ATLANTIC INTERNATIONAL CORP.ATLN
ATLANTIC INTERNATIONAL CORP. Income Taxes Disclosure
Income Taxes
For the years ended December 31, 2025 and 2024, the Company recorded an income tax expense of $33,991 and $5,379,102, respectively. The Company’s effective tax rate for the years ended December 31, 2025 and 2024 was (0.1)% and (4.1)%, respectively. The decrease in effective tax rates between the periods was primarily due to the establishment of a valuation allowance on the Company’s deferred tax assets in 2024.
Prior to the Merger, Lyneer Investments filed as a partnership for US federal income tax purposes and was considered a “pass-through” entity. As such, the taxable activities of Lyneer Investments for the first short-period, leading up to the Merger, were allocated to its two Members, IDC and LMH, both of which reported those results on separate income tax returns. For all periods post-merger, Lyneer Investments’ taxable activities are included on Atlantic International Corp.’s income tax returns. For the period of June 18, 2024 to December 31, 2024, along with the full 2025 tax year, the Company filed consolidated income tax returns for federal and state income tax purposes. As a single member LLC (owned 100% by Lyneer Holdings, a corporation), LSS is a disregarded entity for US federal tax income tax purposes and its activities were included on the corporate returns filed by Atlantic International Corp.
Prior to the Merger, IDC included the activities and balances of the Company on designated IDC consolidated state and local income tax returns. In these returns, the Company’s income tax were paid on returns filed by IDC. During the years ended December 31, 2025 and 2024, the Company recognized income tax expense of approximately $0 and $25,960, respectively, representing the tax arising from the inclusion of the Company’s activities on IDC’s consolidated state and local returns, and a corresponding cumulative related party payable to IDC of $548,432 for both December 31, 2025 and 2024.
The domestic and foreign components of total loss before income tax expense are as follows:
| Year Ended December 31, | ||||||||||||||
| 2025 | 2024 | |||||||||||||
| United States | $ | (59,396,928) | $ | (130,100,788) | ||||||||||
| Foreign | — | — | ||||||||||||
| $ | (59,396,928) | $ | (130,100,788) | |||||||||||
The income tax expense consists of the following expenses:
| Year Ended December 31, | |||||||||||
| 2025 | 2024 | ||||||||||
| Current | |||||||||||
| Federal | $ | — | $ | 34,523 | |||||||
| State | 33,991 | 104,573 | |||||||||
| Deferred | |||||||||||
| Federal | — | 3,649,803 | |||||||||
| State | — | 1,590,203 | |||||||||
| Income tax expense | $ | 33,991 | $ | 5,379,102 | |||||||
A reconciliation of the Company’s effective tax rate to the statutory federal income tax rate pursuant to the disclosure requirements ASU 2023-09, for the year ended December 31, 2025 is as follows:
| Year Ended December 31, | ||||||||||||||
| 2025 | ||||||||||||||
| Amount | Percent | |||||||||||||
| U.S. federal statutory tax rate | $ | (12,473,354) | 21.0 | % | ||||||||||
| State and local income tax, net of federal income tax effect | $ | 23,908 | — | % | ||||||||||
| Change in valuation allowances | $ | 4,937,433 | (7.6) | % | ||||||||||
| Nontaxable or nondeductible items | ||||||||||||||
| Share based payment awards | (82,597) | 0.1 | % | |||||||||||
| Executive compensation | 6,964,297 | (12.4) | % | |||||||||||
| Other | 664,304 | (1.2) | % | |||||||||||
| Effective tax rate | $ | 33,991 | (0.1) | % | ||||||||||
A reconciliation of the Company’s effective tax rate to the statutory federal income tax rate as previously disclosed, and prior to the adoption of ASU 2023-09, for the year ended December 31, 2024 is as follows:
| Year Ended December 31, | ||||||||||||||
| 2024 | ||||||||||||||
| Amount | Percent | |||||||||||||
| Tax benefit at federal statutory rate | $ | (27,321,165) | 21.0 | % | ||||||||||
| Change in valuation allowance | 39,869,545 | (30.6) | % | |||||||||||
| State income taxes, net of federal benefit | (9,791,363) | 7.5 | % | |||||||||||
| Permanent differences | 3,006,784 | (2.3) | % | |||||||||||
| Federal and state refunds | — | — | % | |||||||||||
| Other | (384,699) | 0.3 | % | |||||||||||
| Effective tax rate | $ | 5,379,102 | (4.1) | % | ||||||||||
Deferred tax assets and liabilities reflect the net tax effects of net operating loss and tax credit carryforwards and temporary differences between the carrying amount of assets and liabilities for financial reporting and the amounts used for tax purposes. Significant components of the Company’s deferred tax assets and liabilities were as follows:
| December 31, 2025 | December 31, 2024 | ||||||||||
| Deferred tax assets: | |||||||||||
| Federal net operating loss carryforwards | $ | 23,795,168 | $ | 20,983,881 | |||||||
| State net operating loss carryforwards | 6,864,380 | 8,434,775 | |||||||||
| Compensation | 598,736 | 1,035,288 | |||||||||
| Allowance for doubtful accounts | 891,937 | 802,744 | |||||||||
| Interest expense limitation | 11,091,236 | 9,499,927 | |||||||||
| Other | 52,084 | 61,539 | |||||||||
| Accrued expenses | 667,006 | 539,784 | |||||||||
| Stock based compensation expense | 251,002 | — | |||||||||
| Lease liability | 830,997 | 626,289 | |||||||||
| Property and equipment | 190,978 | 164,064 | |||||||||
| Total deferred tax assets | 45,233,524 | 42,148,291 | |||||||||
| Valuation allowance | (43,574,177) | (40,178,754) | |||||||||
| Net total deferred tax assets | $ | 1,659,347 | $ | 1,969,537 | |||||||
| Deferred tax liabilities: | |||||||||||
| Right of use asset | $ | (811,850) | $ | (608,927) | |||||||
| Intangible assets | (847,497) | (1,360,610) | |||||||||
| Total deferred tax liabilities | $ | (1,659,347) | $ | (1,969,537) | |||||||
| Net deferred tax assets | $ | — | $ | — | |||||||
Supplemental Disclosure of Cash Flow Information
Supplemental cash flow information related to cash paid, net for income taxes pursuant to the disclosure requirements ASU 2023-09, for the year ended December 31, 2025 is as follows:
| Year Ended December 31, | ||||||||
| 2025 | ||||||||
| Federal | $ | (558,566) | ||||||
| State and local | ||||||||
| Texas | 43,821 | |||||||
| Other | 10,540 | |||||||
| Foreign | — | |||||||
| Total cash paid for taxes, net | $ | (504,205) | ||||||
Supplemental cash flow information related to cash paid, net for income taxes as previously disclosed, and prior to the adoption of ASU 2023-09, for the year ended December 31, 2024 is as follows:
| Year Ended December 31, | ||||||||
| 2024 | ||||||||
| Federal income taxes, net of refunds received | $ | — | ||||||
| State income taxes, net of refunds received | 17,100 | |||||||
| Total cash paid for taxes, net | $ | 17,100 | ||||||
As of December 31, 2025, the Company had federal net operating loss carryforwards of approximately $113,310,319 which were generated in tax years beginning after December 31, 2017, and can be carried forward indefinitely and state net operating loss carryforwards of approximately $104,760,771, which will expire at various dates through 2037.
The NOL is subject to review and possible adjustment by the Internal Revenue Service and state tax authorities. Net operating loss and tax credit carryforwards may become subject to an annual limitation in the event of certain cumulative changes in the ownership interest of significant shareholders over a three-year period in excess of 50%, as defined under Sections 382 and 383 of the Internal Revenue Code, respectively, as well as similar state provisions. This could limit the amount of tax attributes that can be utilized annually to offset future taxable income or tax liabilities. The amount of the annual limitation is determined based on the value of the Company immediately prior to the ownership change. Subsequent ownership changes may further affect the limitation in future years.
ASC Topic 740 — Income Taxes (“ASC 740”) requires a valuation allowance to reduce the deferred tax assets reported if, based on the weight of the evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. After consideration of all the evidence, both positive and negative, the Company has maintained a valuation allowance against its deferred tax assets as of December 31, 2025 because the Company's management has determined that it is more likely than not that these assets will not be fully realized. The increase in the valuation allowance recorded during the year of $3,395,423 primarily relates to the current year net operating loss generation.
The Company accounts for Uncertainty in Income Taxes under the provisions of ASC 740 which defines the thresholds for recognizing the benefits of tax return positions in the financial statements as "more likely than not" to be sustained by the taxing authority. The tax benefit is measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. As of December 31, 2025, the Company has recorded no unrecognized tax benefits.
The Company’s policy is to recognize both interest and penalties related to unrecognized tax benefits as a component of income tax expense. As of December 31, 2025, there were no interest or penalties associated with unrecognized tax benefits.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Apr 15, 2026 | Showing above |
| 2024 | Mar 28, 2025 | |
| 2023 | Apr 10, 2024 | |
| 2022 | Mar 16, 2023 | |
| 2021 | Mar 23, 2022 | |
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.