Quarterly report pursuant to Section 13 or 15(d)

Taxes

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Taxes
9 Months Ended
Sep. 30, 2021
Income Tax Disclosure [Abstract]  
Taxes Taxes
Sunlight recognizes tax benefits for uncertain tax positions only if it is more likely than not that the position is sustainable based on its technical merits. Interest and penalties on uncertain tax positions are included as a component of the provision for income taxes in Sunlight's Condensed Consolidated Statements of Operations. At September 30, 2021 and December 31, 2020, Sunlight did not have any material uncertain tax positions. Any uncertain tax position taken by any of the Class EX unitholders is not an uncertain tax position of Sunlight Financial LLC.

Sunlight calculates the provision for income taxes during interim periods by applying an estimate of the forecasted annual effective tax rate for the full fiscal year to “ordinary” income or loss (pretax income or loss or loss excluding unusual or infrequently occurring discrete items) for the reporting period. The income taxes benefit was $5.7 million for the period July 10, 2021 through September 30, 2021. Sunlight Financial LLC, Sunlight’s accounting predecessor, is a limited liability partnership not subject to income taxes. Sunlight’s effective tax rate was 23.1% for the period July 10, 2021 through September 30, 2021.

At September 30, 2021 and December 31, 2020, total gross unrecognized tax benefits were $0.0 million and $0.0 million, respectively. Sunlight recognizes interest and penalties related to unrecognized tax benefits as a component of income tax expense. As of September 30, 2021 and December 31, 2020, the total amount of gross interest and penalties accrued was $0.0 million and $0.0 million, respectively, which is classified as other liabilities in the Condensed Consolidated Balance Sheets.

Tax Receivable Agreement — Sunlight entered into a Tax Receivable Agreement (“TRA”) with selling equity holders of Sunlight Financial LLC that requires Sunlight to pay 85.0% of the tax savings that are realized primarily as a result of increases in Sunlight Financial LLC managing member’s tax basis in the partnership’s assets as a result of the sale and exchange of Sunlight Financial LLC’s Class EX units and Sunlight Financial Holdings Inc.’s Class C shares for Sunlight Financial Holdings Inc.’s Class A shares, as well as certain other tax benefits related to tax benefits attributable to payments under the TRA. Sunlight retains the benefit of the remaining 15.0% of these tax savings.
The Business Combination did not create a TRA liability, and Sunlight has not recognized a TRA liability through September 30, 2021, as there were no exchanges of Sunlight Financial LLC’s partnership equity held by members prior to the Business Combination for interests in Sunlight Financial Holdings Inc. subject to the TRA.