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Income Taxes
 12 Months Ended
Dec. 31, 2023
Income Tax Disclosure [Abstract]  
Income Taxes Income Taxes
The components of income before income taxes are as follows (in thousands):
Year Ended December 31,
202320222021
Domestic$54,935 $152,000 $4,030 
Foreign— — — 
Income before income taxes$54,935 $152,000 $4,030 

The components of income tax expense are as follows (in thousands):
Year Ended December 31,
202320222021
Current income taxes:
Federal$— $— $— 
State915 554 631 
Foreign— — — 
Total current income taxes915 554 631 
Deferred income taxes:
Federal10,146 13,639 397 
State1,188 (5,233)(1,873)
Foreign— — — 
Total deferred income taxes11,334 8,406 (1,476)
Other tax expense25 27 931 
Income tax expense$12,274 $8,987 $86 

The differences between income taxes expected at the U.S. federal statutory income tax rate and the reported income tax expense are summarized as follows (in thousands):
Year Ended December 31,
202320222021
U.S. federal income taxes at statutory rate$11,537 $31,920 $846 
State and local income tax, net of federal benefit1,811 4,786 (1,380)
Permanent tax adjustments101 (6)356 
Equity-based compensation447 685 (14)
Non-deductible officers' compensation968 397 — 
Pre-IPO income— — (562)
Non-controlling interests(564)(3,289)(342)
Termination of TRA— (15,905)349 
Termination of Up-C structure(2,347)— — 
Remeasurement of deferred taxes— (6,775)(1,939)
Change in valuation allowance988 (1,983)1,983 
Other(667)(843)789 
Income tax expense$12,274 $8,987 $86 
The components of the deferred tax assets and liabilities are as follows (in thousands):
Year Ended December 31,
20232022
Deferred tax assets:
Investment in Shoals Parent$— $284,729 
Inventory, net1,677 — 
Property, plant & equipment, net709 — 
Goodwill450,830 — 
Accrued expenses and other2,310 — 
Warranty liability12,824 — 
Net operating loss5,380 4,626 
Equity-based compensation2,869 2,030 
Other4,090 249 
Total deferred tax assets480,689 291,634 
Less valuation allowance(988)— 
Total deferred tax assets, net479,701 291,634 
Deferred tax liabilities:
Other intangible assets, net(10,636)— 
Other(870)— 
Total deferred tax liabilities(11,506)— 
Net deferred tax asset$468,195 $291,634 
During the year ended December 31, 2023, the Company acquired the remaining non-controlling interest in Shoals Parent LLC and contributed 100% of its interest to its wholly-owned subsidiary Shoals Intermediate Parent, thereby eliminating the Company’s Up-C structure. As a result of the contribution, Shoals Parent LLC ceased to be treated as a partnership for U.S. federal income tax purposes and became a single-member disregarded entity. Accordingly, the Company converted its outside basis differences in its investment in Shoals Parent LLC and remeasured its deferred taxes using the inside basis differences of Shoals Parent LLC’s assets and liabilities. The conversion from outside to inside basis differences resulted in a net deferred tax benefit of approximately $5.1 million, which has been recorded in the accompanying consolidated statement of operations.
As of December 31, 2023, the Company has $23.7 million and $7.3 million federal and state net operating loss carryforwards, respectively. If not utilized, $23.7 million of the federal net operating loss can be carried forward indefinitely. If not utilized, $1.7 million of the state net operating loss can be carried forward indefinitely and $5.6 million will expire between 2036-2043.
At December 31, 2023, the Company determined that a valuation allowance related to land and other non-amortizable intangibles in the amount of $1.0 million was required, as it is not more-likely than not that these deferred tax assets would be realized.
In August 2022, the U.S. President signed into law the Inflation Reduction Act of 2022 (the “IRA”), which revised U.S. tax law by, among other things, including a new corporate alternative minimum tax (the “CAMT”) of 15% on certain large corporations, imposing a 1% excise tax on stock buybacks, and providing incentives to address climate change, including the introduction of advanced manufacturing production tax credits. The provisions of the IRA are generally effective for tax years beginning after 2022. Given the complexities of the IRA, including recently issued guidance from the Internal Revenue Service and regulations from the U.S.
Treasury Department, we will continue to monitor these developments and evaluate the potential future impact to our results of operations.
As of December 31, 2023 and 2022, the Company has recorded $1.0 million of gross unrecognized tax benefits inclusive of interest and penalties, all of which, if recognized, would favorably impact the effective tax rate. We do not expect a significant change in our uncertain tax benefits in the next twelve months. The Company recognizes penalties and interest related to uncertain tax positions within the provision (benefit) for income taxes line in the accompanying consolidated statements of operations.
We are generally subject to tax examinations by U.S. federal and state tax authorities for years beginning after 2019 and 2018, respectively.