Note 14. Income Taxes

During the years ended December 31, 2023, 2022 and 2021, the Company recorded an income tax provision of $4.2 million, $2.0 million and $2.2 million, respectively, which is primarily attributable to foreign activity and U.S. state taxes.

As of December 31, 2023, the Company had gross federal and state NOL carryforwards of $86.3 million and $101.4 million, respectively, out of which $17.6 million of federal NOL carryforwards and $99.3 million of state NOL carryforwards begin to expire in 2032 and 2024, respectively. Additionally, $68.7 million of federal NOL carryforwards and $2.2 million of state NOL carryforwards have indefinite lives. As of December 31, 2023, the Company has gross foreign NOL carryforwards of $8.7 million which have indefinite lives. The federal, state and foreign NOL carryforwards may be available to reduce future federal, state and foreign taxable income, respectively.

Ownership changes, as defined under Internal Revenue Code Section 382, and similar state provisions may limit the amount of federal and state NOL carryforwards that can be utilized annually to offset future federal and state taxable income. Generally, an ownership change occurs when the ownership percentage of 5% or greater stockholders increases by more than 50% over a three-year period. Accordingly, the purchase of the Company’s stock in amounts greater than specified levels could limit the Company’s ability to utilize federal and state NOL carryforwards for tax purposes. During 2022, the Company completed a Section 382 study and as a result of the ownership changes identified, $1.6 million of Flywire’s NOLs and $0.2 million of Simplee’s NOLs will expire unutilized, assuming sufficient taxable income is generated in the future. The Company is in the process of updating its Section 382 study and preliminary indications show there will be no additional limitations in using Federal and State NOL carryforwards.

In assessing the realizability of its deferred tax assets, the Company considered whether it was more likely than not that some portion or all of the deferred tax assets would not be realized. The realization of deferred tax assets depends upon the generation of future taxable income. The Company has evaluated the positive and negative evidence bearing upon the realizability and determined that it is more likely than not that the Company will not realize the benefits of the deferred tax assets, and as a result, a valuation allowance has been established against federal, state and certain foreign deferred tax assets as of December 31, 2023 and 2022.

During the year ended December 31, 2023, the Company recorded a net increase in the valuation allowance of $2.8 million, which is primarily due to an increase of $12.1 million related to capitalized research and development costs, offset by NOL utilization in the U.S. and the U.K. During the year ended December 31, 2022, the Company recorded a net increase in the valuation allowance of $13.8 million, which is primarily due to an increase of $12.7 million related to capitalized research and development costs in the U.S. The Company also recorded a valuation allowance of $1.3 million related to a foreign subsidiary, offset by a decrease of $0.2 million due to the release of valuation allowance in foreign entities. During the year ended December 31, 2021, the Company recorded an increase in the valuation allowance of $6.4 million, which is primarily related to generating losses in the U.S. Changes in the valuation allowance are summarized as follows (in thousands):

The Company permanently reinvests the earnings of its foreign subsidiaries. No additional income taxes have been provided on the indefinitely invested foreign earnings at December 31, 2023. The Company has approximately $31.7 million of unremitted earnings at December 31, 2023, which the Company believes to approximate the outside basis difference in its foreign subsidiaries. If these earnings were distributed, the Company could be subject to income taxes and foreign withholding taxes. As of December 31 2023, the amount of the unrecognized deferred taxes on these earnings are not material.

As of December 31, 2023, 2022 and 2021, the Company accrued $0.8 million, $0.8 million and $0.9 million related to uncertain tax positions, inclusive of interest and penalties, respectively, which includes potential tax benefits of $0.5 million, $0.6 million and $0.6 million, respectively, that, when recognized, would impact the effective tax rate. As of December 31, 2023, $0.3 million of the reserve is reflected as a reduction to deferred taxes and the remaining balance is recorded as a component of other liabilities in the consolidated balance sheet.

The Company expects a decrease of $0.1 million in uncertain tax positions in the next 12 months due to the lapse of statute of limitations.

The Company recognized accrued interest and penalties of $0, $0 and $0.2 million for the years ended December 31, 2023, 2022 and 2021, respectively, related to the reserves for uncertain tax positions in the income tax provision. Included in the total reserve for uncertain tax positions are accrued interest and penalties of $0.2 million, $0.2 million and $0.2 million at December 31, 2023, 2022 and 2021, respectively.

The Company files income tax returns as prescribed by the tax laws of the jurisdiction in which it operates. In the normal course of its business, the Company is subject to examination by federal, state and foreign jurisdictions, where applicable. The Company is open to future tax examinations from 2018 to the present; however, carryforward attributes that were generated prior to 2018 may still be adjusted upon examination by federal, state or local tax authorities to the extent they will be used in a future period.

On August 16, 2022, the Inflation Reduction Act of 2022 was signed into law. This legislation imposes a federal Corporate Alternative Minimum Tax among other tax law changes. The Inflation Reduction Act of 2022 was effective for Flywire for years beginning after December 31, 2022. The Company has completed its analysis of this legislation and it does not expect the Inflation Reduction Act of 2022 will have a material impact on the Company's tax liability.