Context Therapeutics Inc.CNTX
Context Therapeutics Inc. Income Taxes Disclosure
Income Taxes
The Company is a corporation and is subject to federal, state and local corporate income taxes which have been provided for in the consolidated financial statements based upon ASC 740. Context BioPharma, Inc. has always been subject to corporate income taxes.
The Company had no income tax expense due to operating losses incurred for the years ended December 31, 2024 and 2023. The Company had also not recorded any income tax benefits for the net operating losses incurred in
each period due to its uncertainty of realizing a benefit from those items. All of the Company’s losses before income taxes were generated in the United States.
The tax effects of temporary differences that gave rise to significant portions of the deferred tax assets and liabilities were as follows:
December 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| Deferred tax assets: | |||||||||||
| Net operating loss carryforwards | $ | 9,318,875 | $ | 7,749,636 | |||||||
| Research and development credits | 1,765,100 | 1,231,315 | |||||||||
| Capitalized research and development Section 174 expense | 8,268,682 | 6,799,428 | |||||||||
| Share-based compensation | 1,094,621 | 843,345 | |||||||||
| Amortization | 4,258,804 | — | |||||||||
| Other accruals | 299,517 | 201,671 | |||||||||
| Gross deferred tax assets | 25,005,599 | 16,825,395 | |||||||||
| Deferred tax liabilities: | |||||||||||
| Prepaid expenses | (243,408) | (215,507) | |||||||||
| Property and equipment | (2,799) | (4,585) | |||||||||
| Net deferred tax assets | 24,759,392 | 16,605,303 | |||||||||
| Less: valuation allowance | (24,759,392) | (16,605,303) | |||||||||
| $ | — | $ | — | ||||||||
In assessing the need for a valuation allowance, management must determine that there will be sufficient taxable income to allow for the realization of deferred tax assets. Based upon the historical and anticipated future losses, management has determined that the deferred tax assets do not meet the more likely than not threshold for realizability. Accordingly, a full valuation allowance has been recorded against the Company’s net deferred tax assets as of December 31, 2024 and 2023. The valuation allowance increased by $8.2 million and $7.4 million during the years ended December 31, 2024 and 2023, respectively.
A reconciliation of the federal income tax rate to the Company’s effective tax rate is as follows:
Year ended December 31, | |||||||||||
| 2024 | 2023 | ||||||||||
Federal income tax benefit at statutory rate | 21.0 | % | 21.0 | % | |||||||
State income tax, net of federal benefit | 7.5 | 7.8 | |||||||||
Research and development credit | 2.0 | 2.2 | |||||||||
Change in valuation allowance | (30.5) | (31.0) | |||||||||
| Effective income tax rate | — | % | — | % | |||||||
The following table summarizes carryforwards of federal, state and local net operating losses (“NOL”) and research tax credits:
December 31, | |||||||||||
| 2024 | 2023 | ||||||||||
NOL carryforwards—Federal | $ | 33,850,215 | $ | 27,502,184 | |||||||
NOL carryforwards—State | 33,934,258 | 27,502,184 | |||||||||
NOL carryforwards—Local | 18,967,829 | 19,390,882 | |||||||||
Research tax credits—Federal | 1,765,100 | 1,231,315 | |||||||||
The NOL carryforwards begin expiring in 2037 for federal and state income tax purposes; however, all federal NOL carryforwards generated subsequent to January 1, 2018 are able to be carried forward indefinitely. Local NOL carryforwards expire after three years with the 2022 NOL set to expire in 2025. As of December 31, 2024 and 2023, the Company had federal research and development tax credit carryforwards of $1.8 million and $1.2 million, respectively, that will begin to expire in 2037, unless previously utilized.
The NOL and tax credit carryforwards are subject to review and possible adjustment by the Internal Revenue Service and state tax authorities. NOL and tax credit carryforwards may become subject to an annual limitation in the event of certain cumulative changes in the ownership interest of significant stockholders over a three-year period in excess of 50%, as defined under Sections 382 and 383 of the Internal Revenue Code, respectively, as well as similar state provisions. This could limit the amount of tax attributes that can be utilized annually to offset future taxable income or tax liabilities. The amount of the annual limitation is determined based on the value of the Company immediately prior to the ownership change. Subsequent ownership changes may further affect the limitation in future years. To date, the Company has not performed an analysis to determine whether or not ownership changes have occurred since inception. State and local NOLs may also be limited.
As of December 31, 2024 and 2023, the Company had no accrued interest or penalties related to uncertain tax positions and no amounts have been recognized in the Company’s consolidated statements of operations. Due to NOLs and tax credit carryforwards that remain unutilized, income tax returns for tax years from all years remain subject to examination by the taxing jurisdictions. The NOL carryforwards remain subject to review until utilized.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.