Denali Therapeutics Inc.DNLI
Denali Therapeutics Inc. Income Taxes Disclosure
Income Taxes
The provision for income taxes consisted of the following (in thousands):
| Year Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Current: | |||||||||||||||||
| U.S. Federal | $ | — | $ | — | $ | — | |||||||||||
| U.S. State | — | — | — | ||||||||||||||
| Foreign | 102 | 68 | 30 | ||||||||||||||
| Total Current | $ | 102 | $ | 68 | $ | 30 | |||||||||||
| Deferred: | |||||||||||||||||
| U.S. Federal | $ | — | $ | — | $ | — | |||||||||||
| U.S. State | — | — | — | ||||||||||||||
| Foreign | — | — | — | ||||||||||||||
| Total deferred | $ | — | $ | — | $ | — | |||||||||||
Total provision for income taxes | $ | 102 | $ | 68 | $ | 30 | |||||||||||
The reconciliation of federal statutory income tax rate to our effective income tax rate is as follows:
| Year Ended December 31, | |||||||||||||||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||||||||||||||
(In thousands, except percentages) | Amount | Rate | Amount | Rate | Amount | Rate | |||||||||||||||||||||||
Taxes at the U.S. statutory tax rate of 21% | $ | (107,612) | 21.0 | % | $ | (88,531) | 21.0 | % | $ | (30,490) | 21.0 | % | |||||||||||||||||
State income taxes, net of federal tax benefit | 1,516 | (0.3) | — | — | — | — | |||||||||||||||||||||||
Foreign tax effects | 51 | — | 15 | — | 27 | — | |||||||||||||||||||||||
Effective of cross-border tax laws | 80 | — | 70 | — | 908 | (0.6) | |||||||||||||||||||||||
Change in valuation allowance | 124,243 | (24.2) | 106,498 | (25.3) | 37,886 | (26.1) | |||||||||||||||||||||||
Tax Credits | |||||||||||||||||||||||||||||
Research Tax Credit | (21,990) | 4.3 | (24,660) | 5.9 | (23,011) | 15.9 | |||||||||||||||||||||||
Effect of changes in tax laws or rates enacted in the current period | — | — | — | — | — | — | |||||||||||||||||||||||
Nontaxable or Nondeductible items | |||||||||||||||||||||||||||||
Stock-based compensation | 6,286 | (1.2) | 9,579 | (2.3) | 5,777 | (4.0) | |||||||||||||||||||||||
Nondeductible acquisition - related costs | — | — | — | — | 5,040 | (3.5) | |||||||||||||||||||||||
Other | 261 | (0.1) | (2,930) | 0.7 | 220 | (0.2) | |||||||||||||||||||||||
Changes in UTB | (1,573) | 0.3 | 173 | — | 401 | (0.3) | |||||||||||||||||||||||
Other | (1,160) | 0.2 | (146) | — | 3,273 | (2.3) | |||||||||||||||||||||||
Total provision for income taxes | $ | 102 | — | % | $ | 68 | — | % | $ | 30 | — | % | |||||||||||||||||
On July 4, 2025, the U.S. enacted tax reform legislation through the One Big Beautiful Bill Act (“OBBBA”). Included in this legislation are provisions that allow for the immediate expensing of domestic research and development expenses, immediate expensing of certain capital expenditures, and other changes to the U.S. taxation of profits derived from foreign operations. The legislation has multiple effective dates, with certain provisions effective in the current fiscal period and others in the fiscal year ending December 31, 2026. OBBBA did not have a material impact to the Company’s consolidated financial statements for the year ended December 31, 2025.
Deferred Income Taxes
The components of the Company’s net deferred tax assets are as follows (in thousands):
| December 31, | |||||||||||
| 2025 | 2024 | ||||||||||
Deferred tax assets: | |||||||||||
| Net operating loss carryforwards | $ | 229,535 | $ | 113,397 | |||||||
| Tax credit carryforwards | 155,334 | 124,922 | |||||||||
| Research expense capitalization | 161,588 | 176,094 | |||||||||
Lease liabilities | 9,819 | 11,760 | |||||||||
| Stock-based compensation | 67,511 | 57,766 | |||||||||
Fixed assets | 8,588 | 6,671 | |||||||||
| Accruals and other | 14,111 | 13,447 | |||||||||
| Gross deferred tax assets | 646,486 | 504,057 | |||||||||
| Valuation allowance | (630,806) | (487,714) | |||||||||
| Net deferred tax assets | 15,681 | 16,343 | |||||||||
| Deferred tax liabilities: | |||||||||||
Lease right-of-use assets | (15,681) | (16,343) | |||||||||
| Net deferred tax assets | $ | — | $ | — | |||||||
Recognition of deferred tax assets is appropriate when realization of such assets is more likely than not. Based upon the weight of available evidence, especially the uncertainties surrounding the realization of deferred tax assets through future taxable income, the Company believes it is not more likely than not that the deferred tax assets will be fully realizable. Accordingly, the Company has provided a full valuation allowance against its net deferred tax assets as of December 31, 2025 and 2024. There was an increase in the net valuation allowance of $143.1 million during the year ended December 31, 2025.
As of December 31, 2025, the Company has federal net operating loss (“NOL”) carryforwards of approximately $964.9 million, which are available to reduce future taxable income, and has federal R&D and orphan drug tax credits of approximately $73.8 million and $75.0 million respectively, both of which may be used to offset future tax liabilities. The federal NOL and federal tax credit carryforwards will begin to expire in 2034. The Company also has state NOL carryforwards of approximately $398.4 million, which are available to reduce future taxable income, and has state tax credits of approximately $55.1 million which may be used to offset future tax liabilities. The state NOL will begin to expire in 2031 and the state tax credit carryforwards will be carried forward indefinitely.
The NOL and tax credit carryforwards are subject to review and possible adjustment by the Internal Revenue Service (“IRS”) and state tax authorities and may become subject to an annual limitation in the event of certain future 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 of 1986. This could limit the amount of tax attributes that can be utilized annually to offset future taxable income or tax liabilities. Annual limitations may result in expiration of net operating loss and tax credit carryforwards before some or all of such amounts have been utilized.
The Company follows the provisions of ASC 740, Accounting for Income Taxes, and the accounting guidance related to accounting for uncertainty in income taxes. The Company determines its uncertain tax positions based on a determination of whether and how much of a tax benefit taken by the Company in its tax filings is more likely than not to be sustained upon examination by the relevant income tax authorities.
A reconciliation of the beginning and ending amounts of unrecognized tax benefits is as follows (in thousands):
| December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
Unrecognized tax benefits at January 1 | $ | 33,761 | $ | 26,175 | $ | 19,371 | |||||||||||
Additions for tax positions taken in a prior year | 169 | 162 | 168 | ||||||||||||||
Additions for tax positions taken in the current year | 7,475 | 7,424 | 6,636 | ||||||||||||||
Reductions for tax positions taken in the prior year | (2,100) | — | — | ||||||||||||||
Audit settlements | (53) | $ | — | $ | — | ||||||||||||
Unrecognized tax benefits at December 31 | $ | 39,252 | $ | 33,761 | $ | 26,175 | |||||||||||
If recognized, none of the unrecognized tax benefits would reduce the effective tax rate for the year ended December 31, 2025. The Company will recognize both accrued interest and penalties related to unrecognized benefits in income tax expense. As of December 31, 2025, no liability has been recorded for potential interest or penalties. The Company does not expect the unrecognized tax benefits to change significantly over the next 12 months.
The Company’s 2015 to 2025 tax years remain subject to examination in the United States and California due to tax attributes and statutes of limitations. The Company remains subject to possible examination in various other jurisdictions that are not expected to result in material tax adjustments.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 26, 2026 | Showing above |
| 2024 | Feb 27, 2025 | |
| 2023 | Feb 28, 2024 | |
| 2022 | Feb 27, 2023 | |
| 2021 | Feb 28, 2022 | |
| 2020 | Feb 26, 2021 | |
| 2019 | Feb 27, 2020 | |
| 2018 | Mar 12, 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.