Apellis Pharmaceuticals, Inc. Income Taxes Disclosure

12. Income Taxes

The Company has elected to retrospectively adopt the guidance in ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Taxes Disclosures, or ASU 2023-09. A reconciliation between the U.S. federal statutory tax rate and the Company's effective tax rate, in accordance with the guidance in ASU 2023-09, is summarized as follows (in thousands):

The Company’s effective income tax rate for the year ended December 31, 2025 compared to the year ended December 31, 2024 increased primarily as a result of operations in state jurisdictions.

Management has evaluated the positive and negative evidence bearing upon the realizability of its deferred tax assets and has determined that it is more likely than not that the Company will not recognize the benefits of its net federal, foreign and state deferred tax assets, and as a result, a valuation allowance of $734.8 million and $723.6 million has been established at December 31, 2025 and 2024, respectively.

On July 4, 2025, the U.S. signed into law the H.R.1 legislation commonly referred to as the OBBBA. The OBBBA contains significant tax provisions, such as permanent extension of certain expiring provisions of the Tax Cuts and Jobs Act 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 implemented through 2027. The OBBBA did not result in any material adjustments to the Company’s total income tax provision for the year ended December 31, 2025, and the Company have adjusted our deferred tax balances to reflect the impacts of the OBBBA enactment. However, given the complexity of tax laws, related regulations and interpretations, the Company’s current estimates may require revision as additional information becomes available regarding the application of the OBBBA provisions.

On December 31, 2025, the Company had approximately $427.1 million, $858.7 million and $1,443.6 million of federal, state and foreign net operating loss carryforward, respectively. On December 31, 2024, the Company had approximately $422.5 million, $621.8 million and $1,515.7 million of federal, state and foreign net operating loss carryforward, respectively. The Company also had federal and state research and development tax credit carryforwards, $102.1 million and $27.9 million, respectively as of December 31, 2025. Federal net operating loss carryforward in the amount of $425.6 million may be carried forward indefinitely. The remaining federal and state net operating loss, research and development tax credit carryforwards began to expire in 2025. The Company’s foreign net operating loss carryforwards will begin to expire in 2027.

Under the provisions of the Internal Revenue Code (“IRC”), the net operating loss (“NOL”), and tax credit carryforwards are subject to review and possible adjustment by the Internal Revenue Service and state tax authorities. NOL and tax credit carryforwards may become subject to an annual limitation in the event of certain cumulative changes in the ownership interest of significant stockholders over a three-year period in excess of 50%, as defined under Sections 382 and 383 of the IRC, respectively, as well as similar state provisions. The amount of the annual limitation is determined based on the value of the Company immediately prior to the ownership change. The Company experienced a Section 382 ownership change in September 2015, which imposes annual limitations on the Company's use of pre-change net operating loss carryforwards and other pre-change tax attributes.

The Company does not have any unrecognized tax benefits during any periods presented and does not expect this to significantly change in the next twelve months. There were no interest and penalties recorded in the statement of operations during any period and no amounts accrued for interest and penalties on December 31, 2025 or 2024.

The Company and its subsidiaries file income tax returns in the United States, as well as various state and foreign jurisdictions. Generally, tax years 2022 through 2024 remain open and subject to examination by the major taxing jurisdictions to which the Company is subject. To the extent the Company has tax attribute carryforwards, the tax years in which the attribute was generated may still be adjusted upon examination by the Internal Revenue Service, or state or foreign tax authorities, to the extent utilized in a future period.