Alto Ingredients, Inc. Income Taxes Disclosure

12.

INCOME TAXES.

 

The Company recorded a provision (benefit) for income taxes as follows (in thousands):

 

		Years Ended December 31,
		2025				2024				2023
Current provision (benefit)		$	(621	)		$	173			$	97
Deferred provision			—				—				—
Total		$	(621	)		$	173			$	97

On July 4, 2025, the One Big Beautiful Bill Act (“OBBBA”) was enacted in the U.S. The OBBBA includes significant tax provisions, such as the permanent extension of certain expiring provisions of the Tax Cuts and Jobs Act of 2017, modifications to the international tax framework and the restoration of favorable tax treatment for certain business provisions. The legislation has multiple effective dates, with certain provisions effective in 2025 and others becoming effective in subsequent years. The OBBBA includes several provisions that impact the timing and magnitude of certain tax deductions, including restoring 100% bonus depreciation for qualifying property, increasing the business interest limitation and the immediate expensing of domestic research and development costs. The Company has applied the provisions of OBBBA to its financial results and position following its effective date, and will continue to assess potential impacts to its financial position, results of operations and cash flows as additional guidance is issued by the U.S. Treasury Department, the IRS and other standard-setting authorities.

 

A reconciliation of the differences between the United States statutory federal income tax rate and the effective tax rate, as provided in the consolidated statements of operations, is as follows for the year ended December 31, 2025 (dollars in thousands):

 

Statutory rate		$	2,671				21.0	%
State income taxes, net of federal benefit*			170				1.3
Change in valuation allowance			(21,858	)			(171.9	)
Nontaxable or nondeductible items
Transferable tax credits, net			(1,470	)			(11.6	)
Stock-based compensation			203				1.6
Nondeductible items			12				0.1
Change in unrecognized tax benefits			(836	)			(6.6	)
Other adjustments
Capital loss expiration			21,102				165.9
Deferred true up adjustments			(538	)			(4.2	)
Other			(77	)			(0.5	)
Effective rate		$	(621	)			(4.9	)%

*	State tax expense in Oregon and Illinois made up the majority (greater than 50%) of the tax effect in this category.

 

A reconciliation of the differences between the United States statutory federal income tax rate and the effective tax rate as provided in the consolidated statements of operations for the years ended December 31, 2024 and 2023 is as follows:

 

		2024				2023
Statutory rate			21.0	%			21.0	%
State income taxes, net of federal benefit			5.5				4.6
Change in valuation allowance			(29.3	)			(23.4	)
Stock-based compensation			(0.4	)			(2.3	)
Non-deductible items			(0.1	)			0.8
Other			3.0				(1.0	)
Effective rate			(0.3	)%			(0.3	)%

Deferred income taxes are provided using the asset and liability method to reflect temporary differences between the financial statement carrying amounts and the tax bases of assets and liabilities using presently enacted tax rates and laws. The components of deferred income taxes included in the consolidated balance sheets were as follows (in thousands):

 

		December 31,
		2025				2024
Deferred tax assets:
Net operating loss carryforwards		$	62,949			$	64,901
Capital loss			—				26,692
Disallowed interest			5,707				5,048
R&D, energy and AMT credits			3,742				3,742
Derivatives			146				—
Intangibles			3,617				2,981
Pension liability			1,064				1,016
Railcar contracts			1,233				1,090
Stock-based compensation			983				803
Allowance for credit losses and other assets			1,021				1,059
Other			2,607				4,971
Total gross deferred tax assets			83,069				112,303
Less: valuation allowance			(82,606	)			(110,687	)
Total deferred tax assets, net of valuation allowance			463				1,616
Deferred tax liabilities:
Property and equipment			(66	)			(703	)
Derivatives			—				(574	)
Other			(633	)			(575	)
Total deferred tax liabilities			(699	)			(1,852	)
Net deferred tax liabilities, included in other liabilities		$	(236	)		$	(236	)

 

A portion of the Company’s net operating loss carryforwards is subject to provisions of the tax law that limit the use of losses incurred by a corporation prior to the date certain ownership changes occur. These limitations also apply to certain depreciation deductions associated with assets on hand at the time of the ownership change and otherwise allowable during the five-year period following the ownership change. As the five-year limitation period lapsed in 2019, these disallowed deductions are reflected in property and equipment in the schedule above but continue to be subject to the annual limitation that applies to the pre-change net operating losses. Due to the limitation on the use of net operating losses and depreciation deductions, a significant portion of these carryforwards will expire regardless of whether the Company generates future taxable income. After reducing these net operating loss carryforwards for the amount which will expire due to this limitation, the Company had remaining federal net operating loss carryforwards of approximately $222,046,000 and state net operating loss carryforwards of approximately $256,045,000 at December 31, 2025. These net operating loss carryforwards expire as follows (in thousands):

 

Tax Years		Federal				State
2026–2030		$	—			$	89,350
2031–2035			15,245				37,165
2036–2040			101,348				98,850
2041 and after*			105,453				30,680
Total NOLs		$	222,046			$	256,045

*

Includes indefinite life federal net operating losses of $128.8 million generated after 2017.

Approximately $130,291,000 is available to utilize against federal taxable income for 2026.

 

In assessing whether the deferred tax assets are realizable, a more likely than not standard is applied. If it is determined that it is more likely than not that deferred tax assets will not be realized, a valuation allowance must be established against the deferred tax assets. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which the associated temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment.

 

A valuation allowance was established in the amount of $82,606,000 and $110,687,000 as of December 31, 2025 and 2024, respectively, based on the Company’s assessment of the future realizability of certain deferred tax assets. The valuation allowance on deferred tax assets is related to future deductible temporary differences and net operating loss carryforwards for which the Company has concluded it is more likely than not that these items will not be realized in the ordinary course of operations.

 

For the year ended December 31, 2025, the Company recorded a decrease in valuation allowance of $28,081,000. This was primarily related to current year usage of net operating losses and expiration of capital loss tax assets. For the year ended December 31, 2024, the Company recorded an increase in valuation allowance of $17,181,000. This was primarily related to additional net operating losses accumulated for the year. For the year ended December 31, 2023, the Company recorded an increase in valuation allowance of $5,557,000. This was primarily related to additional net operating losses accumulated for the year.

 

Unrecognized Tax Benefits

 

A reconciliation of the beginning balance and the ending balance of gross unrecognized tax benefits, before interest and penalties, for the period presented is as follows (in thousands):

 

		December 31,
		2025				2024
Unrecognized tax benefits at beginning of year		$	739			$	739
Increases related to current-year tax positions			—				—
Decreases related to current-year tax positions			—				—
Increases related to prior year tax positions			—				—
Decreases related to prior year tax positions			—				—
Decreases related to expiration of prior year tax positions			(739	)			—
Decreases related to settlements of prior year tax positions			—				—
Unrecognized tax benefits at end of year		$	—			$	739

The Company recorded unrecognized tax benefits for uncertain tax positions of approximately $0 and $739,000 as of December 31, 2025 and 2024, of which $739,000 impacted the effective tax rate as it was reversed.

 

The Company is subject to income tax in the United States federal jurisdiction and various state jurisdictions and has identified its federal tax return and tax returns in state jurisdictions below as “major” tax filings. These jurisdictions, along with the years still open to audit under the applicable statutes of limitation, are as follows:

 

Jurisdiction		Tax Years
Federal		2022 – 2024
Alabama		2022 – 2024
Arizona		2021 – 2024
Arkansas		2022 – 2024
California		2021 – 2024
Colorado		2021 – 2024
Connecticut		2022 – 2024
Georgia		2022 – 2024
Idaho		2022 – 2024
Illinois		2022 – 2024
Indiana		2022 – 2024
Iowa		2022 – 2024
Kansas		2022 – 2024
Louisiana		2022 – 2024
Michigan		2022 – 2024
Minnesota		2022 – 2024
Mississippi		2022 – 2024
Missouri		2022 – 2024
Nebraska		2022 – 2024
New Mexico		2022 – 2024
Oklahoma		2022 – 2024
Oregon		2022 – 2024
Pennsylvania		2022 – 2024
Rhode Island		2022 – 2024
South Carolina		2022 – 2024
Tennessee		2022 – 2024
Texas		2021 – 2024

 

However, because the Company had net operating losses and credits carried forward in several of the jurisdictions, including the United States federal and California jurisdictions, certain items attributable to closed tax years are still subject to adjustment by applicable taxing authorities through an adjustment to tax attributes carried forward to open years.