CG Oncology, Inc. Income Taxes Disclosure

Deferred tax assets are reduced by a valuation allowance if, based on the weight of available positive and negative evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. For the year ended December 31, 2025, the valuation allowance for deferred tax assets increased by $36.9 million. This increase was primarily related to the establishment of a valuation allowance against additional net operating loss (NOL) and research credits generated in the current year.

No income tax audits were commenced or were in process during the years ended December 31, 2025 and 2024 and no tax related interest or penalties were incurred during those years. The Company’s tax returns beginning with the tax year ended December 31, 2011 remain subject to examination since the Company has not utilized any of its historical net operating losses.

As of December 31, 2025, the Company had $301.7 million and $11.3 million of federal and state NOL carryforwards, respectively. Of the $301.7 million in federal NOL carryforwards, $292.2 million is not subject to expiration and the other $9.5 million begin to expire in 2030. The state NOL carryforwards begin to expire in 2040. In addition, as of December 31, 2025, the Company had $10.9 million of federal research and development (R&D) credit carryovers which begin to expire in 2030 and $1.8 million of California credit carryovers, which can be carried forward indefinitely. There is also $0.1 million of Texas credit which can be carried forward for twenty years. These loss and credit carryforwards are subject to review and possible adjustment by the appropriate taxing authorities.

Utilization of the Company’s NOL carryforwards and R&D credit carryforwards may be subject to a substantial annual limitation due to ownership change limitations that have occurred previously or that could occur in the future in accordance with Section 382 of the Internal Revenue Code of 1986 (Section 382) as well as similar state provisions. These ownership changes may limit the amount of NOL and R&D credit carryforwards that can be utilized annually to offset future taxable income and taxes, respectively. In general, an ownership change as defined by Section 382 results from transactions increasing the ownership of certain shareholders or public companies in the stock of a corporation by more than 50% over a three-year period. Since its formation, the Company has raised capital through the issuance of capital stock on several occasions. These financings could result in a change of control as defined by Section 382, and consequently the Company’s utilization of the NOL carryforwards would be subject to an annual limitation under Section 382 of the Code. Any limitation may result in expiration of a portion of the NOL carryforwards before utilization.

As of December 31, 2025 and 2024, the Company recorded $1.9 million and $1.4 million unrecognized tax benefits, respectively. The Company’s policy is to recognize interest and penalties accrued on any uncertain tax positions as a component of income tax expense, if any, in its statements of income. For the years ended December 31, 2025, 2024 and 2023, no estimated interest or penalties were recognized on uncertain tax positions, and as of December 31, 2025 the Company has not incurred any material interest or penalties as of the current reporting date with respect to income tax matters.

None of the unrecognized tax benefits, if recognized, would impact the annual effective tax rate, due to the valuation allowance. The Company’s unrecognized tax benefits are recorded as a reduction in deferred tax assets.

Tax Cuts and Jobs Act’s (TCJA) amendment to Section 174 required research and experimental (R&E) expenditures to be capitalized in the year the amounts are incurred for amounts paid in tax years starting after December 31, 2021. The capitalized amounts are then amortized over a period of five years, if the research is performed within the U.S., or 15 years, with respect to non-U.S. based research. The amended statute specifies that amortization will begin with the midpoint of the taxable year in which expenses are paid or incurred, creating a significant first year impact. However, beginning in tax years after December 31, 2024, the One Big Beautiful Bill Act (OBBBA) was enacted and allows taxpayers to fully deduct domestic research costs in the year paid or incurred for federal income tax purposes and certain state income tax purposes and retains the requirement of 15 year amortization for R&E costs attributable to outside the U.S.