CAPRICOR THERAPEUTICS, INC. Income Taxes Disclosure
13. INCOME TAXES
The domestic and foreign components of income (loss) before income tax provision (benefit) were as follows:
Year ended December 31, | |||||
2025 | 2024 | ||||
United States | $ | (105,042,346) | $ | (40,465,586) | |
Foreign |
| — |
| — | |
Total | $ | (105,042,346) | $ | (40,465,586) | |
The federal and state income tax provision (benefit) is summarized as follows:
Year ended December 31, | |||||
2025 | 2024 | ||||
Current | | ||||
Federal | $ | — | $ | — | |
State and local | 1,600 | 1,600 | |||
Total current tax expense | 1,600 | 1,600 | |||
Deferred | |||||
Federal | — | — | |||
State and local | — | — | |||
Total deferred tax expense | — | — | |||
Total | |||||
Federal | — | — | |||
State and local | 1,600 | 1,600 | |||
Total tax expense | $ | 1,600 | $ | 1,600 | |
Deferred income taxes reflect the net tax effects of (a) temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, and (b) operating losses and tax credit carryforwards.
The tax effects of significant items comprising the Company’s deferred taxes as of December 31 are as follows:
Year ended December 31, | |||||
2025 | 2024 | ||||
Deferred tax assets: | | ||||
Accrued expenses | $ | 1,061,030 | $ | 722,851 | |
Stock-based compensation | 5,236,924 | 5,088,808 | |||
Research and development expense | 11,592,478 | 15,993,708 | |||
Lease liabilities | 3,052,803 | 406,366 | |||
Net operating losses | 54,428,383 | 32,472,461 | |||
Credits | 28,848,564 | 22,314,502 | |||
Deferred revenue | 2,522,497 | 3,360,445 | |||
CIRM liability | 640,236 | — | |||
Total deferred tax assets | 107,382,915 | 80,359,141 | |||
Deferred tax liabilities: | |||||
Lease right-of-use assets | (2,845,759) | (367,555) | |||
Fixed assets | (1,091,120) | (1,357,352) | |||
Other comprehensive income | (59,521) | (66,036) | |||
Total deferred tax liabilities | (3,996,400) | (1,790,943) | |||
Valuation allowance | (103,386,515) | (78,568,198) | |||
Net deferred taxes | $ | — | $ | — | |
ASC 740 requires that the tax benefit of net operating losses, temporary differences and credit carryforwards be recorded as an asset to the extent that management assesses that realization is more likely than not. Realization of the future tax benefits is dependent on the Company's ability to generate sufficient taxable income within the carryforward period. Because of the Company's recent history of operating losses, management believes that recognition of the deferred tax assets is currently not likely to be realized and, accordingly, has provided a valuation allowance.
The valuation allowance increased by approximately $24.8 million during 2025 and approximately $12.1 million during 2024.
Net operating losses and tax credit carryforwards as of the December 31, 2025 are as follows:
Amount | Expiration Years | |||
Net operating losses, federal (post December 31, 2017) | $ | 160,690,929 | Do Not Expire | |
Net operating losses, federal (prior to January 1, 2018) | $ | 39,383,370 | 2031 | |
Net operating losses, state | $ | 177,927,620 | 2028 | |
Tax credits, federal | $ | 27,054,520 | 2027 | |
Tax credits, state | $ | 2,270,942 | Indefinite | |
The effective tax rate of the Company's provision (benefit) for income taxes differs from the federal statutory rate as follows:
Year ended December 31, | |||||||||
2025 | 2024 | ||||||||
Amount | Rate | Amount | Rate | ||||||
U.S. federal statutory tax rate | $ | (22,058,893) | 21.0% | $ | (8,497,773) | 21.0% | |||
State and local income taxes, net of federal income tax effect (1) | 1,264 | 0.0% | 1,264 | 0.0% | |||||
Tax credits | |||||||||
Orphan drug tax credit | (4,778,164) | 4.6% | (4,778,164) | 11.8% | |||||
Research and development tax credit | (399,695) | 0.4% | (399,695) | 1.0% | |||||
Change in valuation allowance | 26,851,125 | -25.6% | 13,042,758 | -32.2% | |||||
Nondeductible items | |||||||||
Stock-based compensation, including windfalls/shortfalls | 314,710 | -0.3% | 612,474 | -1.5% | |||||
Other | 71,253 | -0.1% | 20,736 | -0.1% | |||||
$ | 1,600 | 0.0% | $ | 1,600 | 0.0% | ||||
| (1) | The majority of taxes in the state and local income taxes category is reported in California. |
The cash paid for income taxes (net of refunds) was $1,600 for both 2025 and 2024 and applied only to state of California.
The tax years 2023 through 2025 remain open to examination by the Internal Revenue Service and certain state tax authorities, although net operating loss and tax credit carryforwards generated prior to 2007 may still be adjusted upon examination by the Internal Revenue Service or state tax authorities if they have or will be used in a future period.
Under Section 382 of the Code, the Company’s ability to utilize NOL carryforwards or other tax attributes, such as federal tax credits, in any taxable year may be limited if the Company has experienced an “ownership change.” Generally, a Section 382 ownership change occurs if one or more stockholders or groups of stockholders who owns at least 5% of a corporation’s stock increases its ownership by more than 50 percentage points over its lowest ownership percentage within a specified testing period. Similar rules may apply under state tax laws. We have experienced an ownership change that we believe under Section 382 of the Code will result in limitation in our ability to utilize net operating losses and credits. In addition, the Company may experience future ownership changes as a result of future offerings or other changes in ownership of its stock. As a result, the amount of the NOLs and tax credit carryforward presented in the financial statement could be limited and may expire unutilized. The Company’s net operating loss carryforwards are subject to Internal Revenue Service (“IRS”) examination until they are fully utilized and such tax years are closed.
The Company’s policy is to include interest and penalties related to unrecognized tax benefits in income tax expense. Interest and penalties were insignificant for the years ended December 31, 2025 and 2024.
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.