ASSEMBLY BIOSCIENCES, INC. Income Taxes Disclosure

Note 10 - Income Taxes

The Company adopted ASU 2023-09 prospectively for the year ended December 31, 2025. Prior period disclosures have not been retrospectively adjusted and may not be comparable to the current year presentation under the new standard. The reconciliation between the federal statutory tax rate applied to loss before income taxes and the Company's effective tax rate is summarized as follows (in thousands, except percentages):

Income taxes paid, net of refunds received, were not material during the year ended December 31, 2025. The Company paid $0.4 million of income taxes during the year ended December 31, 2024.

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 decreased by $36.5 million for the year ended December 31, 2025, primarily due to a reduction in the Company's research and development credits and federal and state net operating loss carryforwards resulting from an ownership change under Internal Revenue Code (IRC) Sections 382 and 383 (see below). The valuation allowance increased by $9.2 million for the year ended December 31, 2024, primarily due to an increase in the Company’s federal and state net operating loss carryforwards generated during the year.

Pursuant to 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% within a three-year period. The Company performed an ownership change study through August 2025 and determined a change in ownership, as defined by IRC Section 382, occurred in December 2010, January 2013, October 2014 and August 2025. As a result, the Company adjusted its federal and California deferred tax assets for net operating loss and research and development carryforwards to reflect attributes which will expire due to the limitation, with a corresponding change to the valuation allowance recorded against such assets. The Company has not completed a similar analysis with respect to its other remaining state net operating loss carryforwards, which totaled $224.1 million as of December 31, 2025, and accordingly, it is possible additional limitations or expirations exist that have not yet been reflected. If further ownership changes occur, additional net operating loss and tax credit carryforwards could be eliminated or restricted. If eliminated, the related deferred tax asset would be removed with a corresponding reduction in the valuation allowance.

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. Interest and penalties related to unrecognized tax benefits were not material for the years ended December 31, 2025 and 2024.

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.