Income Taxes

6 Months Ended

Jun. 30, 2022

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

Income taxes are accounted for under the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will 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 are expected to become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment.

The Company includes interest accrued on the underpayment of income taxes in interest expense and penalties, if any, related to unrecognized tax benefits in general and administrative expenses. The Company recorded a valuation allowance against its U.S. deferred tax asset as it considered its cumulative loss in recent years as a significant piece of negative evidence. Since valuation allowances are evaluated by jurisdiction, the Company believes that the deferred tax assets related to LivePerson Australia Holdings Pty. Ltd., LivePerson (UK) Limited, Kasamba Inc., LivePerson Japan and LivePerson Limited (Israel) are more likely than not to be realized as these jurisdictions have positive cumulative pre-tax book income after adjusting for permanent and one-time items. During the year ended December 31, 2021, there was an increase in the valuation allowance recorded of $51.7 million.

For the three months ended June 30, 2022, the Company recorded a tax provision of $1.2 million. This amount consists of a tax provision of $2.5 million on operating earnings coupled with a stock compensation tax deficiency of $0.3 million related to stock compensation arrangements of LivePerson, LivePerson (UK) Limited and LivePerson Limited (Israel), offset by a tax benefit of $1.6 million related to the release of a valuation allowance in conjunction with the WildHealth transaction. For the six months ended June 30, 2022, the Company recorded a tax provision of $1.0 million. This amount consists of a tax provision of $2.5 million on operating earnings coupled with a stock compensation tax deficiency of $0.1 million related to stock compensation arrangements of LivePerson, LivePerson (UK) Limited and LivePerson Limited (Israel), offset by a tax benefit of $1.6 million related to the release of a valuation allowance in conjunction with the WildHealth transaction.

The Company had a valuation allowance on certain deferred tax assets for the year ended December 31, 2021 of $107.1 million. Inherent in the Company’s 2022 annual effective tax rate is an estimated increase in the valuation allowance of $38.3 million, all of which will be recorded as an expense. During 2021, an increase in the valuation allowance in the amount of $34.3 million was recorded as an expense and an additional increase to the valuation allowance of $17.4 million was recorded to goodwill against acquired federal and state net operating losses.