Oncology Institute, Inc.TOI
Oncology Institute, Inc. Income Taxes Disclosure
Income Taxes
The components of the provision (benefit) for income taxes consists of:
| (in thousands) | Current | Deferred | Total | ||||||||||||||
| Year ended December 31, 2024: | |||||||||||||||||
| U.S. federal | $ | — | $ | — | $ | — | |||||||||||
| State and local | — | — | — | ||||||||||||||
| $ | — | $ | — | $ | — | ||||||||||||
| (in thousands) | Current | Deferred | Total | ||||||||||||||
| Year ended December 31, 2023: | |||||||||||||||||
| U.S. federal | $ | 83 | $ | 2 | $ | 85 | |||||||||||
| State and local | (43) | (78) | (121) | ||||||||||||||
| $ | 40 | $ | (76) | $ | (36) | ||||||||||||
The Company’s income tax expense differs from the amount that would have resulted from applying the federal statutory rate of 21% to pretax income from operations because of the effect of the following items:
| (in thousands) | Year Ended December 31, | ||||||||||
| 2024 | 2023 | ||||||||||
| Income tax at federal statutory rate | $ | (13,579) | $ | (17,432) | |||||||
| State tax, net federal benefit | — | (62) | |||||||||
| Meals and entertainment | 36 | 20 | |||||||||
| Transaction costs | — | 30 | |||||||||
| Fines and penalties | 11 | — | |||||||||
| Stock based compensation | 5,095 | 1,970 | |||||||||
| Warrant expense | (130) | 60 | |||||||||
| Earnout expense | — | (169) | |||||||||
| 162(m) Analysis | — | 4 | |||||||||
| 162(m) Deferred haircut | (387) | 131 | |||||||||
| 163(l) Interest expense limitation | 2,264 | 2,242 | |||||||||
| DFP derivative expense | (566) | (184) | |||||||||
| Prior year deferred true-ups | 19 | (224) | |||||||||
| Amended return | — | 40 | |||||||||
| Change in valuation allowance | 7,232 | 13,538 | |||||||||
| Other | 5 | — | |||||||||
| Income tax (benefit) expense | $ | — | $ | (36) | |||||||
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 2024 and 2023 are presented below.
| (in thousands) | December 31, 2024 | December 31, 2023 | |||||||||
| Deferred tax assets: | |||||||||||
| Accrued Expenses | $ | 1,190 | $ | 1,204 | |||||||
| Net operating loss carryforwards | 53,419 | 40,359 | |||||||||
| Deferred revenue | 683 | 160 | |||||||||
| Stock based compensation | 1,351 | 4,969 | |||||||||
| Charitable contributions | 2 | 1 | |||||||||
| Tenant improvement allowance | — | (21) | |||||||||
| ROU Lease liability | 8,522 | 9,446 | |||||||||
| Financing lease liability | 229 | 261 | |||||||||
| Unrealized gain/loss | 1 | 42 | |||||||||
| Intangibles | 7,386 | 7,736 | |||||||||
| Total gross deferred tax assets | 72,783 | 64,157 | |||||||||
| Valuation allowance | (63,595) | (53,979) | |||||||||
| Net deferred tax assets | $ | 9,188 | $ | 10,178 | |||||||
| Deferred tax liabilities: | |||||||||||
| Property, plant, and equipment | $ | (1,688) | $ | (1,595) | |||||||
| ROU Asset | (7,290) | (8,363) | |||||||||
| Financial lease asset | (293) | (261) | |||||||||
| IRC 174 expenditures | 51 | 9 | |||||||||
| Total gross deferred liabilities | $ | (9,220) | $ | (10,210) | |||||||
| Net deferred tax liabilities | $ | (32) | $ | (32) | |||||||
The valuation allowance for deferred tax assets as of December 31, 2024 and 2023, was $63,595 and $53,979, respectively. The net change in the total valuation allowance was an increase of $9,616 in 2024 and an increase of $19,064 in 2023.
The valuation allowance at December 31, 2024 was primarily related to net operating loss carryforwards of TOI, Inc., TOI CA, TOI FL, TOI OR, and TOI TX, that, in the judgment of management, are not more likely than not to be realized. Similar to 2023, TOI Inc., TOI CA, TOI FL, TOI OR, and TOI TX will continue to file a consolidated 2024 federal return and state income tax return. Accordingly, net operating losses of TOI CA, TOI FL, TOI OR, and TOI TX can offset taxable income of TOI Parent for federal and state tax purposes. Deferred tax assets and deferred tax liabilities have been separately determined for all groups, as has the valuation allowance assessment for each. The table above reflects the combined deferred tax assets, deferred tax liabilities, and valuation allowance for TOI Inc., TOI CA, TOI FL, TOI OR, and TOI TX. Of the $63,595 total valuation allowance, $45,673 is attributable to the Federal Group, $2,532 is attributable to TOI Parent, $15,289 is attributable to TOI CA, $99 is attributable to TOI FL, and $2 to TOI OR.
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities (including the effect of available carry back and carryforward periods), projected future taxable income, and tax-planning strategies in making this assessment. Based upon the level of historical taxable income and projections for future taxable income over the periods in which the deferred tax assets are deductible, management believes it is more likely than not that the Company will not realize the benefits of these deductible differences, net of the existing valuation allowances at December 31, 2024.
At December 31, 2024, the Company has net operating loss carryforwards for Federal income tax purposes of $184,836, with $179,226 attributable to the Practice and $5,610 attributable to TOI Parent, which are available to offset future Federal taxable income of the Practice and Parent indefinitely. The Company has net operating loss carryforwards for state income tax purposes of $175,187, of which $163,012 is attributable to the Practice and will begin to expire after 2040, and $12,175 is attributable to Parent and will begin to expire after 2041.
Pursuant to Section 382 of the Internal Revenue Code of 1986, as amended, or the Code, and corresponding provisions of state law, if a corporation undergoes an “ownership change” (very generally defined as a greater than 50% change, by value, in the corporation’s equity ownership by certain stockholders or groups of stockholders over a rolling three-year period), the corporation’s ability to use its pre-ownership change NOLs to offset its post-ownership change income may be limited. In 2022 and 2023, we completed an ownership change analysis pursuant to IRC Section 382 of the Code for the period from September 10, 2018 through taxable year ended December 31, 2021 and from January 1, 2022 through taxable year ended December 31, 2023 in which we determined that the Company did not experience an ownership change. We do not anticipate a change in ownership during the year ended December 31, 2024. Additionally, we may experience ownership changes in the future as a result of subsequent shifts in our stock ownership, some of which may be outside of our control. If it is determined that an ownership change has occurred as a result of the Business Combination or we undergo an ownership change in the future, we may be prevented from fully utilizing our NOLs existing at the time of the ownership change prior to their expiration.
The deferred tax asset associated with the Company’s federal and state net operating losses are fully offset by a valuation allowance. Due to the existence of the valuation allowance, future changes in the Company’s unrecognized tax benefits will not impact its effective tax rate. A summary of the changes in the amount of unrecognized tax benefits (excluding interest and penalties) for 2024 and 2023 is as follows:
| (in thousands) | December 31, 2024 | December 31, 2023 | |||||||||
| Beginning balance of unrecognized tax benefits | $ | 99 | $ | 99 | |||||||
| Additions based on tax positions related to the current year | — | — | |||||||||
| Reductions based on tax positions of prior years | — | — | |||||||||
| Reductions due to lapse of applicable statute of limitation | — | — | |||||||||
| Settlements | — | — | |||||||||
| Ending balance of unrecognized tax benefits | $ | 99 | $ | 99 | |||||||
The Company does not anticipate a significant change in the amount of its unrecognized tax within the next 12 months. The Company recognizes interest and penalties related to unrecognized tax benefits in income tax expense. Due to the Company’s NOL position, no interest or penalties have been recognized with respect to unrecognized tax benefits, as such amounts are considered immaterial. The Company includes unrecognized tax benefits within other non-current liabilities on its consolidated balance sheet.
The Company is subject to taxation in the U.S., California, Arizona, Florida, Oregon, and Texas. As of December 31, 2024, the statute of limitations remains open for tax year 2020 through the current year.
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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.