Company: CODI-PB
Filing Date: 2025-02-27
Form Type: 10-K
Source: 0001345126-25-000015
Chunk: 231

Company: Compass Diversified Holdings
Filing Date: 2025-02-27
Form: 10-K
Item: Item 16
Chunk 231
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2Net sales$8,829 $89,503 Gross profit3,663 41,064 Operating income 1,058 23,617 Income (loss) from operations before income taxes (1) (2,464)23,349 Provision (benefit) for income taxes(1,073)3,616 Income (loss) from discontinued operations (1)$(1,391)$19,733 (1) The results of operations for the periods from January 1, 2023 through disposition and the year ended December 31, 2022, each exclude $1.4 million and $6.7 million, respectively, of intercompany interest expense.    

F-26

COMPASS DIVERSIFIED HOLDINGSNOTES TO CONSOLIDATED FINANCIAL STATEMENTS 

Gain on sale of discontinued operations - income taxEffective September 1, 2021, the Trust elected to be treated as a corporation for U.S. federal income tax purposes. Prior to the Effective Date, the Trust was treated as a partnership for U.S. federal income tax purposes and the Trust’s items of income, gain, loss and deduction flowed through from the Trust to the shareholders, and the Trust shareholders were subject to income taxes on their allocable share of the Trust’s income and gains. After the Effective Date, the Trust is taxed as a corporation and is subject to U.S. federal corporate income tax at the Trust level. The election to be treated as a corporation for U.S federal income tax purposes, resulted in an approximate $328 million gain to the Trust for U.S. federal income tax purposes. This taxable capital gain should result in a basis step-up for the Trust after the Election. This basis step-up should provide a tax benefit to the Trust, as it should increase the Trust’s basis in its subsidiaries as of September 1, 2021, which in turn should reduce future gains, if and when the Trust divests such subsidiaries. The Trust filed for a Private Letter Ruling ("PLR"), with the Internal Revenue Service ("IRS") regarding the basis step-up and intends to reflect the basis step up on future tax returns unless the IRS disagrees with the Company's proposed treatment. Until the IRS issues a ruling on the PLR, the Company has concluded that a full reserve should be recorded for the stepped-up basis benefit and as a result, recorded an unrecognized tax benefit of $7.4 million that reduced the gain on Ergobaby