Income Taxes |
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| Income Taxes | Note 5 – Income Taxes
The Company’s provision for income taxes differs from the amount determined by applying the applicable federal statutory tax rate to the loss before income taxes due to the valuation allowance for the net deferred income tax assets. A reconciliation of the U.S. statutory tax rate to our effective tax rate is presented below:
Income tax expense attributable to pretax loss from continuing operations differed from the amounts computed by applying the U.S. federal income tax rate of 21% to pretax loss from continuing operations as a result of both temporary and permanent differences in the U.S. GAAP vs tax treatment of certain types of expenses, including stock-based compensation, depreciation and amortization, research and development and meals and entertainment. Additionally, the Company’s policy is to account for interest and penalties as income tax expense. As of December 31, 2024, the Company had no interest related to unrecognized tax benefits, and no amounts for penalties related to unrecognized tax benefits were recognized in the provision for income taxes. We do not anticipate any significant change within twelve months of this reporting date.
As of December 31, 2024, the Company had federal and state net operating loss carryforwards of approximately $89 million and $7 million, respectively. All of the federal NOL carryforwards were generated during 2018 or later and will carryforward indefinitely but will be subject to 80% taxable income limitation beginning tax years after December 31, 2021, as provided by the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act (PL 116-136). State net operating loss will begin to expire in 2043 for state tax purposes. Furthermore, the utilization of NOLs and tax credit carryforwards to offset future taxable income may be subject to an annual limitation as a result of ownership changes that have occurred previously or may occur in the future. Under Sections 382 and 383 of the Internal Revenue Code, a corporation that undergoes an ownership change may be subject to limitations on its ability to utilize its pre-change NOLs and other tax attributes otherwise available to offset future taxable income and/or tax liability. An ownership change is defined as a cumulative change of 50% or more in the ownership positions of certain stockholders during a rolling three-year period. The Company has determined that ownership changes have occurred, primarily driven by the Transactions, and hence the Company’s ability to use its NOLs or tax credit carryforwards may be restricted.
As of December 31, 2024, in addition to the $89.4 million in tax-effected NOL carryforwards, at an assumed tax rate of 30%, the significant components of the Company’s net deferred tax assets included stock-based compensation of $14 million, capitalized research and development expenditures of approximately $3 million. As of December 31, 2023, in addition to the $13 million in tax-effected NOL carryforwards, also at an assumed tax rate of 26%, the significant components of the Company’s net deferred tax assets included stock-based compensation of $11 million and capitalized research and development expenditures of approximately $2 million. The Company believes that it is more likely than not that the benefit from the net deferred tax assets will not be realized. Accordingly, it has provided a full valuation allowance on any potential deferred tax assets The valuation allowance increased by approximately $16 million for the period ended December 31, 2024. The provision for income taxes is not material in the years presented due to there being no taxable income. The Company has federal R&D credit carryforwards of approximately $878 thousand. The Company has no state R&D credit carryforwards.
The Company files income tax returns in the U.S. federal jurisdiction and various state jurisdictions, with varying statutes of limitations. The tax years from inception through 2024 remain open to examination due to the carryover of unused net operating losses that are being carried forward for tax purposes.
Uncertain Tax Positions
The Company has unrecognized tax benefits related to research and development credit carryforwards. A full valuation allowance has been provided against the Company’s research and development credits. Therefore, any adjustments to these unrecognized tax benefits would be offset by corresponding adjustments to the valuation allowance, resulting in no impact on the consolidated balance sheet or statement of operations.
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