CONDUENT IncCNDT

CONDUENT Inc Income Taxes Disclosure

10-KFiled Feb 19, 20268 min read
Income Taxes
Income (loss) before income taxes from continuing operations was as follows:
Year Ended December 31,
(in millions)202520242023
Domestic income (loss)$(224)$461 $(349)
Foreign income64 43 17 
Income (loss) before income taxes$(160)$504 $(332)
Provision (benefit) for income taxes were as follows:
Year Ended December 31,
(in millions)202520242023
Federal Income Taxes
Current$3 $45 $6 
Deferred(22)(5)(41)
Foreign Income Taxes
Current25 23 12 
Deferred— (7)(2)
State Income Taxes
Current4 15 — 
Deferred— 7 (11)
Total Provision (Benefit)$10 $78 $(36)
As allowed by the guidance, the Company has prospectively adopted the new accounting guidance on income taxes concerning effective tax rate reconciliations described in Note 1 – Basis of Presentation and Summary of Significant Accounting Policies for the year ended December 31, 2025. The reconciliation of the U.S. federal statutory income tax rate to the consolidated effective income tax rate for the year ended December 31, 2025 was as follows:
 Year Ended December 31, 2025
($ in millions)AmountPercent
U.S. federal statutory income tax rate$(34)21.0 %
State and local income taxes, net of federal benefit(1)
2 (1.5)%
Foreign tax effects
India
Statutory tax rate difference between India and U.S.2 (1.4)%
US/India BAPA transfer pricing agreement3 (2.0)%
Other— 0.2 %
France
Changes in valuation allowance3 (1.7)%
Return to provision adjustments(2)1.3 %
Other1 (0.7)%
Germany
Changes in valuation allowance2 (1.2)%
Other— 0.4 %
Other or not specified foreign jurisdictions3 (2.0)%
Tax credits
Research and development tax credits(6)4.2 %
Work opportunity tax credit(3)1.7 %
Other— (0.1)%
Change in valuation allowance for deferred tax assets36 (21.8)%
Nontaxable or nondeductible items2 (1.5)%
Changes in unrecognized tax benefits1 (0.9)%
Other(2)
— (0.1)%
Total Provision and Effective Income Tax Rate$10 (6.1)%
 _______________
(1)    State taxes in Texas and New York made up the majority (greater than 50%) of the tax effect in this category.
(2)    In 2025, the "Other" line includes immaterial reconciling items. As such, the Company believes it is appropriate for these items to remain in "Other".
The reconciliation of the U.S. federal statutory income tax rate to the consolidated effective income tax rate for the years ended December 31, 2024 and 2023 was as follows:
Year Ended December 31,
 20242023
U.S. federal statutory income tax rate21.0 %21.0 %
Nondeductible expenses
1.8 %(1.2)%
Change in valuation allowance for deferred tax assets1.7 %0.8 %
State taxes, net of federal benefit3.6 %3.1 %
Tax-exempt income, credits and incentives(0.8)%0.8 %
Foreign rate differential adjusted for U.S. taxation of foreign profits(1)
0.1 %(0.4)%
Divestitures
(1.7)%— %
Internal reorganization(13.4)%— %
Impairments(2)
0.9 %(12.2)%
Unrecognized tax benefits1.7 %0.4 %
Audit and other tax adjustments0.9 %(1.4)%
Other(3)
(0.3)%(0.2)%
Effective Income Tax Rate15.5 %10.7 %
 _______________
(1)    The “Foreign rate differential adjusted for U.S. taxation of foreign profits” includes the U.S. tax, net of foreign tax credits, associated with actual and deemed repatriations of earnings from our non-U.S. subsidiaries.
(2)    Impairment represents adjustments for the non-deductible component of goodwill in 2024 and 2023.
(3)    In 2024 and 2023, the "Other" line includes immaterial reconciling items. As such, the Company believes it is appropriate for these items to remain in "Other".
The Company has prospectively adopted the new accounting guidance on income taxes concerning income taxes paid by jurisdiction described in Note 1 – Basis of Presentation and Summary of Significant Accounting Policies for the year ended December 31, 2025. The schedule of net cash paid (refunds received) for income tax by jurisdiction during the year ended December 31, 2025 was as follows:
(in millions)Year Ended December 31, 2025
U.S. federal income tax$1 
US state and local income tax
5 
Australia4 
India8 
Mexico3 
Peru2 
United Kingdom2 
Other foreign jurisdictions5 
Net cash paid (refunds received) for income tax$30 
On a consolidated basis, the Company paid $44 million and $18 million in combined income taxes to federal, foreign and state jurisdictions during the years ended December 31, 2024 and 2023, respectively.
Unrecognized Tax Benefits and Audit Resolutions
The Company recognizes tax liabilities when, despite its belief that its tax return positions are supportable, the Company believes that certain positions may not be fully sustained upon review by tax authorities. Each period the Company assesses uncertain tax positions for recognition, measurement and effective settlement. Benefits from uncertain tax positions are measured at the largest amount of benefit that is greater than 50 percent likely of being realized upon settlement. Where the Company has determined that its tax return filing position does not satisfy the more-likely-than-not recognition threshold, the Company has recorded no tax benefits.
The Company is also subject to ongoing tax examinations in numerous jurisdictions due to the extensive geographical scope of its operations. The Company's ongoing assessments of the more-likely-than-not outcomes of the examinations and related tax positions require judgment and can increase or decrease the Company's effective
tax rate, as well as impact its operating results. The specific timing of when the resolution of each tax position will be reached is uncertain.
In the fourth quarter of 2024, the Company implemented an internal reorganization in which it sold a portion of its top tier foreign holding company to a lower tier subsidiary. This transaction and a subsequent tax election to treat the holding company as a partnership resulted in recognition of a built-in capital loss for tax purposes that offset capital gains from divestitures, resulting in net tax savings of $59 million. The determination of the tax characteristic of this transaction requires management to make judgments about the application of tax laws and regulations. The United States Internal Revenue Service could determine a different tax treatment that would have an adverse impact on the Company.
As of December 31, 2025, the Company had $19 million of unrecognized tax benefits that, if recognized, would impact the Company's effective tax rate. Of this amount, $17 million is related to the valuation of the Company's foreign operations used in the calculation of the loss on the internal reorganization mentioned above.
A reconciliation of the beginning and ending amount of unrecognized tax benefits was as follows:
(in millions)202520242023
Balance at January 1$19 $10 $12 
Additions related to current year— 17 — 
Additions related to prior years positions1 2 — 
Reductions related to prior years positions(1)(9)(1)
Settlements with taxing authorities
— (1)(1)
Lapse of Statute of limitations— — — 
Balance at December 31$19 $19 $10 

The Company maintains offsetting benefits from other jurisdictions of $1 million, $2 million and $1 million, at December 31, 2025, 2024 and 2023, respectively. The Company recognized interest and penalties accrued on unrecognized tax benefits within income tax expense. The Company had $1 million, $1 million and $2 million accrued for the payment of interest and penalties associated with unrecognized tax benefits at December 31, 2025, 2024 and 2023, respectively. We are subject to federal income tax examinations in the U.S. and to income tax examinations in various states and foreign jurisdictions. In the U.S., the Company is no longer subject to U.S. federal income tax examinations for years before 2022. With limited exceptions, as of December 31, 2025, we are no longer subject to state, local or foreign examinations by tax authorities for years before 2021.
Deferred Income Taxes
The Company is indefinitely reinvested in the undistributed earnings of its foreign subsidiaries with respect to the U.S. These foreign subsidiaries have aggregate cumulative undistributed earnings of $60 million as of December 31, 2025. For years after 2017, current tax law allows for certain earnings to be repatriated free from U.S. Federal taxes. However, the repatriation of earnings could give rise to additional tax liabilities. The Company has not provided for these liabilities. The Company has also not provided for deferred taxes on outside basis differences in its investments in its foreign subsidiaries. A determination of the unrecognized deferred taxes related to these other components of the Company's outside basis differences is not practicable. The Company has provided for deferred taxes with respect to certain unremitted earnings of foreign subsidiaries that are not indefinitely reinvested between foreign subsidiaries outside of the U.S.
The tax effects of temporary differences that give rise to significant portions of the deferred taxes were as follows:
December 31,
(in millions)20252024
Deferred Tax Assets  
Net operating losses and capital loss carryforward$171 $86 
Operating reserves, accruals and deferrals42 41 
Deferred compensation3 2 
Interest expense capitalization16 11 
Settlement reserves3 5 
Operating lease liabilities37 43 
Tax credits5 10 
Capitalized research and experimentation costs14 24 
Compensation related accruals17 18 
Other2 1 
Subtotal310 241 
Valuation allowance(151)(95)
Total$159 $146 
Deferred Tax Liabilities
Intangibles and goodwill$52 $32 
Depreciation47 48 
Operating lease right-of-use assets32 38 
Other23 29 
Total$154 $147 
Total Deferred Tax Assets (Liabilities), Net$5 $(1)
The deferred tax assets for the respective periods were assessed for recoverability and, where applicable, a valuation allowance was recorded to reduce the total deferred tax asset to an amount that will, more-likely-than-not, be realized in the future. The net change in the total valuation allowance for the years ended December 31, 2025 and 2024 was an increase of $56 million and a decrease of $5 million, respectively. The valuation allowance relates primarily to certain net operating loss carryforwards, tax credit carryforwards and deductible temporary differences for which the Company has concluded it is more-likely-than-not that these items will not be realized in the ordinary course of operations.
Although realization is not assured, the Company has concluded that it is more-likely-than-not that the deferred tax assets, for which a valuation allowance was determined to be unnecessary, will be realized in the ordinary course of operations based on the available positive and negative evidence, including scheduling of deferred tax liabilities and projected income from operating activities. The amount of the net deferred tax assets considered realizable, however, could be reduced in the near term if actual future income or income tax rates are lower than estimated, or if there are differences in the timing or amount of future reversals of existing taxable or deductible temporary differences.
At December 31, 2025, the Company had tax credit carryforwards of $5 million available to offset future income taxes, which will expire between 2027 and 2043, if not utilized.
The following table presents the Company's worldwide net operating loss carryforwards ("NOLs") as of December 31, 2025 and 2024:
December 31, 2025December 31, 2024
(in millions)GrossTax EffectedGrossTax Effected
U.S Federal NOLs$310 $65 $2 $— 
U.S. State NOLs509 26 255 13 
Foreign NOLs337 77 303 71 
Total$1,156 $168 $560 $84 
The Company has $1,156 million of gross net operating loss carryforwards for income tax purposes including $640 million that will expire between 2026 and 2045, if not utilized, and $516 million available to offset future taxable income indefinitely. The Company had $8 million of foreign capital losses available to offset future capital gains income indefinitely. The Company does not expect to receive a tax benefit for the majority of the NOLs presented above, as valuation allowances have been recorded against most of the state and foreign NOLs and capital losses.

Historical Timeline

Fiscal YearFiled
2025Feb 19, 2026Showing above
2024Feb 19, 2025
2023Feb 21, 2024
2022Feb 22, 2023
2021Feb 23, 2022
2020Feb 24, 2021
2019Feb 27, 2020
2018Feb 28, 2019

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.

Other Available Disclosures

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