Annual report pursuant to Section 13 and 15(d)

Income Taxes

v3.22.1
Income Taxes
12 Months Ended
Dec. 31, 2021
Income Tax Disclosure [Abstract]  
Income Taxes Income Taxes
As a result of the IPO and Reorganization, the Company became the sole managing member of Alclear, which is treated as a partnership for U.S. federal and most applicable state and local income tax purposes. As a partnership, Alclear is generally not subject to U.S. federal and most state and local income taxes. Any taxable income or loss generated by Alclear is passed through to and included in the taxable income or loss of its members, including us, on a pro rata basis. The Company is subject to U.S. federal income taxes, in addition to state and local income taxes with respect to our allocable share of any taxable income or loss of Alclear, as well as any stand-alone income or loss generated by the Company. The Company is also subject to income taxes in Israel, Argentina, and Mexico.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was enacted. The CARES Act provides relief to U.S. Corporations through financial assistance programs and modifications to certain income tax provisions. In connection with the CARES Act, the Company deferred $1,330 of social security payroll taxes as of December 31, 2021. That Company has not recorded any material adjustments to its income tax provisions related to the CARES Act as of December 31, 2021.
The components of income tax expense (benefit) for the years ended December 31, 2021, 2020 and 2019 are as follows:

2021 2020 2019
Current
Federal $ —  $ —  $ — 
State $ 207  $ 16  $ — 
Foreign $ 26  $ —  $ — 
Total current income taxes $ 233  $ 16  $ — 
Deferred
Federal $ —  $ —  $ —  $ —  $ — 
State $ —  $ —  $ —  $ —  $ — 
Foreign $ —  $ —  $ —  $ —  $ — 
Total deferred income taxes $ —  $ —  $ —  $ —  $ — 
Income tax expense (benefit) $ 233  $ 16  $ — 
A reconciliation of the U.S. statutory income tax rate to the Company’s effective tax rate for the years ended December 31, 2021, 2020 and 2019, is as follows:

2021 2020 2019
Tax expense (benefit) at U.S. statutory rate 21.0  % 21.0  % 21.0  %
Effect of flow-through entity (9.4) % (21.0) % (21.0) %
State taxes 2.0  % 0.3  % 0.7  %
Remeasurement of state tax 0.0  % 0.5  % 0.0  %
Permanent differences 0.0  % (2.2) % (0.3) %
Non-controlling interest (5.4) % 0.0  % 0.0  %
Change in valuation allowance (8.0) % 1.2  % (0.4) %
Other (0.4) % 0.0  % 0.0  %
Effective income tax rate (0.2) % (0.2) % 0.0  %

The Company’s effective tax rate was (0.2%), (0.2%) and 0% for December 31, 2021, 2020 and 2019, respectively.
Significant changes in the reconciling items for the year ended December 31, 2021, compared to the year ended December 31, 2020, included effect of flow-through entity, non-controlling interest, and change in valuation allowance.

The components of the deferred tax assets and liabilities for the years ended December 31, 2021, 2020 and 2019 are as follows:
Deferred Taxes 2021 2020 2019
Deferred rent $ 11  $ 13  $ 26 
Accrued expenses — 
Stock-based compensation 111  —  — 
Investment in partnership 148,797  —  — 
Other 720 
Net operating loss 28,460  333  442 
Gross deferred tax assets 178,106  355  471 
Depreciation and amortization (5,486) (131) (147)
Prepaid expenses and other (31) (20) (24)
Gross deferred tax liabilities (5,517) (151) (171)
Deferred income tax assets before valuation allowance 172,589  204  300 
Valuation allowance (176,381) (204) (300)
Net deferred tax asset (liability) $ (3,792) $   $  
In 2021 and in 2020, the total valuation allowance for the Company increased significantly primarily due to increases in net operating losses and investment in partnership for which it was more likely than not that the benefits of these items will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income. The estimation of future taxable income and our ability to utilize deferred tax assets can significantly change based on future events.
2021 2020
Balance as of January 1 $ 204  $ 300 
Additions to valuation allowance through income tax expense 9,159  — 
Additions to valuation allowance through equity 166,919  — 
Additions to valuation allowance through goodwill 99  — 
Release of valuation allowance through income tax expense —  (96)
Balance as of December 31 $ 176,381  $ 204 
As of December 31, 2021, the Company had federal income tax net operating loss (NOL) carryforwards of $105,398
which will carryforward indefinitely. The Company had foreign income tax NOL carryforwards of $396, which, if
unused, will expire in years 2023 through 2026. The Company had state income tax NOL carryforwards of $97,548,
$73,436 of which, if unused, will expire in years 2028 through 2041.
Future changes in the ownership of the Company may limit the future utilization of the net operating loss and tax credit carryforwards, as defined by the federal, foreign, state, and local tax codes. Accordingly, utilization of the net operating loss carryforwards and credits will be subject to the annual limitation provided by the Code and similar state provisions and may result in the expiration of the net operating losses and credits before utilization.
The Company accrues liabilities for uncertain tax positions that are not more likely than not to be sustained upon examination. Interest and penalties related to uncertain tax positions are recorded in accrued liabilities in the accompanying consolidated balance sheets. The Company did not have significant unrecognized tax benefits and interest and penalties as of December 31, 2021, 2020 and 2019.
The Company is subject to income taxes in the U.S., Israel, Argentina, and Mexico. The statute of limitations for adjustments to our historic tax obligations will vary from jurisdiction to jurisdiction. The tax years for U.S. federal and state income tax purposes open for examination are for the years ending December 31, 2018 and forward. The tax years for foreign jurisdictions open for examination are for the years ending December 31, 2016 and forward.
The Company is asserting permanent reinvestment of all accumulated undistributed earnings of its foreign subsidiaries as of December 31, 2021. Due to the timing and circumstances of repatriation of such earnings, if any, it is not practicable to determine the unrecognized deferred tax liability relating to such amounts.
Tax Receivable Agreement
As stated in Note 1, in connection with the IPO, the Company entered into the TRA, which generally provides for payment by the Company to the TRA Holders of 85% of the net cash savings, if any, in U.S. federal, state and local income tax and franchise tax that Clear Secure, Inc. actually realizes or is deemed to realize as a result of (i) any increase in tax basis in Alclear’s assets resulting from (a) exchanges by Alclear members (or their transferees or other assignees) of Alclear Units (along with the corresponding shares of our Class C Common Stock or Class D Common Stock, as applicable) for shares of the Company’s Class A Common Stock or Class B Common Stock, as applicable, and purchases of Alclear Units and corresponding shares of Class C Common Stock or Class D Common Stock, as the case may be, from the Alclear members (or their transferees or other assignees) or (b) payments under the TRA, and (ii) tax benefits related to imputed interest deemed arising as a result of payments made under the TRA. The Company will retain the benefit of the remaining 15% of these net cash savings.
The TRA liability is calculated by determining the tax basis subject to TRA (“tax basis”) and applying a blended tax rate to the basis differences and calculating the iterative impact. The blended tax rate consists of the U.S. federal income tax rate and an assumed combined state and local income tax rate driven by the apportionment factors applicable to each state. Subsequent changes to the measurement of the TRA liability are recognized in the statements of operations as a component of other income (expense), net. As of December 31, 2021, the Company did not record a liability from the TRA.
The Company expects to obtain an increase in the share of the tax basis of its share of the assets of Alclear when Alclear Units are redeemed or exchanged by Alclear Members and other qualifying transactions. This increase in tax basis may have the effect of reducing the amounts that the Company would otherwise pay in the future to various tax authorities. The increase in tax basis may also decrease gains (or increase losses) on future dispositions of certain capital assets to the extent tax basis is allocated to those capital assets.