Quarterly report pursuant to Section 13 or 15(d)

Tax Receivable Agreement

v3.22.2.2
Tax Receivable Agreement
6 Months Ended
Jun. 30, 2022
Tax Receivable Agreement Abstract  
Tax Receivable Agreement

Note 16. Tax Receivable Agreement

 

In connection with the Business Combination, Fathom entered into a Tax Receivable Agreement ("TRA") with certain owners of Fathom OpCo prior to the Business Combination. Pursuant to the TRA, the Company will pay certain of these parties, as applicable, 85% of the tax benefits, of any savings the company realize, calculated using certain assumptions, as a result of (i) tax basis adjustments from sales and exchanges of Fathom OpCo's equity interests in connection with or following the Business Combination and certain distributions with respect to Fathom OpCo's equity interests, (ii) our utilization of certain tax attributes, and (iii) certain other tax benefits related to entering into the TRA.

 

Actual tax benefits realized by Fathom may differ from tax benefits calculated under the TRA as a result of the use of certain assumptions in the TRA, including the use of an assumed weighted-average state and local income tax rate to calculate tax benefits. While the amount of existing tax basis, the anticipated tax basis adjustments and the actual amount and utilization of tax attributes, as well as the amount and timing of any payments under the TRA, will vary depending upon a number of factors, we expect that the payments that Fathom may make under the TRA will be substantial.

 

The Company’s TRA liability established upon completion of the Business Combination is measured at fair value on a recurring basis using significant unobservable inputs (Level 3). The TRA liability balance at June 30, 2022 assumes: (i) a constant blended U.S. federal, state and local income tax rate of 26.9%; (ii) no material changes in tax law; (iii) the ability to utilize tax attributes based on current alternative tax forecasts; and (iv) future payments under the TRA are made when due under the TRA. The amount of the expected future payments under the TRA has been discounted to its present value using a discount rate of 12.2%.

 

Subsequent to the Business Combination, the Company will record additional liabilities under the TRA when Class A Units of Fathom OpCo are exchanged for Class A common stock. Liabilities resulting from these exchanges will be recorded on a gross undiscounted basis and are not remeasured at fair value. During the Successor six months ended June 30, 2022, an additional TRA liability of $5,000 was established as a result of these exchanges.

 

The following table summarizes the changes in the TRA liabilities:

 

 

 

Tax Receivable Agreement Liability

 

Beginning balance as of December 31, 2021

 

$

4,600

 

Fair value measurement

 

 

(200

)

Conversion of non-controlling interest

 

 

5,000

 

Ending Balance as of June 30, 2022

 

 

9,400

 

Less: Current portion included in other current liabilities

 

 

-

 

Total long-term tax receivable agreement liability

 

$

9,400