Aclaris Therapeutics, Inc. Income Taxes Disclosure

9. Income Taxes

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During the years ended December 31, 2025 and 2024, the Company did not record an income tax benefit for net operating losses incurred in each year due to the uncertainty of realizing a benefit from those items.    

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Loss before income taxes is allocated as follows:

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A reconciliation of the provision for income taxes to the amount computed by applying the 21% U.S. federal statutory income tax rate to income before income taxes after the adoption of ASU 2023-09 is as follows:

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A reconciliation of the provision for income taxes to the amount computed by applying the 21% U.S. federal statutory income tax rate to income before income taxes for years prior to the adoption of ASU 2023-09 is as follows:

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Deferred tax liabilities, net consisted of the following:

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As of December 31, 2025, the Company had federal and state net operating loss (“NOL”) carryforwards of $568.2 million and $100.7 million, respectively, which will begin to expire in 2032. As of December 31, 2025, the Company also had federal research and development tax credit carryforwards of $2.5 million which will begin to expire in 2045.

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Utilization of the NOLs and research and development tax credit carryforwards in the United States are subject to annual limitations under Section 382 of the Internal Revenue Code of 1986 due to ownership changes that have occurred previously or that could occur in the future. In general, an ownership change, as defined by Section 382, results from transactions increasing the ownership of certain stockholders or public groups in the stock of a corporation by more than 50% over a three-year period.

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The Company completed an analysis under Section 382 for NOLs generated through December 31, 2024, and concluded that an ownership change occurred as of December 30, 2024. As a result of this ownership change a component of the Company’s research and development credits and state NOL carryforwards will expire prior to utilization. Accordingly, the Company has recorded an adjustment to write down its research and development credit and state NOL deferred tax assets in the amount of $21.9 million and $19.0 million, respectively. The write down of these deferred tax assets resulted in a corresponding adjustment to the Company’s valuation allowance.  

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The Company may experience ownership changes in the future as a result of subsequent shifts in its stock ownership, some of which may be outside of the Company’s control. These future ownership changes may limit the amount of carryforwards that can be utilized annually to offset future taxable income.

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The Company has evaluated the positive and negative evidence bearing upon its ability to realize the deferred tax assets. The Company considered its history of cumulative net losses incurred since inception, its lack of substantial revenue generated to date, and its forecasted future operating losses and concluded that it is more likely than not that the Company will not realize the benefits of its deferred tax assets. Accordingly, a full valuation allowance has been established against the deferred tax assets as of December 31, 2025 and 2024. The Company evaluates positive and negative evidence of its ability to realize deferred tax assets at each reporting period.

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Changes in the valuation allowance for deferred tax assets during the years ended December 31, 2025 and 2024, which related primarily to the increases in NOLs, capitalized research and development costs, and research and development tax credit carryforwards, offset by decreases to deferred tax assets associated with research and development tax credits and state NOL carryforwards due to the Section 382 ownership change described above, were as follows:

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The Company files tax returns as prescribed by the tax laws of the jurisdictions in which it operates.  In the normal course of business, the Company is subject to examination by federal and state jurisdictions, where applicable. There are currently no pending income tax examinations. The Company’s tax years are still open under statute from 2022 to the present. All open years may be examined to the extent that tax credits or NOLs are used in future periods. The Company’s policy is to record interest and penalties related to income taxes as part of its income tax provision. The Company has not recorded any amounts for unrecognized tax benefits as of December 31, 2025 and 2024.