AIxCrypto Holdings, Inc. Income Taxes Disclosure

NOTE 15 — INCOME TAXES

 

The following table presents domestic and foreign components of consolidated loss before income taxes from continuing operations for the periods presented:

 SCHEDULE OF DOMESTIC AND FOREIGN COMPONENTS

		December 31, 2024				December 31, 2023
Domestic		$	(6,152,857	)		$	(12,479,803	)
Foreign			—				—
Loss before provision for income taxes		$	(6,152,857	)		$	(12,479,803	)

 

A reconciliation of the statutory income tax rates and the Company’s effective tax rate is as follows:

 SCHEDULE OF RECONCILIATIONS OF STATUTORY INCOME TAX RATE

		December 31, 2024				December 31, 2023
Statutory federal income tax rate			21.00	%			21.00	%
State taxes, net of federal tax benefit			5.90	%			1.76	%
Non-deductible expenses			0.02	%			-0.64	%
NOL expiration			0.00	%			-5.26	%
Tax credit			-3.87	%			2.92	%
Change in FV of warrant liability			1.42	%			3.35	%
Tax impact of convertible debenture			-4.18	%			-5.46	%
Tax impact of divestiture			0.00	%			-229.26	%
Tax impact of section 382 attribute forfeiture			-202.84	%			0.00	%
Stock compensation			-53.37	%			0.00	%
True-up			-2.87	%			-10.65	%
Change in valuation allowance			238.69	%			222.28	%
Income taxes provision (benefit)			-0.10	%			0.04	%

 

The components of deferred tax assets and liabilities are as follows:

 SCHEDULE OF COMPONENTS OF DEFERRED TAX ASSETS AND LIABILITIES

		December 31, 2024				December 31, 2023
Current
US Federal		$	—			$	(9,793	)
US State			6,334				5,000
US Foreign			—				—
Total current provision (benefit)			6,334				(4,793	)
Deferred
US Federal			6,069,000				23,128,000
US State			8,617,000				4,697,000
US Foreign			—				—
Total deferred benefit			14,686,000				27,825,000
Change in valuation allowance			(14,686,000	)			(27,825,000	)
Total provision (benefit) for income taxes		$	6,334			$	(4,793	)

 

 

During 2024 and 2023, the aggregate changes in our total gross amount of unrecognized tax benefits are summarized as follows:

 SCHEDULE OF UNRECOGNIZED TAX BENEFITS

		December 31, 2024				December 31, 2023
Gross unrecognized tax benefits at the beginning of the year		$	—			$	—
Increases related to current year positions			8,285				—
Increases related to prior year positions			270,820				—
Expiration of unrecognized tax benefits			—				—
Gross unrecognized tax benefits at the end of the year		$	279,105			$	—

 

Based on the available objective evidence, including the Company’s history of cumulative losses, management believes it is likely that the Company’s U.S. federal and state net deferred tax assets will not be realizable. Accordingly, the Company provided for a full valuation allowance against its U.S. federal and state net deferred tax assets at December 31, 2024, and December 31, 2023.

 

Due to the full valuation allowance already in place on the Company’s U.S. federal and state net deferred tax assets, the Company does not anticipate significant changes in the Company’s effective tax rate.

 

The Tax Cuts and Jobs Act resulted in significant changes to the treatment of research or experimental (“R&E”) expenditures under Section 174. For tax years beginning after December 31, 2021, taxpayers are required to capitalize and amortize all R&E expenditures that are paid or incurred in connection with their trade or business which represent costs in the experimental or laboratory sense. Specifically, costs for U.S. based R&E activities must be amortized over five years and costs for foreign R&E activities must be amortized over 15 years; both using a midyear convention. The Company has incorporated the impact of this new tax legislation into its 2022, 2023, and 2024 consolidated financial statements, noting that the impact on the Company’s consolidated financial statements was immaterial.

 

At December 31, 2024, the Company has U.S. federal and state net operating loss carryforwards of approximately $5,946,000 and $5,403,000, respectively, which are available to offset future taxable income. U.S. federal net operating loss carryforwards can be carried forward indefinitely. State net operating loss carryovers begin to expire in 2043.

 

The Company’s net operating loss and tax credit carryforwards may be subject to an annual limitation under sections 382 and 383 of the Internal Revenue Code of 1986 (the “Code”), and similar state provisions if the Company experienced one or more ownership changes, which would limit the amount of net operating loss and tax credit carryforwards that may be utilized to offset future taxable income and tax, respectively. In general, an ownership change, as defined by section 382, results from equity shifts that increase ownership of certain stockholders or public groups in the stock of the corporation of more than 50% over a three-year period. As a result of the May 2020 reverse recapitalization transaction, a section 382 ownership change has occurred. Prior to the reverse recapitalization transaction, the Ritter business was discontinued resulting in any pre-ownership change net operating loss and tax credit carryforwards becoming fully limited under section 382. The pre-ownership change net operating losses and tax credit carryforward DTAs are considered worthless and have been written-off the deferred tax table presented above. Subsequent ownership changes may have also occurred due to the Company’s equity activity in recent years. The Company has not completed an Internal Revenue Code Section 382 analysis. As a result, there could be additional limitations on the Company’s ability to utilize its net operating loss and tax credit carryforwards. These additional limitations may result in both a permanent loss of certain tax benefits related to net operating loss and tax credit carryforwards, and an annual utilization limitation. 

 

The Company also has research and development credit carryforwards for federal and state tax purposes of approximately $323,000 and $235,000, respectively. The research and development credit carryforwards begin to expire in 2043 for federal tax purposes and have an indefinite life for state tax purposes.

 

The Company files income tax returns in the U.S. federal jurisdiction and in California. The Company’s U.S. federal income tax returns remain subject to examination by the Internal Revenue Service. The Company’s California income tax returns remain subject to examination by the California Franchise Tax Board. Due to net operating losses, research and development credits and other tax credit carryforwards that may be utilized in future years, all U.S. federal and state tax years are open to examination.

 

Generally accepted accounting principles clarify the accounting for uncertainty in income taxes recognized in the Company’s financial statements and prescribe thresholds for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return, and also provide guidance on de-recognition and measurement of a tax position taken or expected to be taken in a tax return. The Company adopted these provisions effective April 1, 2009.

 

 

The Company had unrecognized tax benefits of $279,105 as of December 31, 2024. Due to the existence of the valuation allowance, future changes in unrecognized tax benefits would have no effect on the Company’s effective tax rate. The Company does not foresee any material changes over the next 12 months. In accordance with generally accepted accounting principles, the Company will recognize interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense. As of December 31, 2024, the Company has not accrued any interest or penalties related to uncertain tax positions.