v3.22.4
Income Taxes
 12 Months Ended
Dec. 31, 2022
Income Tax Disclosure [Abstract]  
Income Taxes Income Taxes
Loss before provision for (benefit from) income taxes consisted of the following (in thousands):
Years Ended December 31,
202220212020
United States$(402,834)$(514,200)$(1,203,682)
Foreign41,807 25,706 24,655 
Loss before provision for (benefit from) income taxes$(361,027)$(488,494)$(1,179,027)
Provision for (benefit from) income taxes consisted of the following (in thousands):
Years Ended December 31,
202220212020
Current:
Federal$— $— $— 
State765 (88)500 
Foreign9,476 (11,343)7,249 
Total current provision10,241 (11,431)7,749 
Deferred:
Federal— (111)— 
State— — — 
Foreign(174)43,427 (20,385)
Total deferred provision(174)43,316 (20,385)
Total provision for (benefit from) income taxes$10,067 $31,885 $(12,636)
A reconciliation of the expected tax provision (benefit) at the statutory federal income tax rate to the Company’s recorded tax provision (benefit) consisted of the following (in thousands):
Years Ended December 31,
202220212020
Expected tax (benefit) at U.S. federal statutory rate$(75,592)$(102,584)$(247,596)
State income taxes - net of federal benefit766 (88)500 
Foreign tax rate differential832 870 (4,131)
Research and development tax credits(34,546)(94,591)(26,294)
Stock-based compensation1,374 (817,839)(194,730)
Non-deductible officers’ compensation
40,629 428,682 76,093 
Change in valuation allowance49,833 616,572 373,632 
Base Erosion Anti-Abuse Tax and related elections25,200 — — 
Other1,571 863 9,890 
Total provision for (benefit from) income taxes$10,067 $31,885 $(12,636)
For the year ended December 31, 2022, the Company recorded a provision for income taxes of $10.1 million compared to $31.9 million for the year ended December 31, 2021, primarily due to the prior year establishment of a full valuation allowance against its U.K. deferred tax assets during the fourth quarter of 2021 partially offset by permanent differences associated with U.S. Base Erosion and Anti Abuse Tax elections. The Company maintains a full valuation allowance against its U.S. federal and state and U.K. deferred tax assets.
For the year ended December 31, 2021, the Company recorded a provision for income taxes compared to a benefit from income taxes for the year ended December 31, 2020, primarily due to the establishment of a full valuation allowance against its U.K. deferred tax assets during the fourth quarter of 2021, partially offset by a one-time benefit related to the refund of the Company’s U.K. 2019 taxes paid based on the tax election to carry back the 2020 U.K. net tax operating losses.
Deferred tax assets and liabilities are recognized for the future tax consequences of differences between the carrying amounts of assets and liabilities and their respective tax basis using enacted tax rates in effect for the year in which the differences are expected to reverse. Significant deferred tax assets and liabilities consisted of the following (in thousands):
As of December 31,
20222021
Net operating loss carryforwards$1,436,957 $1,497,774 
Capitalized research and experimental expenses70,839 — 
Reserves and accruals76,905 43,348 
Tax credit carryforwards226,565 177,402 
Stock-based compensation203,735 212,163 
Lease liabilities58,056 59,787 
Depreciation and amortization29,665 35,176 
Gross deferred tax assets2,102,722 2,025,650 
Outside basis difference(6,512)— 
Acquisition related intangibles(10,225)— 
Right-of-use assets(46,295)(49,665)
Total net deferred tax assets before valuation allowance2,039,690 1,975,985 
Valuation allowance(2,051,655)(1,977,565)
Net deferred tax assets$(11,965)$(1,580)
The Company performs an assessment of both positive and negative evidence, including its earnings history and results of recent operations, scheduled reversals of deferred tax liabilities, projected future taxable income, and tax planning strategies when determining whether it is more likely than not that deferred tax assets are recoverable. Such assessment is required on a jurisdiction by jurisdiction basis. The Company reviews the recognition of deferred tax assets on a regular basis to determine if
realization of such assets is more likely than not. A valuation allowance is provided when it is more likely than not that such assets will not be realized. The Company maintains a full valuation allowance against its U.S. federal and state deferred tax assets.
Provisions enacted by the 2017 Tax Cuts and Jobs Act related to the capitalization for tax purposes of research and experimental (“R&E”) expenditures became effective on January 1, 2022. Beginning January 1, 2022, all U.S. and non-U.S. based R&E expenditures must be capitalized and amortized over five years and 15 years, respectively. Beginning January 1, 2022, the Company began capitalizing and amortizing R&E expenditures over five years for domestic research and 15 for international research rather than expensing these costs as incurred. As a result, the Company has recorded a deferred tax asset of $70.8 million related to the capitalization requirement.
The valuation allowance totaled $2.1 billion and $2.0 billion for the years ended December 31, 2022 and 2021, respectively. The valuation allowance on our net deferred tax assets increased by $74.1 million and $757.5 million during the years ended December 31, 2022 and 2021, respectively.
As of December 31, 2022, the Company had U.S. federal and state net operating losses of approximately $5.6 billion and $2.8 billion, respectively. As of December 31, 2021, the Company had U.S. federal and state net operating losses of approximately $5.9 billion and $2.9 billion, respectively. The U.S. federal net operating loss carryforwards will expire at various dates beginning in 2024 through 2037 if not utilized, with the exception of $1.4 billion which can be carried forward indefinitely. The state net operating loss carryforwards will expire at various dates beginning in 2023 through 2041 if not utilized.
Additionally, as of December 31, 2022, the Company had federal and California research and development credits of approximately $230.2 million and $91.4 million, respectively. As of December 31, 2021, the Company had federal and California research and development credits of approximately $184.1 million and $68.7 million, respectively. The federal research and development credits will begin to expire in the years 2027 through 2041 if not utilized and the California research and development credits have no expiration date. Utilization of the net operating losses and research and development credit carryforwards may be subject to an annual limitation due to the ownership percentage change limitations provided by the Internal Revenue Code of 1986 and similar state provisions. The annual limitation may result in the expiration of the net operating loss and research and development credit carryforwards before utilization.
As of December 31, 2022, the Company had net operating losses in the United Kingdom of approximately $303.4 million. The U.K. net operating losses can be carried forward indefinitely.
As of December 31, 2022, the Company had an immaterial amount of earnings from its wholly-owned non-U.S. subsidiaries indefinitely reinvested outside the U.S. The Company does not intend to repatriate these earnings and, accordingly, the Company does not provide for U.S. income taxes and foreign withholding tax on these earnings. The Company recorded $6.5 million of deferred tax liability on the outside basis differences in its investment in Palantir Technologies Japan, Kabushiki Kaisha (“Palantir Japan”) that is unrelated to unremitted earnings.
On August 16, 2022, the U.S. enacted the Inflation Reduction Act of 2022, which, among other things, implements a 15% minimum tax on book income of certain large corporations, a 1% excise tax on net stock repurchases and several tax incentives to promote clean energy. Based on the Company’s current analysis of the provisions, the Company does not believe this legislation will have a material impact on its consolidated financial statements.
Uncertain Tax Positions
A reconciliation of the gross unrecognized tax benefits consists of the following (in thousands):
Years Ended December 31,
202220212020
Unrecognized tax benefit beginning of year$65,070 $75,557 $31,702 
Increases in current year tax positions5,733 19,638 43,855 
Increases in prior year tax positions11,497 967 — 
Decreases in prior year tax positions(36)(30,895)— 
Decreases in prior year tax positions due to settlements(360)(197)— 
Decreases in prior year tax positions due to lapse of statute of limitations— — — 
Unrecognized tax benefit end of year$81,904 $65,070 $75,557 
For the years ended December 31, 2022, 2021, and 2020, the Company recorded gross unrecognized tax benefits of $81.9 million, $65.1 million, and $75.6 million, respectively, that, if recognized, would not benefit the Company’s effective tax rate due to the valuation allowance that currently offsets deferred tax assets.
As of December 31, 2022, no significant increases or decreases are expected to the Company’s uncertain tax positions within the next twelve months.
It is the Company’s policy to recognize interest and penalties related to income tax matters in income tax expense. The Company has recorded immaterial interest and penalties related to uncertain tax positions as of December 31, 2022 and 2021.
The Company files U.S. federal, state, and foreign income tax returns in jurisdictions with varying statutes of limitation. The material jurisdictions where the Company is subject to potential examination by tax authorities are the U.S. (federal and state) for tax years 2004 through 2022 and the UK for tax years 2013 through 2022.