ASSEMBLY BIOSCIENCES, INC. Income Taxes Disclosure
Note 10 - Income Taxes
Income tax expense is as follows (in thousands):
|
|
December 31, |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
Current: |
|
|
|
|
|
|
||
Federal |
|
$ |
— |
|
|
$ |
33 |
|
State |
|
|
330 |
|
|
|
— |
|
Foreign |
|
|
— |
|
|
|
— |
|
|
|
|
330 |
|
|
|
33 |
|
Deferred: |
|
|
|
|
|
|
||
Federal |
|
|
— |
|
|
|
— |
|
State |
|
|
— |
|
|
|
— |
|
Foreign |
|
|
— |
|
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
Income tax expense |
|
$ |
330 |
|
|
$ |
33 |
|
The effective tax rate of the Company's provision for income taxes differs from the federal statutory rate as follows:
|
|
As of December 31, |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
Statutory federal income tax rate |
|
|
21.0 |
% |
|
|
21.0 |
% |
State taxes, net of federal tax benefit |
|
|
8.1 |
|
|
|
7.7 |
|
Research and development tax credits |
|
|
8.4 |
|
|
|
4.4 |
|
Return to provision adjustments |
|
|
(4.8 |
) |
|
|
0.3 |
|
Uncertain tax positions |
|
|
(1.7 |
) |
|
|
(0.9 |
) |
Stock-based compensation |
|
|
(8.4 |
) |
|
|
(1.7 |
) |
Other |
|
|
(0.5 |
) |
|
|
(0.5 |
) |
Change in valuation allowance |
|
|
(22.9 |
) |
|
|
(30.4 |
) |
Income taxes provision (benefit) |
|
|
-0.8 |
% |
|
|
-0.1 |
% |
Significant components of the Company’s deferred taxes are as follows (in thousands):
|
|
As of December 31, |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
Deferred tax assets: |
|
|
|
|
|
|
||
Federal and state-operating loss carryforwards |
|
$ |
131,994 |
|
|
$ |
148,119 |
|
Stock-based compensation |
|
|
7,078 |
|
|
|
9,948 |
|
Capitalized research expense |
|
|
35,593 |
|
|
|
28,578 |
|
Deferred revenue |
|
|
18,484 |
|
|
|
— |
|
Operating lease liabilities |
|
|
782 |
|
|
|
594 |
|
Research and development credits |
|
|
18,436 |
|
|
|
15,816 |
|
Other |
|
|
53 |
|
|
|
19 |
|
Total deferred tax assets |
|
|
212,420 |
|
|
|
203,074 |
|
Valuation allowance |
|
|
(211,614 |
) |
|
|
(202,428 |
) |
Deferred tax asset, net of valuation allowance |
|
$ |
806 |
|
|
$ |
646 |
|
|
|
|
|
|
|
|
||
Deferred tax liabilities: |
|
|
|
|
|
|
||
Operating lease right-of-use assets |
|
$ |
(777 |
) |
|
$ |
(593 |
) |
Other |
|
|
(29 |
) |
|
|
(53 |
) |
Total deferred tax liabilities |
|
|
(806 |
) |
|
|
(646 |
) |
Net deferred tax liability |
|
$ |
— |
|
|
$ |
— |
|
The Company maintains a valuation allowance on deferred tax assets due to the uncertainty regarding the ability to utilize these deferred tax assets in the future. The valuation allowance increased by $9.2 million and $18.4 million for the years ended December 31, 2024 and 2023, respectively, primarily due to an increase in the Company’s federal and state-operating loss carryforwards.
Net operating loss and tax credit carryforwards as of December 31, 2024 are as follows (in thousands):
|
|
Amount |
|
|
Expiration Years |
|
Net operating losses, federal (post December 31, 2017) |
|
$ |
391,182 |
|
|
Indefinite |
Net operating losses, federal (pre January 1, 2018) |
|
|
67,208 |
|
|
2029 - 2037 |
Net operating loss, state (Indefinite) |
|
|
— |
|
|
Indefinite |
Net operating loss, state (Definite) |
|
|
561,968 |
|
|
2029 - 2044 |
Research and development tax credits, federal |
|
|
17,820 |
|
|
2028 - 2044 |
Research and development tax credits, state |
|
|
6,783 |
|
|
Indefinite |
Pursuant to Internal Revenue Code (IRC), Sections 382 and 383, use of the Company’s U.S. federal and state net operating loss and research and development income tax credit carryforwards may be limited in the event of a cumulative change in ownership of more than 50.0% within a three-year period. The Company has performed an ownership change study through December 31, 2024 and has determined a “change in ownership” as defined by IRC Section 382 and the rules and regulations promulgated thereunder, did occur in December 2010, January 2013 and October 2014. The Company has adjusted its net operating loss carryovers to appropriately reflect any attributes which will expire due to the limitation. If further changes in ownership occur, additional net operating loss and tax credit carryforwards could be eliminated or restricted. If eliminated, the related asset would be removed from the deferred tax asset schedule with a corresponding reduction in the valuation allowance.
The following table summarizes activity related to the Company’s gross unrecognized tax benefits (in thousands):
|
|
As of December 31, |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
Balances as of beginning of year |
|
$ |
4,495 |
|
|
$ |
3,873 |
|
Increases related to prior year tax positions |
|
|
— |
|
|
|
47 |
|
Decreases related to prior year tax positions |
|
|
(31 |
) |
|
|
— |
|
Increases related to current year tax positions |
|
|
711 |
|
|
|
575 |
|
Balances as of end of year |
|
$ |
5,175 |
|
|
$ |
4,495 |
|
The unrecognized tax benefits, if recognized, would not have an impact on the Company’s effective tax rate assuming the Company continues to maintain a full valuation allowance position. Based on the prior year’s operations and experience, the Company does not expect a significant change to its unrecognized tax benefits over the next twelve months. The unrecognized tax benefits may increase or change during the next year for unexpected or unusual items that arise in the ordinary course of business. In subsequent periods, any interest and penalties related to uncertain tax positions will be recognized as a component of income tax expense.
The Company files income tax returns in the U.S. federal, California and other state and foreign jurisdictions and is not currently under examination by federal, state, or local taxing authorities for any open tax years. Due to net operating loss carryforwards, all years effectively remain open for income tax examination by tax authorities in the U.S. and states in which the Company files tax returns.
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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.