; ForgeRock, Inc. Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

Income Taxes

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Income Taxes
 12 Months Ended
Dec. 31, 2021
Income Tax Disclosure [Abstract]  
Income Taxes Income Taxes
The components of loss before income taxes are as follows (in thousands):
December 31,
2021 2020 2019
Domestic
 $ (25,163) $ (29,166) $ (19,548)
International
 (21,721) (12,063) (19,345)
Total loss before income taxes
 $ (46,884) $ (41,229) $ (38,893)
The provision for (benefit from) income taxes consisted of the following (in thousands):
December 31,
2021 2020 2019
Current:
Federal $ —  $ —  $ — 
State 56  27  26 
Foreign 828  538  (2,011)
Total 884  565  (1,985)
Deferred:
Federal —  —  — 
State —  —  — 
Foreign —  —  — 
Total —  —  — 
Provision for (benefit from) income taxes
$ 884  $ 565  $ (1,985)
The foreign current income tax benefit in 2019 was due to a net operating loss carryback in the United Kingdom. For the years ended December 31, 2021, 2020 and 2019, the federal statutory income tax rate of 21% differs from the effective tax rate primarily due to the valuation allowance.
The following is a reconciliation of the statutory federal income tax rate to the Company’s effective tax rate (in thousands):
December 31,
2021 2020 2019
Pre-tax loss $ (46,884) $ (41,229) $ (38,893)
Federal tax at statutory rate (9,846) (8,658) (8,168)
Stock-based compensation (3,102) 24  172 
Revaluation of preferred warrants and option 2,110  1,542  — 
Foreign rate difference (5,382) (670) 1,110 
Change in valuation allowance 18,389  8,936  5,085 
State taxes (1,343) (785) (414)
Other 58  176  230 
Tax expense (benefit) $ 884  $ 565  $ (1,985)
Significant components of the Company’s net deferred tax assets and liabilities were as follows (in thousands):
December 31,
2021 2020
Deferred tax assets:
Stock-based compensation $ 2,756  $ 1,380 
Accruals and reserves 3,693  2,746 
Deferred revenue 228  447 
Net operating loss carryforwards – domestic 30,221  20,508 
Net operating loss carryforwards – foreign 28,245  20,733 
Property and equipment 307  291 
Operating lease liabilities 2,529  — 
Tax basis intangible assets 3,202  2,921 
71,181  49,026 
Valuation allowance (65,404) (47,015)
Deferred tax assets, net of valuation allowance 5,777  2,011 
Deferred tax liabilities:
Operating lease right-of-use assets (2,489) — 
Deferred costs (3,074) (1,771)
Other (214) (240)
(5,777) (2,011)
Net deferred tax assets/(liabilities) $ —  $ — 
The Company regularly assesses the ability to realize its deferred tax assets and establishes a valuation allowance if it is more-likely-than-not that some portion of the deferred tax assets will not be realized. Due to the weight of objectively verifiable negative evidence, including its history of losses, the Company believes that it is more likely than not that its deferred tax assets will not be realized. The valuation allowance increased by approximately $18.4 million and $8.9 million for the years ended December 31, 2021 and 2020, respectively.
As of December 31, 2021, the Company had approximately $123.6 million and $85.4 million of federal and state net operating loss carryforwards, respectively. The federal net operating loss carryforwards will expire at various dates beginning in 2031 if not utilized, and the state net operating loss carryforwards will expire at various dates beginning in 2032 if not utilized. As of December 31, 2021, the Company had approximately $121.1 million of foreign net operating loss carryforwards, predominantly in Norway and the United Kingdom. The foreign net operating loss carryforwards do not expire. As of December 31, 2021, the Company had approximately $4.2 million and $1.5 million related to U.S. Federal and California R&D credits, respectively. The federal R&D credits will expire at various dates beginning in 2033 if not utilized, and the California R&D credits do not expire.
As of December 31, 2021, the Company had uncertain tax positions of $4.2 million and $1.5 million respectively, related to U.S Federal and California R&D credits and $0.1 million of uncertain tax positions related to foreign jurisdictions. As of December 31, 2020, the Company had uncertain tax positions of $1.8 million and $0.9 million related to U.S. Federal and California R&D credits, respectively and $0.1 million related to foreign jurisdictions. As of December 31, 2021, the unrecognized tax benefits related to U.S. Federal and California R&D credits, if realized, would not impact the effective tax rate because of the valuation allowances and the uncertain tax position related to foreign jurisdictions as of December 31, 2021 would impact the effective tax rate if realized. The Company expects to perform a research and development tax credit study starting in 2022. Currently any resulting change in the uncertain tax position relating to research and development tax credits cannot be reasonably estimated and would not impact the effective tax rate due to valuation allowances. The Company records interest and penalties related to uncertain tax positions as a component of income tax expense. The Company did not accrue any material interest or penalties during 2021 and 2020.
A reconciliation of beginning and ending amount of unrecognized tax benefit was as follows (in thousands):
December 31,
2021 2020 2019
Gross amount of unrecognized tax benefits as of the beginning of the year $ 2,811  $ 2,184  $ 1,794 
Additions based on tax positions related to a prior year 853  —  61 
Additions based on tax positions related to the current year 2,154  627  329 
Reductions based on tax positions related to a prior year (32) —  — 
Gross amount of unrecognized tax benefits as of the end of the year $ 5,786  $ 2,811  $ 2,184 
The Company files income tax returns in the U.S. and foreign jurisdictions and is subject to income tax examinations by taxing authorities in federal, state and foreign jurisdictions with varying statutes of limitations. The federal statute of limitations is three years and the state statutes of limitations are three to four years. Due to net operating loss carryforwards, the federal and state statutes of limitations remain open for tax years 2011 and thereafter. Foreign statute of limitations vary by country with open tax years ranging from 2012 - 2021.
Under Section 382 of the Tax Reform Act of 1986, the Company’s domestic net operating loss carryforwards may be limited in certain circumstances. Events which cause limitations in the amount of net operating losses that the Company may utilize in any one year include, but are not limited to, a cumulative ownership change of more than 50%, as defined, over a three-year period. The impact of any limitations that may be imposed due to such ownership changes has not been determined.
On December 22, 2017, the United States passed the Tax Cuts and Jobs Act (the “Tax Act”) which enacts a broad range of changes to the US Tax Code. The Tax Act subjects a U.S. shareholder to tax on global intangible low-taxed income (GILTI) earned by certain foreign subsidiaries. The Company recognizes the expense related to GILTI in the year the tax is incurred.