Income Taxes

9 Months Ended

Sep. 30, 2023

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

For the three months ended September 30, 2023, OppFi recorded an income tax expense of $0.5 million and reported consolidated income before income taxes of $16.0 million, resulting in a 2.8% effective income tax rate. For the three months ended September 30, 2022, OppFi recorded an income tax expense of $1.0 million and reported consolidated income before income taxes of $0.4 million, resulting in a 286% effective income tax rate. For the nine months ended September 30, 2023, OppFi recorded an income tax expense of $1.3 million and reported consolidated income before income taxes of $38.8 million, resulting in a 3.3% effective income tax rate. For the nine months ended September 30, 2022, OppFi recorded an income tax expense of $1.8 million and reported consolidated income before income taxes of $10.3 million, resulting in a 17.1% effective income tax rate.

OppFi’s effective income tax rates for the three and nine months ended September 30, 2023 and 2022, differ from the federal statutory income tax rate of 21% primarily due to the noncontrolling interest in the Up-C partnership structure, nondeductible expenses, state income taxes, warrant liability, and discrete tax items. The warrant liability is recorded by OppFi and is a fair market value adjustment of the warrant liability and is a permanent difference between GAAP and taxable income, which impacts OppFi’s effective income tax rate. For the three months ended September 30, 2023, there was one discrete item recorded, which consisted of a $45 thousand benefit related to stock compensation, which in total decreased the effective tax rate by 0.3%. Excluding the aforementioned discrete item, the effective tax rate for the three months ended September 30, 2023 would have been 3.1%. For the three months ended September 30, 2022, Gray Rock SPV LLC’s income was included in the noncontrolling interest adjustment, because its activity was included in income before income taxes, but excluded from taxation at the Company as Gray Rock SPV LLC is not owned by the Company or OppFi-LLC. For the nine months ended September 30, 2023, there were three discrete items recorded, which consist of a $7 thousand adjustment related to a prior period state tax adjustment during the three months ended March 31, 2023, and a $48 thousand benefit related to stock compensation, which in total decreased the effective tax rate by 0.1%. Excluding the aforementioned discrete item, the effective tax rates for the nine months ended September 30, 2023 would have been 3.4%. For the nine months ended September 30, 2022, there were two discrete items recorded, which consist of a $0.5 million adjustment related to a prior period stock compensation during the three months ended March 31, 2022 and a $0.1 million adjustment related to the vesting of RSUs and the calculated tax shortfall during the three months ended September 30, 2022.

OppFi is subject to a 21% federal income tax rate on its activities and its distributive share of income from OppFi-LLC, as well as various state and local income taxes. As of September 30, 2023, OppFi owned 15.7% of the outstanding units of OppFi-LLC and considers appropriate tax accounting only on this portion of OppFi-LLC’s activity. Additionally, OppFi’s income tax rate varies from the 21% statutory federal income tax rate primarily due to a permanent difference related to the adjustment of the warrant liabilities recorded by OppFi. This fair value adjustment of the warrant liabilities represents a large portion of OppFi’s pre-tax book income or loss and is a permanent difference between GAAP and taxable income, which impacts OppFi’s effective income tax rate.

As of September 30, 2023 and December 31, 2022, OppFi recorded an unrecognized tax benefit of $45 thousand and $20 thousand, respectively, related to research and development credits allocated from OppFi-LLC. ASC 740 prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. The Company recognizes accrued interest and penalties related to unrecognized tax benefits as income tax expense. There were no amounts accrued for the payment of interest and penalties as of September 30, 2023 and December 31, 2022. The Company is currently not aware of any issues under review that could result in significant payments, accruals or material deviations from its position. The Company is subject to income tax examinations by major taxing authorities since inception.