AtriCure, Inc.ATRC
AtriCure, Inc. Income Taxes Disclosure
INCOME TAXES
The Company files federal, state and foreign income tax returns in jurisdictions with varying statutes of limitations. The Company uses the asset and liability method under which deferred income taxes are provided for the temporary differences between the financial reporting basis and the tax basis of the Company’s assets and liabilities. Deferred taxes are measured using provisions of currently enacted tax laws. A valuation allowance against deferred tax assets is recorded when it is more likely than not that such assets will not be fully realized. The Company's valuation allowance offsets substantially all its net deferred tax assets as it is more likely than not that the benefit of the deferred tax assets will not be recognized in future periods.
On July 4, 2025, the One Big Beautiful Bill Act ("OBBBA") was signed into law. Key elements of the Tax Cuts and Jobs Act of 2017 are made permanent under the OBBBA, including 100% bonus depreciation, domestic research cost expensing and the business interest expense limitation. The legislation has multiple effective dates, with certain provisions effective in 2025 and others effective in 2026 or 2027. FASB ASC 740, "Income Taxes", requires the effects of changes in tax rates and laws on tax balances to be recognized in the period in which the legislation is enacted. As the Company maintains a full valuation allowance on its U.S. deferred tax assets, the legislation did not have a material impact on the income tax expense or effective tax rate for the year ended December 31, 2025.
The Company’s pre-tax book loss for domestic and international operations was $8,811 and $1,352 for 2025, $36,983 and $6,691 for 2024, and $17,822 and $12,025 for 2023. The Company had undistributed earnings of foreign subsidiaries of approximately $774 at December 31, 2025. The Company does not consider these earnings as permanently reinvested but has determined that any related deferred taxes upon repatriation would be offset by our valuation allowance.
The Company’s provision for income taxes for each of the years ended December 31 is as follows:
| 2025 | 2024 | 2023 | |||||||||||||||
| Current tax expense | |||||||||||||||||
| Federal | $ | — | $ | — | $ | — | |||||||||||
| State | 698 | 450 | 389 | ||||||||||||||
| Foreign | 649 | 568 | 217 | ||||||||||||||
| Total current tax expense | 1,347 | 1,018 | 606 | ||||||||||||||
| Deferred tax expense | |||||||||||||||||
| Federal | $ | (1,215) | $ | (4,985) | $ | (2,972) | |||||||||||
| State | 1,276 | (1,087) | (928) | ||||||||||||||
| Foreign | (1,273) | (1,379) | (3,671) | ||||||||||||||
| Change in valuation allowance | 1,150 | 7,457 | 7,556 | ||||||||||||||
| Total deferred tax expense | (62) | 6 | (15) | ||||||||||||||
| Total tax expense | $ | 1,285 | $ | 1,024 | $ | 591 | |||||||||||
The detail of deferred tax assets and liabilities at December 31 is as follows:
| 2025 | 2024 | ||||||||||
| Deferred tax assets: | |||||||||||
| Net operating loss carryforwards | $ | 117,132 | $ | 116,679 | |||||||
| Research and development credit carryforwards | 22,089 | 18,181 | |||||||||
| Research and experimental expenditures | 24,257 | 31,106 | |||||||||
| Equity compensation | 12,486 | 11,738 | |||||||||
| Finance and operating lease liabilities | 5,250 | 2,494 | |||||||||
| Inventories | 3,179 | 3,325 | |||||||||
| Accruals and reserves | 1,863 | 1,478 | |||||||||
| Property and equipment | 327 | 1,052 | |||||||||
| Total deferred tax assets | 186,583 | 186,053 | |||||||||
| Deferred tax liabilities: | |||||||||||
| Intangible assets | (3,085) | (5,005) | |||||||||
| Right-of-use assets | (3,029) | (1,749) | |||||||||
Other | (217) | (254) | |||||||||
| Total deferred tax liabilities | (6,331) | (7,008) | |||||||||
| Valuation allowance | (180,177) | (179,027) | |||||||||
| Net deferred tax assets | $ | 75 | $ | 18 | |||||||
The Company’s 2025 effective income tax rate differs from the federal statutory rate as follows:
| 2025 | ||||||||||||||
| Federal tax at statutory rate | 21.0 | % | $ | (2,134) | ||||||||||
| Nontaxable or nondeductible items | ||||||||||||||
| Officer compensation disallowance | (19.0) | 1,927 | ||||||||||||
| Share-Based Payment Awards | (19.7) | 2,003 | ||||||||||||
| 50% meals disallowance | (7.1) | 721 | ||||||||||||
| Other | 0.9 | (96) | ||||||||||||
| Changes in valuation allowance | (12.0) | 1,215 | ||||||||||||
| Tax Credits | ||||||||||||||
| Federal R&D tax credit | 38.5 | (3,908) | ||||||||||||
State & local income taxes, net of federal income tax effect† | (5.5) | 565 | ||||||||||||
| Foreign tax effects | ||||||||||||||
| Netherlands | ||||||||||||||
| Change in valuation allowance | (11.9) | 1,212 | ||||||||||||
| Deferred adjustments | 5.0 | (507) | ||||||||||||
| Statutory rate difference | 1.3 | (131) | ||||||||||||
| Other foreign jurisdictions | (3.9) | 394 | ||||||||||||
| Effect of cross-border tax laws | (0.2) | % | 24 | |||||||||||
| Effective tax rate | (12.6) | % | $ | 1,285 | ||||||||||
† | California, Texas and Pennsylvania make up the majority (greater than 50%) of the tax effect in this category. | |||||||
The Company's 2024 and 2023 effective income tax rates differ from the federal statutory rate as follows:
| 2024 | 2023 | ||||||||||||||||||||||
| Federal tax at statutory rate | 21.0 | % | $ | (9,171) | 21.0 | % | $ | (6,268) | |||||||||||||||
| Permanent differences | (6.7) | 2,942 | (10.4) | 3,092 | |||||||||||||||||||
| Valuation allowance | (17.1) | 7,457 | (25.3) | 7,556 | |||||||||||||||||||
| State income taxes | 1.7 | (742) | 1.8 | (539) | |||||||||||||||||||
| Federal R&D credit | 6.9 | (3,010) | 6.6 | (1,966) | |||||||||||||||||||
| Foreign income taxes | (1.3) | 567 | 3.4 | (1,012) | |||||||||||||||||||
| Federal deferred adjustments | (6.8) | 2,981 | 0.9 | (272) | |||||||||||||||||||
| Effective tax rate | (2.3) | % | $ | 1,024 | (2.0) | % | $ | 591 | |||||||||||||||
The Company has federal net operating loss carryforwards of $216,111 which expire between 2029 and 2037 and $175,808 which have no expiration. The Company has state and local net operating loss carryforwards of $229,449 which expire between 2026 to 2045. A portion of the Company’s federal and state net operating loss carryforwards are subject to certain limitations under Internal Revenue Code Sections 382 and 383. The Company has federal research and development credit carryforwards of $22,089 which expire between 2026 and 2045. Additionally, the Company has foreign net operating loss carryforwards of $84,431 which have no expiration.
The Company's federal, state, local and foreign tax returns are routinely subject to review by various taxing authorities. Federal income tax returns for periods beginning in 2022 are open for examination. Generally, state and foreign income tax returns for periods beginning in 2021 are open for examination. However, taxing authorities have the ability to audit net operating loss and tax credit carryforwards from years prior to these periods. The Company has not recognized certain tax benefits because of the uncertainty of realizing the entire value of the tax position taken on income tax returns upon review by the taxing authorities. The Company has not accrued any interest and penalties related to unrecognized
income tax benefits as a result of offsetting net operating losses. However, if required, the Company will recognize interest and penalties within income tax expense and within the related tax liability.
A reconciliation of the change in federal and state unrecognized tax benefits for 2025, 2024 and 2023 is presented below:
| 2025 | 2024 | 2023 | |||||||||||||||
| Balance at the beginning of the year | $ | 1,514 | $ | 1,672 | $ | 1,762 | |||||||||||
| Increases (decreases) for prior year tax positions | (296) | (158) | (90) | ||||||||||||||
| Increases (decreases) for current year tax positions | — | — | — | ||||||||||||||
| Increases (decreases) related to settlements | — | — | — | ||||||||||||||
| Decreases related to statute lapse | — | — | — | ||||||||||||||
| Balance at the end of the year | $ | 1,218 | $ | 1,514 | $ | 1,672 | |||||||||||
The balance of unrecognized tax benefits, as disclosed above, would result in adjustments to deferred taxes and related valuation allowances
Income taxes paid (net of refunds) was $1,290 for the year ended December 31, 2025. The following jurisdictions exceeded 5% of total income taxes paid (net of refunds) in 2025:
| 2025 | |||||
| Federal | $ | — | |||
| State | |||||
| California | 213 | ||||
| Texas | 134 | ||||
| Pennsylvania | 118 | ||||
| Foreign | |||||
| United Kingdom | 225 | ||||
| Spain | 105 | ||||
| Australia | 99 | ||||
| Canada | 82 | ||||
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 19, 2026 | Showing above |
| 2024 | Feb 14, 2025 | |
| 2023 | Feb 16, 2024 | |
| 2022 | Feb 22, 2023 | |
| 2021 | Feb 17, 2022 | |
| 2020 | Feb 26, 2021 | |
| 2019 | Feb 24, 2020 | |
| 2018 | Mar 1, 2019 | |
| 2017 | Feb 28, 2018 | |
| 2016 | Mar 8, 2017 | |
| 2015 | Feb 29, 2016 | |
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.