Annual report pursuant to Section 13 and 15(d)

Income Taxes

v3.25.0.1
Income Taxes
 12 Months Ended
Dec. 31, 2024
Income Tax Disclosure [Abstract]  
Income Taxes INCOME TAXES
The Company is taxed as a corporation for income tax purposes and is subject to federal, state, and local taxes with respect
to its allocable share of any net taxable income from the LLC. The LLC is a limited liability company taxed as a
partnership for income tax purposes, and its taxable income or loss is passed through to its members, including the
Company. The LLC is subject to income taxes on its taxable income in certain foreign countries, in certain state and local
jurisdictions that impose income taxes on partnerships, and on the taxable income of its U.S. corporate subsidiaries.
The components of income before income taxes are as follows:
Year Ended December 31,
2024
2023
2022
United States
$270,345
$224,813
$159,778
Foreign
2,209
13,112
19,414
Income before income taxes
$272,554
$237,925
$179,192
The components of income tax expense are as follows:
Year Ended December 31,
2024
2023
2022
Current income tax expense
Federal
$3,494
$9,179
$408
State
3,704
3,338
1,840
Foreign
9,126
5,438
4,701
Current income tax expense
$16,324
$17,955
$6,949
Deferred income tax expense (benefit)
Federal
20,497
31,941
13,164
State
7,429
(5,454)
(4,198)
Foreign
(1,609)
(997)
20
Deferred income tax expense
$26,317
$25,490
$8,986
Income tax expense
$42,641
$43,445
$15,935
Reconciliations of income tax expense computed at the U.S. federal statutory income tax rate to the recognized income tax
expense and the U.S. statutory income tax rate to our effective tax rates are as follows:
Year Ended December 31,
2024
2023
2022
Income taxes at U.S. federal statutory rate
$57,236
21.0%
$49,964
21.0%
$37,630
21.0%
Income attributable to non-controlling interests
and nontaxable income
(29,998)
(11.0)
(26,195)
(11.0)
(18,662)
(10.4)
Nondeductible expenses
3,215
1.2
2,943
1.2
2,474
1.4
State and local taxes, net of federal benefit
7,804
2.9
6,642
2.8
4,671
2.6
Equity-based compensation
(13,876)
(5.1)
(2,481)
(1.0)
(2,374)
(1.3)
Common Control Reorganizations
9,519
3.5
18,356
7.7
—
—
Foreign rate differential
190
0.1
259
0.1
376
0.2
Change in state rate
2,968
1.1
(12,091)
(5.1)
(7,477)
(4.2)
Change in valuation allowance
3,571
1.3
2,908
1.2
—
—
Other TRA related (income) loss
(772)
(0.3)
2,785
1.2
—
—
Other
2,784
1.0
355
0.1
(703)
(0.4)
Income tax expense
$42,641
15.7%
$43,445
18.2%
$15,935
8.9%
The effective tax rate for the year ended December 31, 2024, was lower than the 21% statutory rate primarily as a result of
the income attributable to non-controlling interests and equity-based compensation, offset by an increase related to the
change in the deferred income tax rates and $9.5 million of non-cash deferred income tax expense from the Common
Control Reorganizations (“CCRs”), which are described below. The effective tax rate for the year ended December 31,
2023, was lower than the 21% statutory rate primarily as a result of the income attributable to non-controlling interests,
change in the deferred income tax rates, and equity-based compensation, offset by an increase of $18.4 million non-cash
deferred income tax expense related to the CCRs.
Uncertain Tax Positions
The Company does not believe it has any significant uncertain tax positions and therefore has no unrecognized tax benefits
as of December 31, 2024, that if recognized would affect the annual effective tax rate. The Company’s 2021 through 2023
tax years are considered open for federal examination purposes. The 2020 through 2023 tax years are considered open for
purposes of federal examination under the statutes of limitations for the LLC, which continues to file an annual U.S. Return
of Partnership Income, and the Company’s C-Corporation subsidiaries. As of the issuance date of this Form 10-K, one of
the LLC’s subsidiaries is under U.S. federal and state examination for the 2020 tax year and another is under U.S. federal
examination for the 2022 tax year. The Company is under examination by a local tax jurisdiction for the 2021 tax year.
There are no other on-going U.S. federal, state, or foreign tax audits or examinations as of the date of issuance of this Form
10-K.
Common Control Reorganizations (CCRs)
Subsequent to the acquisition of Innovisk, which was purchased by Ryan Specialty Holdings, Inc., the Company
reorganized Innovisk and transferred the resulting LLCs and foreign subsidiaries to Ryan Specialty, LLC. This legal entity
reorganization was considered a transaction between entities under common control. The CCR resulted in deferred tax
liabilities of $40.7 million and a non-cash deferred income tax expense of $11.4 million. Additionally, the difference
between the carrying value and the fair value of the investments transferred under common control resulted in an increase
of $7.3 million to Non-controlling interests on the Consolidated Statements of Stockholders’ Equity during the year ended
December 31, 2024.
Subsequent to the acquisitions of Socius and AccuRisk, which were purchased by a wholly owned subsidiary of Ryan
Specialty Holdings, Inc., the Company converted Socius to an LLC and reorganized AccuRisk and transferred those LLCs
to Ryan Specialty, LLC. These legal entity reorganizations were considered transactions between entities under common
control. The CCRs resulted in a net, non-cash deferred income tax expense of $18.4 million. Additionally, the difference
between the carrying value and the fair value of the investments transferred under common control resulted in an increase
of $18.9 million to Non-controlling interests on the Consolidated Statements of Stockholders’ Equity during the year ended
December 31, 2023. During the year ended December 31, 2024, as a result of the measurement period adjustments for
AccuRisk, the Company recognized $1.9 million of non-cash deferred income tax benefit.
Deferred Tax Assets and Liabilities
The components of deferred tax assets and liabilities are as follows:
As of December 31,
2024
2023
Deferred tax assets
Net operating losses
$14,687
$1,681
Investment in the LLC
429,850
375,218
Start-up costs
6,246
6,820
Equity-based compensation
1,628
686
Tax credits
5,491
2,908
Capitalized research and development
890
—
Other accrued items
151
—
Total deferred tax assets
$458,943
$387,313
Valuation allowances
(7,759)
(3,272)
Deferred tax assets, net of valuation allowance
$451,184
$384,041
Deferred tax liabilities
Intangibles
(42,817)
(53)
Fixed assets
—
(149)
Other accrued items
—
(78)
Deferred tax liabilities
$(42,817)
$(280)
Net Deferred tax assets
$408,367
$383,761
During the years ended December 31, 2024 and 2023, the changes in Deferred tax assets were primarily the result of
reductions to the deferred tax assets from the CCRs of $41.2 million and $77.0 million, respectively, offset by increases in
the investment in the LLC’s deferred tax assets of $97.1 million and $63.9 million, respectively, due to exchanges of LLC
Common Units for Class A common stock. Additionally, during the year ended December 31, 2024, Deferred tax assets
increased by $13.9 million due to equity-based compensation. The change in the Deferred tax liabilities during the year
ended December 31, 2024, was primarily the result Deferred tax liabilities established on acquired intangibles in
connection with the acquisitions of Castel and Innovisk of $21.8 million and $21.0 million, respectively.
As of December 31, 2024, the Company had $40.2 million of federal net operating loss (“NOL”) carryforwards with an
indefinite carryforward period, $37.2 million of state NOL carryforwards that will begin to expire in 2036, and $14.1
million of foreign NOL carryforwards with an indefinite carryforward period. The Company has recorded valuation
allowances of $4.4 million and $9.0 million against the state and foreign NOLs, respectively.
As of December 31, 2024, the Company had $5.5 million in foreign tax credit carryforwards that will begin to expire in
2031. The Company assessed the available positive and negative evidence, including tax planning strategies and recent
results of foreign operations, to determine whether it was more likely than not that the existing deferred tax asset would be
realized. A significant piece of objective negative evidence evaluated was the inability to use all available foreign tax
credits for the year ended December 31, 2024. On the basis of this evaluation, a full valuation allowance of $5.5 million
was recorded with respect to this deferred tax asset as of December 31, 2024. The amount of the deferred tax asset
considered realizable, however, could be adjusted in the future if estimates of the Company’s ability to use the available
foreign tax credits change.
As of December 31, 2024, the Company concluded that, based on the weight of all available positive and negative
evidence, the deferred tax assets with respect to the Company’s basis difference in its investment in the LLC, start-up costs,
and U.S. net operating losses are more likely than not to be realized. As such, no valuation allowance has been recognized
against those deferred tax assets. The Company has recorded a full valuation allowance against its foreign tax credits and
valuation allowances against certain state and foreign NOLs. The valuation allowances will be maintained until there is
sufficient evidence to support the reversal of all or some portion of the allowances.
Tax Receivable Agreement (TRA)
The Company recognizes a liability on the Consolidated Balance Sheets based on the undiscounted estimated future
payments under the TRA. The amounts payable under the TRA will vary depending upon a number of factors, including
the amount, character, and timing of the taxable income of the Company in the future. Based on current projections, the
Company anticipates having sufficient taxable income to be able to realize the benefits and has recorded Tax Receivable
Agreement liabilities of $436.3 million related to these benefits on the Consolidated Balance Sheets as of December 31,
2024. The following summarizes activity related to the Tax Receivable Agreement liabilities: 
Exchange Tax
Attributes
Pre-IPO M&A
Tax Attributes
TRA Payment
Tax Attributes
TRA
Liabilities
Balance at December 31, 2022
$150,311
$85,016
$60,020
$295,347
Exchange of LLC Common Units
47,409
6,489
14,689
68,587
Remeasurement – change in state rate
5,910
905
3,549
10,364
Interest expense
—
—
806
806
Payments
(8,962)
(6,596)
(648)
(16,206)
Balance at December 31, 2023
$194,668
$85,814
$78,416
$358,898
Exchange of LLC Common Units
73,433
5,660
21,982
101,075
Remeasurement – change in state rate
(932)
(391)
(1,183)
(2,506)
Remeasurement – foreign tax credits
(895)
—
—
(895)
Interest expense
—
—
1,302
1,302
Payments
(13,041)
(7,668)
(869)
(21,578)
Balance at December 31, 2024
$253,233
$83,415
$99,648
$436,296
The increases in the TRA liabilities due to exchanges of LLC Common Units for Class A common stock were recognized
in Additional paid-in capital on the Consolidated Statements of Stockholders’ Equity. During the year ended December 31,
2024, the Company remeasured the TRA liabilities due to changes in state tax rates, which decreased its estimated cash tax
savings rate from 26.12% to 26.00%. During the year ended December 31, 2023, the Company remeasured the TRA
liabilities due to changes in state tax rates, which increased its estimated cash tax savings from 25.53% to 26.12%. The
changes were recognized in Other non-operating loss on the Consolidated Statements of Income. Total realized tax savings
in 2024 for the year ended December 31, 2023, from each of the tax attributes associated with the TRA were $24.4 million;
$20.7 million, exclusive of the related accrued interest, was paid to current and certain former LLC unitholders,
representing 85% of the realized tax savings. The remaining 15%, or $3.7 million, of the realized tax savings was retained
by the Company.
Non-controlling Interest Holders’ Tax Distributions
The Company declared tax distributions to the non-controlling interest holders of $84.8 million, $74.6 million, and $28.7
million during the years ended December 31, 2024, 2023, and 2022, respectively. Non-controlling interest holders’ tax
distributions for quarterly estimates are generally paid throughout the year they relate to, and a final payment is made in the
first half of the subsequent year.
Other Comprehensive Income (Loss)
The following table summarizes the tax effects on the components of Other comprehensive income (loss):
Year Ended December 31,
2024
2023
2022
Gain on interest rate cap
$(1,945)
$(1,628)
$(2,727)
Gain on interest rate cap reclassified to earnings
3,101
2,734
—
Foreign currency translation adjustments
1,370
(272)
538
Change in share of equity method investment in related party
(842)
173
713