Income Taxes

6 Months Ended

Jun. 30, 2024

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 records both the interest accrued on the underpayment of income taxes and penalties, if any, related to unrecognized tax benefits in the provision for (benefit from) income taxes in its condensed consolidated statements of operations. The Company maintains a valuation allowance against its U.S., e-bot7 Germany and Bulgaria deferred tax assets as it considered its cumulative losses 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 Pty. Ltd., Engage Pty. Ltd., LivePerson (UK) Ltd., LivePerson Italy, LivePerson Japan, and LivePerson Ltd. (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, 2023, there was an increase in the valuation allowance recorded of $23.7 million.

The Company recorded a tax provision of $1.3 million and $1.6 million for the three and six months ended June 30, 2024, respectively, which consists of a tax provision on operating earnings of non-US subsidiaries and interest accrual on unrecognized tax benefits in Israel.

The Company recorded a benefit from income taxes of $0.2 million and a tax provision of $1.1 million for the three and six months ended June 30, 2023, respectively, which was made up of tax provision on operating earnings, a stock compensation tax deficiency related to the stock compensation arrangements of LivePerson, Inc., LivePerson (UK) Ltd., and LivePerson Ltd. (Israel), and an increase in valuation allowance activity on deferred tax assets resulting from a release of deferred tax liabilities as a result of the Kasamba sale during the first quarter of 2023. The increase in the tax provision for the three and six months ended June 30, 2024 as compared to the three and six months ended June 30, 2023 is due to changes in the forecasted earnings by jurisdiction year over year, the effects of U.S. state taxes as a result of net operating loss utilization limitations, and offsetting activities related to the prior period tax benefit including the change in Israeli tax rate, the return-to-provision adjustments from foreign tax return filings, and the changes in valuation allowance connected to the sale of Kasamba during the prior period.

The Company had a valuation allowance on certain deferred tax assets for the year ended December 31, 2023 of $211.2 million. In 2024, the Company expects an estimated increase in the valuation allowance of $15.4 million, all of which would be recorded as an expense. During 2023, an increase in the valuation allowance in the amount of $23.7 million was recorded as an expense.