CRESCENT BIOPHARMA, INC.CBIO
CRESCENT BIOPHARMA, INC. Income Taxes Disclosure
11. Income Taxes
During 2025, the Company converted from a U.S. domestic corporation to a Cayman Islands exempted company. Because the conversion constitutes an inversion for U.S. tax purposes, the Company continues to be treated as a U.S. domestic corporation subject to U.S. federal income tax. Accordingly, the Company’s net loss before income tax is incurred in the U.S. and the rate reconciliation is based on the U.S. statutory corporate tax rate. The expense for income taxes consists of the following:
| 2025 | 2024 | ||||||||||
| Current | |||||||||||
| Federal | $ | — | $ | — | |||||||
| State | — | — | |||||||||
| Foreign | 2,000 | — | |||||||||
| Total current expense | 2,000 | — | |||||||||
| Deferred | |||||||||||
| Federal | — | — | |||||||||
| State | — | — | |||||||||
| Foreign | — | — | |||||||||
| Total deferred expense | — | — | |||||||||
| Total income tax expense | $ | 2,000 | $ | — | |||||||
A reconciliation of the U.S. federal statutory rate to the Company’s effective income tax rate for the year ended December 31, 2025 and December 31, 2024 is as follows:
| Twelve Months Ended December 31, 2025 | Period from September 19, 2024 (Inception) Through December 31, 2024 | ||||||||||||||||
| U.S. Federal statutory tax rate | $ | (31,908) | 21 | % | $ | (3,752) | 21 | % | |||||||||
| Foreign Tax Effects | |||||||||||||||||
| China | |||||||||||||||||
| Withholding taxes | 2,000 | (1.3) | % | — | — | % | |||||||||||
| Tax credits | (1,809) | 1.2 | % | (46) | 0.3 | % | |||||||||||
| Change in valuation allowance | 34,697 | (22.9) | % | 3,612 | (20.2) | % | |||||||||||
| Nontaxable or nondeductible items | 870 | (0.6) | % | 186 | (1.0) | % | |||||||||||
| Other adjustments | |||||||||||||||||
| Tax deductible merger expenses | (1,850) | 1.2 | % | — | — | % | |||||||||||
| Effective income tax rate | $ | 2,000 | (1.4) | % | $ | — | 0.1 | % | |||||||||
In accordance with ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, the Company updated its presentation of its effective tax rate reconciliation to reflect the standardized categories required by the new guidance. The effective tax rate reconciliation for the period from September 19, 2024 (inception) through December 31, 2024 has been recast for comparative purposes to conform to the current-year presentation. The recast was solely for presentation purposes and did not result in any changes to the Company’s previously reported income tax expense, effective tax rate, or other financial statement amounts.
The Company made no income tax payments and received no income tax refunds during the twelve months ended December 31, 2025 and during the period from September 19, 2024 (inception) through December 31, 2024
The income tax effect of each type of temporary difference and carryforward as of December 31, 2025 and December 31, 2024 was as follows:
| Twelve Months Ended December 31, 2025 | Period from September 19, 2024 (Inception) Through December 31, 2024 | ||||||||||
| Deferred tax assets: | |||||||||||
| Net operating loss carryforwards | $ | 12,164 | $ | 444 | |||||||
| Tax credit carryforwards | 2,423 | 73 | |||||||||
| Accrued liabilities | 1,246 | 4 | |||||||||
| Lease liability | 433 | — | |||||||||
| Capitalized research and development costs | 5,867 | 1,724 | |||||||||
| Intangible assets | 23,439 | 1,466 | |||||||||
| Share-based compensation | 2,801 | 229 | |||||||||
| Fixed assets | 5 | — | |||||||||
| Total deferred tax assets | 48,378 | 3,940 | |||||||||
| Valuation allowance | (47,991) | (3,940) | |||||||||
| Deferred tax assets, net of valuation allowance | 387 | — | |||||||||
| Deferred tax liabilities: | |||||||||||
| Right of use asset | (387) | — | |||||||||
| Total deferred tax liabilities | (387) | — | |||||||||
| Deferred taxes, net | $ | — | $ | — | |||||||
Management evaluated the positive and negative evidence bearing upon the realizability of its deferred tax assets and determined that it is more likely than not that the Company will not recognize the future benefits of its deferred tax assets. As a result, the Company maintained a full valuation allowance against its deferred tax assets as of December 31, 2025 and December 31, 2024. The valuation allowance increased by $44.1 million during 2025, primarily due to increases in intangible assets and net operating losses deemed not realizable.
At December 31, 2025, the Company had federal and state net operating loss carryforwards of approximately $46.6 million and $37.5 million, respectively, which may be available to reduce future taxable income. The federal net operating losses may be carried forward indefinitely but may only be used to offset 80% of annual taxable income due to the Tax Cuts and Jobs Act. The state net operating losses expire at various dates beginning in 2044. At December 31, 2025, the Company had federal and state research and development tax credit carryforwards of approximately $1.9 million and $0.8 million, respectively, which expire at various dates beginning in 2044.
Utilization of the net operating loss carryforwards may be subject to limitation under Section 382 of the Internal Revenue Code of 1986 due to ownership change limitations that have occurred previously or that could occur in the future. These ownership changes may limit the amount of net operating loss that can be utilized annually to offset future taxable income and tax, respectively. There could be additional ownership changes in the future, which may result if additional limitations on the utilization of the net operating loss and tax credit carryforwards.
The Company conducts business in U.S. federal and state jurisdictions. In the normal course of business, the Company may be subject to examination by taxing authorities throughout the United States. Since the Company is in a loss carry-forward position, the Company is generally subject to U.S. federal and state income tax examinations by tax authorities for all years for which a loss carry-forward is utilized. As of December 31, 2025 and 2024, the Company is not under income tax examination in any jurisdiction.
During the ordinary course of business, there are many transactions and calculations for which the ultimate tax determination is uncertain. The Company establishes reserves for tax-related uncertainties based on estimates of whether, and the extent to which, additional taxes will be due. These reserves are established when the Company believes that certain positions might be challenged despite its belief that its tax return positions are fully supportable. The Company
adjusts these reserves in light of changing facts and circumstances, such as the outcome of tax examinations. As of December 31, 2025, no reserves for uncertain tax positions have been established.
On July 4, 2025, the One Big Beautiful Bill Act ("OBBBA") was signed into law. Key corporate tax provisions include the restoration of 100% bonus depreciation, immediate expensing for domestic research and experimental expenditures, changes to Section 163(j) interest limitations, updates to Global Intangible Low-Taxed Income and Foreign-Derived Intangible Income rules, amendments to energy credits, and expanded Section 162(m) aggregation requirements. In accordance with Accounting Standards Codification 740, Income Taxes (“ASC 740”), the effects of the new tax law were recognized in the period of enactment. Due to the Company's valuation allowance position, the provisions of the OBBBA did not have an impact on the Company's income tax provision.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 26, 2026 | Showing above |
| 2024 | Feb 13, 2025 | |
| 2023 | Mar 27, 2024 | |
| 2022 | Mar 29, 2023 | |
| 2021 | Mar 3, 2022 | |
| 2020 | Mar 2, 2021 | |
| 2019 | Feb 28, 2020 | |
| 2018 | Mar 6, 2019 | |
| 2017 | Mar 6, 2018 | |
| 2016 | Mar 1, 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.