(7)  Income Taxes

Income tax benefit (expense) consists of:

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The following table presents a summary of our domestic and foreign earnings (losses) from continuing operations before income taxes:

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Income tax benefit (expense) differs from the amounts computed by applying the U.S. federal income tax rate of 21% as a result of the following:

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During 2023, the Company recognized tax expense instead of a benefit at the expected federal tax rate of 21% primarily due to goodwill impairments that are not deductible for tax purposes and changes in unrecognized tax benefits.

During 2022, the Company recognized tax expense greater than the expected federal tax rate of 21% primarily due to changes in unrecognized tax benefits and the recognition of excess tax benefits and shortfalls to stock based compensation.

During 2021, the Company recognized a tax benefit related to unrealized gains attributable to the Company’s own stock which is not recognized for tax purposes and the recognition of deferred tax assets for basis differences in the stock of a consolidated subsidiary, partially offset by tax expense related to an increase in the valuation allowance against certain deferred tax assets.

The CARES Act allowed Tripadvisor to carryback Tripadvisor’s U.S. federal NOLs incurred in 2020, generating an expected U.S. federal tax benefit of $76 million, of which $64 million was refunded during the year ended December 31, 2022 ($15 million of this refund was recorded in other liabilities on the consolidated balance sheet as of December 31, 2023, reflecting future transition tax payments to be made by Tripadvisor related to the 2017 Tax Act). The remaining refund of $12 million is included in accrued liabilities and other current liabilities on our consolidated balance sheet as of December 31, 2023 and 2022, and is expected to be received during the year ended December 31, 2024.

In addition, during the years ended December 31, 2022 and 2021, Tripadvisor recognized government grants and other assistance benefits of $12 million and $9 million, respectively.  No material amount was recognized for the year ended December 31, 2023 related to government grants or other assistance benefits. These amounts are not income tax related and were recorded as a reduction of personnel and overhead costs within operating expenses in the consolidated statements of operations. Tripadvisor does not expect any additional future benefits of this nature.

The tax effects of temporary differences and tax attributes that give rise to significant portions of the deferred income tax assets and deferred income tax liabilities are presented below:

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As of December 31, 2023, we had a valuation allowance of approximately $127 million related to certain federal and state NOL carryforwards, interest expense carryforwards and other foreign deferred tax assets for which it is more

likely than not, the tax benefit will not be realized. This amount represents an increase of $4 million, as compared to the balance as of December 31, 2022.

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Due to the one-time transition tax on the deemed repatriation of undistributed foreign subsidiary earnings and profits in 2017, as a result of the 2017 Tax Act, the majority of previously unremitted earnings have been subjected to U.S. federal income tax. To the extent future distributions from these subsidiaries will be taxable, a deferred tax liability has been accrued which was not material as of December 31, 2023. As of December 31, 2023, $483 million of Tripadvisor’s cumulative undistributed foreign earnings were no longer considered to be indefinitely reinvested.  

At December 31, 2023, the Company has a deferred tax asset of $182 million for federal, state, and foreign NOLs, interest expense carryforwards and tax credit carryforwards.  Of this amount, $138 million is recorded at Tripadvisor. If not utilized to reduce income tax liabilities at Tripadvisor in future periods, $19 million of these loss carryforwards and tax credits will begin to expire at various times beginning with 2024. The remaining $119 million of NOLs, interest expense carryforwards and tax credits recorded at Tripadvisor may be carried forward indefinitely. The remaining deferred tax asset of $44 million relates to federal and state NOL carryforwards and interest expense carryforwards recorded at TripCo. If not utilized to reduce income tax liabilities at TripCo in future periods, $17 million of these NOL carryforwards will expire at various times between 2024 and 2037. The remaining $27 million of NOLs and interest expense carryforwards may be carried forward indefinitely. A portion of TripCo’s net operating loss carryforwards are subject to certain limitations and may not be currently utilized. These carryforwards recorded at Tripadvisor and TripCo are expected to be utilized prior to expiration, except for $127 million of NOLs, interest expense carryforwards, and tax credit carryforwards, which based on current projections may expire unused.

A reconciliation of unrecognized tax benefits is as follows:

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As of December 31, 2023, the Company had recorded $153 million of unrecognized tax benefits, inclusive of interest, which are primarily included in other liabilities on the consolidated balance sheets. If the unrecognized tax benefits were to be recognized for financial statement purposes, approximately $114 million would be reflected in the Company’s tax expense and affect its effective tax rate. The Company’s estimate of its unrecognized tax benefits related to uncertain tax positions requires a high degree of judgment.

As of December 31, 2023, the Company had accrued gross interest related to uncertain tax positions of approximately $50 million, $45 million of which was recorded as unrecognized tax benefits within other liabilities and $5 million of which was recorded to income taxes receivable within other assets on the consolidated balance sheets. As of

December 31, 2022, the Company had accrued gross interest related to uncertain tax positions of $47 million, which was recorded in other liabilities on the consolidated balance sheets.

As of December 31, 2023, TripCo’s tax years prior to 2020 are closed for federal income tax purposes. TripCo’s  2020, 2021, 2022, and 2023 tax years are not under IRS examination. Because TripCo’s ownership of Tripadvisor is less than the required 80%, Tripadvisor does not consolidate with TripCo for federal income tax purposes.

On December 20, 2011, Expedia completed a spin-off of Tripadvisor into a separate publicly traded Delaware corporation (the “Spin-Off”). For purposes of governing certain of the ongoing relationships between Tripadvisor and Expedia at and after the Spin-Off, and to provide for an orderly transition, Tripadvisor and Expedia entered into various agreements at the time of the Spin-Off, which Tripadvisor has satisfied its obligations. However, Tripadvisor continues to be subject to certain post Spin-Off obligations under the Tax Sharing Agreement. Under the Tax Sharing Agreement between Tripadvisor and Expedia, Tripadvisor is generally required to indemnify Expedia for any taxes resulting from the Spin-Off (and any related interest, penalties, legal and professional fees, and all costs and damages associated with related stockholder litigation or controversies) to the extent such amounts resulted from (i) any act or failure to act by Tripadvisor described in the covenants in the tax sharing agreement, (ii) any acquisition of Tripadvisor equity securities or assets or those of a member of the Tripadvisor group, or (iii) any failure of the representations with respect to Tripadvisor or any member of its group to be true or any breach by Tripadvisor or any member of the Tripadvisor group of any covenant, in each case, which is contained in the separation documents or in the documents relating to the IRS private letter ruling and/or the opinion of counsel.

Tripadvisor is currently under examination by the IRS for the 2014 through 2016 and 2018 tax years and has various ongoing audits for foreign and state income tax returns. These audits include questions regarding review of the timing and amount of income and deductions and the allocation of income among various tax jurisdictions. These examinations may lead to proposed or ordinary course adjustments to Tripadvisor’s taxes. Tripadvisor is no longer subject to tax examinations by tax authorities for years prior to 2014. As of December 31, 2023, no material assessments have resulted, except as noted below regarding Tripadvisor’s 2009, 2010, and 2011 IRS audit with Expedia, its 2014 through 2016 standalone IRS audit, and its 2012 through 2016 HM Revenue & Customs (“HMRC”) audit.

As disclosed in previous filings, including in the Annual Report on Form 10-K for the year ended December 31, 2022, Tripadvisor received Notices of Proposed Adjustments ("NOPA") in January 2017 and April 2019 from the IRS with respect to income tax returns filed by Expedia when Tripadvisor was part of Expedia Group’s consolidated income tax return for the 2009, 2010, and 2011 tax years. The assessment was related to certain transfer pricing arrangements with foreign subsidiaries, for which Tripadvisor had requested competent authority assistance under the Mutual Agreement Procedure (“MAP”) for the 2009 through 2011 tax years. In January 2023, Tripadvisor received a final notice from the IRS regarding a MAP settlement for the 2009 through 2011 tax years, which it accepted in February 2023. In the first quarter of 2023, Tripadvisor recorded additional income tax expense as a discrete item, inclusive of interest, of $31 million specifically related to this settlement. During the first quarter of 2023, Tripadvisor reviewed the impact of the acceptance of this settlement position against its existing transfer pricing income tax reserves for the subsequent tax years, which resulted in incremental income tax expense, inclusive of estimated interest, of $24 million. The total impact of these adjustments resulted in an incremental income tax expense of $55 million, which was recognized during the three months ended March 31, 2023. During the three months ended June 30, 2023, Tripadvisor made a U.S. federal tax payment of $113 million, inclusive of interest, to Expedia related to this IRS audit settlement, pursuant to the Tax Sharing Agreement with Expedia. During the three months ended September 30, 2023, Tripadvisor received the expected competent authority refund of $49 million, inclusive of interest income. Tripadvisor anticipates the federal tax benefits, net of remaining state tax payments due, associated with this IRS audit settlement will be substantially settled during 2024, resulting in an estimated net cash inflow of $5 million to $10 million.

Separately, during August 2020, Tripadvisor received a NOPA from the IRS for the 2014, 2015, and 2016 tax years. These proposed adjustments pertain to certain transfer pricing arrangements with Tripadvisor’s foreign subsidiaries. Tripadvisor disagrees with the proposed adjustments, and intends to defend its position through applicable administrative and, if necessary, judicial remedies. In addition to the risk of additional tax for the years discussed above, if the IRS were to seek transfer pricing adjustments of a similar nature for transactions in subsequent years, Tripadvisor may be subject to significant additional tax liabilities. Tripadvisor has previously requested competent authority assistance under MAP for the tax years 2014 through 2016. Tripadvisor reviewed its transfer pricing reserves as of December 31, 2023 and, based on the facts and circumstances that existed as of the reporting date, consider them to be the Company’s best estimate as of December 31, 2023. In January 2024, Tripadvisor received notification of a MAP resolution agreement for the 2014 through 2016 tax years, which Tripadvisor accepted in February 2024.  Tripadvisor anticipates this will result in an increase to Tripadvisor’s worldwide income tax expense in an estimated range of $30 million to $60 million in the first quarter of 2024 and will result in an estimated net operating cash outflow of $80 million to $130 million during 2024. These estimated ranges take into consideration competent authority relief, existing income tax reserves, transition tax regulations and estimated interest expense. This MAP resolution supersedes the NOPA previously received for 2014 through 2016 from the IRS, described above. Tripadvisor will review the impact of this resolution in relation to its transfer pricing income tax reserves for the subsequent open tax years during the first quarter of 2024. Based on this new information received subsequent to December 31, 2023, adjustments for open tax years subsequent to 2016 may also occur, which could be material.

As of December 31, 2022, Tripadvisor had recorded $204 million of unrecognized tax benefits, inclusive of interest, classified as other long-term liabilities on the consolidated balance sheet. As a result of Tripadvisor's acceptance of MAP with the IRS for the tax years 2009 through 2011, and its impact on other ongoing IRS audits, as described above, during the first quarter of 2023, Tripadvisor reduced this unrecognized tax benefits liability by $59 million, reclassifying this balance to accrued liabilites and other current liabilities on the consolidated balance sheet, which was subsequently paid during 2023. Tripadvisor also reduced long-term income taxes receivable by $45 million, representing its estimate of competent authority relief, or payment due from a foreign jurisdiction, which was received during the third quarter of 2023, as noted above, and previously recorded to other long-term assets on the consolidated balance sheet as of December 31, 2022.

In January 2021, Tripadvisor received from HMRC an issue closure notice relating to adjustments for 2012 through 2016 tax years. These proposed adjustments are related to certain transfer pricing arrangements with Tripadvisor’s foreign subsidiaries and would result in an increase to its worldwide income tax expense in an estimated range of $25 million to $35 million, exclusive of interest expense, at the close of the audit if HMRC prevails. Tripadvisor disagrees with the proposed adjustments and intends to defend its position through applicable administrative and, if necessary, judicial remedies. Tripadvisor’s policy is to review and update tax reserves as facts and circumstances change.