ACACIA RESEARCH CORPACTG
ACACIA RESEARCH CORP Income Taxes Disclosure
INCOME TAXES
The components of income (loss) before income taxes were as follows:
| Years Ended December 31, | |||||||||||
| 2025 | 2024 | ||||||||||
| (In thousands) | |||||||||||
| Domestic | $ | 28,841 | $ | (40,372) | |||||||
| Foreign | 2,470 | 2,225 | |||||||||
| Total | $ | 31,311 | $ | (38,147) | |||||||
For purposes of reconciling the Company’s provision for income taxes at the statutory rate a notional 21% tax rate was applied for the year ended December 31, 2025 as follows (in thousands, except percentage effective tax rate):
| Income taxes (benefit) at statutory federal rate | $ | 6,576 | 21 | % | |||||||
State and local taxes, net of federal income tax effect (1) | (386) | (1) | % | ||||||||
| Foreign tax effects | |||||||||||
| Other foreign jurisdictions | 163 | 1 | % | ||||||||
| Effect of cross-border tax laws | |||||||||||
| Other | 345 | 1 | % | ||||||||
| Tax Credits | |||||||||||
| Foreign tax credits | (138) | — | % | ||||||||
| Expired foreign tax credits | 4,426 | 14 | % | ||||||||
| Changes in valuation allowance | (4,152) | (13) | % | ||||||||
| Nontaxable or nondeductible items | |||||||||||
| Nondeductible officer compensation | 653 | 2 | % | ||||||||
| Non-controlling partnership earnings | (586) | (2) | % | ||||||||
| Other nontaxable or nondeductible items | 173 | 1 | % | ||||||||
| Other adjustments | |||||||||||
| Other | (92) | — | % | ||||||||
| Worldwide uncertain tax position | (141) | — | % | ||||||||
| Effective income tax rate | 6,841 | 22 | % | ||||||||
_________________________
(1)The states that contribute to the majority (greater than 50%) of the tax effect in this category include California and Texas.
The amounts of cash taxes paid, net by the Company for the year ended December 31, 2025 are as follows (in thousands):
| Federal | $ | 400 | |||
| State | |||||
| Texas | 119 | ||||
| All other states | 216 | ||||
| Foreign | |||||
| China | 490 | ||||
| Canada | 565 | ||||
| Malaysia | 198 | ||||
| Other foreign jurisdictions | 309 | ||||
| Total | 2,297 | ||||
For purposes of reconciling the Company’s provision for income taxes at the statutory rate a notional 21% tax rate was applied for the year ended December 31, 2024 as follows:
| Statutory federal tax rate | 21 | % | |||
| Foreign rate differential | (5) | % | |||
| Noncontrolling interests in operating subsidiaries | 1 | % | |||
| Nondeductible permanent items | (1) | % | |||
| Expired tax attributes | (15) | % | |||
| Transaction Costs | (2) | % | |||
| Valuation allowance | 13 | % | |||
| Other | (3) | % | |||
| Effective income tax rate | 9 | % | |||
Acacia’s income tax benefit (expense) for the periods presented consisted of the following:
| Years Ended December 31, | |||||||||||
| 2025 | 2024 | ||||||||||
| (In thousands) | |||||||||||
| Current: | |||||||||||
| Federal | $ | (637) | $ | (191) | |||||||
| State | (390) | (111) | |||||||||
| Foreign | (1,369) | (2,812) | |||||||||
| Total current | (2,396) | (3,114) | |||||||||
| Deferred: | |||||||||||
| Federal | (10,443) | 1,239 | |||||||||
| State | 753 | 107 | |||||||||
| Foreign | 1,071 | 376 | |||||||||
| Total deferred | (8,619) | 1,722 | |||||||||
| Change in valuation allowance | 4,174 | 4,841 | |||||||||
| Income tax (expense) benefit | $ | (6,841) | $ | 3,449 | |||||||
The tax effects of temporary differences and carryforwards that give rise to significant portions of deferred tax assets and liabilities consisted of the following:
| December 31, | |||||||||||
| 2025 | 2024 | ||||||||||
| (In thousands) | |||||||||||
| Deferred tax assets: | |||||||||||
| Net operating loss and capital loss carryforwards and credits | $ | 41,090 | $ | 50,453 | |||||||
| Unrealized loss on investments held at fair value | 880 | 1,025 | |||||||||
| Compensation expense for share-based awards | 838 | 693 | |||||||||
| Accrued expenses | 3,631 | 3,677 | |||||||||
| Lease liability | 2,670 | 2,010 | |||||||||
| State taxes | 31 | 17 | |||||||||
| Total deferred tax assets | 49,140 | 57,875 | |||||||||
| Valuation allowance | (22,078) | (26,250) | |||||||||
| Total deferred tax assets, net of valuation allowance | 27,062 | 31,625 | |||||||||
| Deferred tax liabilities: | |||||||||||
| ROU Asset | (2,142) | (1,956) | |||||||||
| Fixed assets and intangibles | (6,726) | (8,062) | |||||||||
| Basis of investment in affiliates | (5,589) | (3,983) | |||||||||
| Other | 79 | — | |||||||||
| Total deferred tax liabilities | (14,378) | (14,001) | |||||||||
| Net deferred tax assets | $ | 12,684 | $ | 17,624 | |||||||
As of December 31, 2025 and 2024, management assessed the realizability of deferred tax assets and evaluated the need for a valuation allowance for deferred tax assets on a jurisdictional basis. This evaluation utilizes the framework contained in ASC 740, “Income Taxes,” wherein management analyzes all positive and negative evidence available at the balance sheet date to determine whether all or some portion of the Company’s deferred tax assets will not be realized. Under this guidance, a valuation allowance must be established for deferred tax assets when it is more-likely-than-not that the asset will not be realized. In assessing the realization of the Company’s deferred tax assets, management considers all available evidence, both positive and negative.
Based upon available evidence, it was concluded on a more-likely-than-not basis that as of December 31, 2025 a valuation allowance of $22.1 million was needed for foreign tax credits and certain state tax attributes the Company estimates will expire prior to utilization. As of December 31, 2024, the Company recorded a partial valuation allowance of $26.3 million. The valuation allowance decreased by $4.2 million for the year ended December 31, 2025. The $4.2 million decrease included a decrease of $4.4 million for expired foreign tax credits, an increase of $660,000 recorded against foreign tax credits and foreign net operating losses, and a decrease of $405,000 for state net operating losses estimated to be utilized in the future. The valuation allowance decreased by $4.0 million for the year ended December 31, 2024 as a result of the use of tax attributes against 2024 earnings and the release of valuation allowance on the remaining federal net operating losses for which positive evidence supported the realization as of December 31, 2024.
At December 31, 2025, Acacia had U.S. federal, foreign and state income tax net operating loss carryforwards (“NOLs”) totaling approximately $81.4 million, $4.6 million and $63.3 million, respectively. Pursuant to the Tax Cuts and Jobs Act (“TCJA”) enacted by the U.S. federal government in December 2017, for federal income tax purposes, NOL carryovers generated for our tax years beginning January 1, 2018 can be carried forward indefinitely but will be subject to a taxable income limitation. $1.8 million of our foreign NOLs, $3.2 million of our state NOLs and all of our federal losses can be carried forward indefinitely. The remaining $2.8 million of foreign NOLs and $60.1 million of state NOLs will expire in varying amounts through 2040.
Pursuant to Section 382 and 383 of the Internal Revenue Code (“IRC”), annual use of the Company’s NOL and credit carryforwards may be limited in the event a cumulative change in ownership of more than 50% occurs within a three-year period. Upon the occurrence of an ownership change under Section 382 as outlined above, utilization of the tax attributes
including the Company’s NOL and credit carryforwards are subject to an annual limitation, which is determined by first multiplying the value of the Company’s stock at the time of the ownership change by the applicable long-term tax-exempt rate, which could be subject to additional adjustments, as required. Any limitation may result in expiration of a portion of the NOL or R&D credit carryforwards before utilization. The Company has completed an analysis through December 31, 2025 and no such ownership change has occurred however ownership changes may occur in the future.
An ownership change did occur for Deflecto upon Acacia’s acquisition on October 18, 2024. Approximately $46.9 million of pre-acquisition tax attributes including NOLs are subject to annual limitations under Section 382. The federal NOLs can be carried forward indefinitely but will be subject to a taxable income limitation. The limitation on these attributes have been considered in the Company’s valuation allowance.
As of December 31, 2025, Acacia had approximately $19.0 million of foreign tax credits, expiring between 2026 and 2034. In general, foreign taxes withheld may be claimed as a deduction on U.S. corporate income tax returns, or as a credit against U.S. income tax liabilities, subject to certain limitations.
The following changes occurred in the amount of unrecognized tax benefits:
| Years Ended December 31, | |||||||||||
| 2025 | 2024 | ||||||||||
| (In thousands) | |||||||||||
| Beginning balance | $ | 935 | $ | 757 | |||||||
| Additions included in purchase accounting for prior year positions | — | 178 | |||||||||
| Reductions for prior year tax positions | (178) | — | |||||||||
| Ending Balance (excluding interest and penalties) | 757 | 935 | |||||||||
| Interest and penalties | — | — | |||||||||
| Total | $ | 757 | $ | 935 | |||||||
At December 31, 2025 and 2024, the Company had total unrecognized tax benefits of approximately $757,000 and $935,000, respectively. At December 31, 2025 and 2024, $757,000 and $936,000, respectively, of unrecognized tax benefits are recorded in other long-term liabilities. At December 31, 2025, if recognized, $757,000 of tax benefits would impact the Company’s effective tax rate.
Acacia recognizes interest and penalties with respect to unrecognized tax benefits in income tax expense (benefit). No interest and penalties have been recorded for the unrecognized tax benefits for the periods presented.
Acacia is subject to taxation in the U.S. and in various state/foreign jurisdictions and incurs foreign tax withholdings on revenue agreements with licensees in certain foreign jurisdictions. The Company’s 2021 through 2025 tax years generally remain subject to examination by federal, state and foreign tax authorities. However, the Company utilized losses dating back to 2006 within the general statute of limitation periods and therefore tax returns from 2006 through 2025 are still subject to challenge by the taxing authorities. The Company has not been notified by an tax authority for income tax audits.
The Company analyzes undistributed earnings of each foreign subsidiary and has accrued withholding tax of $678,000 for earnings that are not permanently reinvested. No additional deferred tax liability has been provided for as the parent entity would not be required to include the distribution into income as the amount would be tax free under current law.
TCJA subjects a US shareholder to tax on GILTI earned by certain foreign subsidiaries. The FASB Staff Q&A, Topic 740 No. 5. Accounting for Global Intangible Low-Taxed Income, states that an entity can make an accounting policy election to either recognize deferred taxes for temporary basis differences expected to reverse as GILTI in future years or to provide for the tax expense related to GILTI in the year the tax is incurred as a period expense only. We have elected to account for GILTI in the year the tax is incurred.
On July 4, 2025, the One Big Beautiful Bill Act (“OBBBA”) was enacted in the U.S. The OBBBA includes significant provisions, such as the permanent extension of certain expiring provisions of the Tax Cuts and Jobs Act, modifications to the international tax framework and the restoration of favorable tax treatment for certain business provisions. The Company has incorporated the OBBBA changes in its income tax provision for the year ended December 31, 2025
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Mar 12, 2026 | Showing above |
| 2024 | Mar 17, 2025 | |
| 2023 | Mar 15, 2024 | |
| 2022 | Mar 17, 2023 | |
| 2020 | Mar 29, 2021 | |
| 2019 | Mar 16, 2020 | |
| 2018 | Mar 15, 2019 | |
| 2017 | Mar 7, 2018 | |
| 2016 | Mar 10, 2017 | |
| 2015 | Mar 15, 2016 | |
About Income Taxes Disclosures
The income tax disclosure reveals how much a company actually pays in taxes versus what the statutory rate would predict. Analysts focus on the effective tax rate (ETR) reconciliation, which breaks down every item driving the gap between the 21% federal rate and the company's reported ETR — including R&D credits, foreign rate differentials, and state taxes. Deferred tax assets (DTAs) and their valuation allowances signal management's confidence in future profitability: a rising allowance suggests the company doubts it can use accumulated tax benefits. Uncertain tax benefit (UTB) reserves quantify exposure to IRS challenges on aggressive positions.
Key signals to watch: sudden ETR drops without clear operational reasons, large increases in valuation allowances, growing UTB balances, and significant unremitted foreign earnings. Post-TCJA, pay attention to GILTI and BEAT provisions that affect multinational tax structures. Compare the cash taxes paid (from the cash flow statement) against the income tax provision to gauge earnings quality.