earnings in non-US subsidiaries. Since these undistributed earnings had been previously taxed under the Tax Act, the impact of changing our assertion related to the undistributed earnings of our foreign subsidiaries did not have a material impact to our financial statements. As of December 31, 2024, we continued our permanent reinvestment assertion in only three foreign jurisdictions. The undistributed earnings of these three foreign subsidiaries of approximately $14.8 million are permanently reinvested outside the U.S. Accordingly, no provision for foreign withholding tax, foreign exchange gain/loss, 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 material to our financial statements.

As of December 31, 2024, we do not have any accrued interest and penalties related to unrecognized tax benefits.

We hadno gross unrecognized tax benefits as of December 31, 2024 and 2023, respectively, and there were no changes in the balances of our gross unrecognized tax benefits for the years ended December 31, 2024, 2023, and 2022, respectively. We do not believe that it is reasonably possible that our unrecognized tax benefits will significantly change in the next twelve months.

In 2021, the Organization for Economic Co-operation and Development ("OECD") released model rules for a global minimum tax known as Pillar Two. Under such rules, a minimum effective tax rate of 15% would apply to multinational companies with consolidated revenues above €750.0 million. Although we operate in one or more jurisdictions that have substantively enacted Pillar Two legislation, we have not exceeded the revenue threshold of €750.0 million, and as such, we do not expect to be subject to the Pillar Two rules in 2024.

We file U.S., state and foreign income tax returns in jurisdictions with varying statutes of limitations. The 2021 through 2024 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. A Form 870-AD was signed with the Internal Revenue Service on January 22, 2025 related to 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 currently under audit by the Canada Revenue Agency (“CRA”) for the tax years 2021 and 2022.