Income Taxes

12 Months Ended

Dec. 31, 2021

Income Tax Disclosure [Abstract]

Income Taxes

INCOME TAXESThe Partnership’s total income tax expense for the year ended December 31, 2021 differed from amounts computed by applying the United States federal statutory tax rate to pre-tax income for the period primarily due to net income attributable to the non-controlling interest and the impact of maintaining a valuation allowance on the Partnership’s deferred tax assets. For the year ended December 31, 2020, total income tax expense differed from amounts computed by applying the United States federal statutory rate to pre-tax loss for the period primarily due to net loss attributable to the non-controlling interest and the impact of recording a valuation allowance on the Partnership’s deferred tax assets. Total income tax benefit for the year ended December 31, 2019 differed from amounts computed by applying the United States federal statutory tax rate to pre-tax income for the period primarily due to net income attributable to the non-controlling interest and the revision of estimated deferred taxes recognized as a result of the Partnership’s change in tax status.

The components of the provision for income taxes and effective tax rates for the years ended December 31, 2021, 2020 and 2019 are as follows:

	Year Ended December 31,
	2021			2020			2019
	(In thousands)
Current income tax provision (benefit):
Federal	$	1,218		$	—		$	—
State	303			—			—
Total current income tax provision (benefit)	1,521			—			—
Deferred income tax provision (benefit):
Federal	—			142,466			(41,582)
State	—			—			—
Total deferred income tax provision (benefit)	—			142,466			(41,582)
Total provision (benefit) from income taxes	$	1,521		$	142,466		$	(41,582)
Effective tax rates	0.6		%	(279.6)		%	(23.1)		%

A reconciliation of the statutory federal income tax amount to the recorded expense is as follows:

	Year Ended December 31,
	2021		2020		2019
	(In thousands)
Income tax expense (benefit) at the federal statutory rate (21%)	$	54,221	$	(10,699)	$	37,722
Impact of nontaxable noncontrolling interest	(41,735)		233		(36,735)
State income tax expense (benefit), net of federal tax effect	262		—		—
Deferred taxes related to change in tax status	—		—		(42,424)
Change in valuation allowance	(11,175)		152,898		—
Other, net	(52)		34		(145)
Provision for (benefit from) income taxes	$	1,521	$	142,466	$	(41,582)

The components of the Partnership’s deferred tax assets and liabilities as of December 31, 2021 and 2020 are as follows:

	Year Ended December 31,
	2021		2020
	(In thousands)
Deferred tax assets:
Net operating loss and interest expense carryforwards (indefinite life carryforward)	$	6,014	$	10,477
Investment in the Operating Company	163,065		150,127
Total deferred tax assets	169,079		160,604
Valuation allowance	(169,079)		(160,604)
Net deferred tax assets	—		—
Net deferred tax assets (liabilities)	$	—	$	—

As of December 31, 2021 and 2020, the Partnership had no net deferred tax assets or deferred tax liabilities. Subsequent to the Partnership’s change in tax status, deferred taxes are provided on the difference between the Partnership’s basis for financial accounting purposes and basis for federal income tax purposes in its investment in the Operating Company. At December 31, 2021, the Partnership had federal net operating loss carryforwards of approximately $28.6 million which may be carried forward indefinitely to offset future taxable income.

As of December 31, 2021, the Partnership had a valuation allowance of approximately $169.1 million related to deferred tax assets the Partnership does not believe are more likely than not to be realized. Management considers the likelihood that the Partnership’s net operating losses and other deferred tax attributes will be utilized prior to their expiration, if applicable. The determination to record a valuation allowance was based on management’s assessment of all available evidence, both positive and negative, supporting realizability of the Partnership’s deferred tax assets as required by applicable accounting standards. In light of those criteria for recognizing the tax benefit of deferred tax assets, the Partnership’s assessment resulted in application of a valuation allowance against the Partnership’s federal deferred tax assets as of March 31, 2020 and subsequent balance sheet dates within the years ended December 31, 2021 and 2020. In addition, a valuation allowance was maintained against state net operating loss carryforwards not anticipated to be utilized prior to expiration.

The Partnership principally operates in the state of Texas. For the years ended December 31, 2021, the Partnership accrued $0.3 million state income tax expenses for its share of Texas margin tax attributable to the Partnership’s results which are included in a combined tax return filed by Diamondback. For the year ended December 31, 2020, the Partnership did not accrue any state income tax expenses. At December 31, 2021, the Partnership did not have any significant uncertain tax positions requiring recognition in the financial statements. In addition to the 2019 through 2021 tax years, our 2018 tax year during which we elected to be treated as a corporation for income tax purposes, remains open to examination by tax authorities.

The American Rescue Plan was enacted on March 11, 2021 and the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was enacted on March 27, 2020, which included a number of provisions applicable to U.S. income taxes for corporations. The Partnership considered the impact of this legislation in the period of enactment and concluded there was not a material impact to the Partnership’s current or deferred income tax balances.