Ensysce Biosciences, Inc. Income Taxes Disclosure

NOTE 11 - INCOME TAXES

 

Loss before provision for income taxes consisted of the following:

 SCHEDULE OF INCOME TAXES BENEFIT

		Year ending December 31,
		2025				2024
United States		$	(10,176,187	)		$	(7,987,009	)

 

The Company has not recorded a current or deferred tax expense or benefit, nor has it paid cash income taxes or received cash income tax refunds from any jurisdiction for the years ended December 31, 2025 or 2024.

 

 

The effective tax rate of the Company’s provision (benefit) for income taxes differs from the federal statutory rate as follows:

 SCHEDULE OF FEDERAL INCOME TAX RATE RECONCILIATION

Nontaxable or nondeductible items:
		Year ending December 31,
		2025								2024
Income taxes (benefit) at statutory rates		$	(2,136,999	)			21.0	%		$	(1,677,271	)			21.0	%
State and local income taxes, net of federal benefit *			(8,188	)			0.1				(7,848	)			0.1
Tax credits:			–
R&D credits			(510,959	)			5.0				(529,890	)			6.6
Change in valuation allowance			1,987,393				(19.5	)			1,846,380				(23.1	)
Nontaxable or nondeductible items:
Permanent items			26,033				(0.3	)			46,173				(0.6	)
Changes in unrecognized tax benefits			135,928				(1.3	)			139,627				(1.7	)
Other, net:
Expiration of attributes			506,099				(5.0	)			182,137				(2.3	)
Other			693				–				692				–
Provision for income taxes		$	–				0.0	%		$	–				0.0	%

 

*

State taxes in California made up the majority (greater than 50%) of the tax effect in this category for 2025 and 2024.

 

Deferred income taxes reflect the net tax effects of (a) temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, and (b) operating losses and tax credit carryforwards.

 

The Company’s deferred tax assets were comprised of the following:

 SCHEDULE OF DEFERRED TAX ASSETS

		2025				2024
		As of December 31,
		2025				2024
Deferred tax assets:
Net operating loss tax carryforwards		$	32,769,238			$	29,728,009
Tax credits			5,620,329				5,212,263
Capitalized research costs			3,255,201				4,655,425
Stock-based compensation			741,865				729,318
Other			81,455				36,630
Gross deferred tax assets			42,468,088				40,361,645
Valuation allowance			(42,463,797	)			(40,361,645	)
Total deferred tax assets			4,291				–
Deferred tax liabilities:
Fixed assets			(4,291	)			–
Total deferred tax liabilities			(4,291	)			–
Net deferred tax assets		$	–			$	–

 

 

A valuation allowance of approximately $42.5 million as of December 31, 2025 has been established to offset the deferred tax assets as the Company has determined that it is not more likely than not that these assets will be realized. The valuation allowance increased by approximately $2.1 million during 2025.

 

As of December 31, 2025, the Company had federal and California net operating loss (NOL) carryforwards of $130.5 million and $76.9 million, respectively, net of the NOLs that will expire due to Internal Revenue Code (IRC) Section 382 limitations. The federal net operating losses generated in 2018 and after of $51.3 million will carryforward indefinitely and be available to offset up to 80% of future taxable income each year. The federal net operating losses generated prior to 2018 of $79.1 million will begin to expire in 2026 unless previously utilized. The California NOL carryforwards will begin to expire in 2028, unless previously utilized.

 

In addition, as of December 31, 2025, the Company had federal and state research and development (R&D) tax credit carryforwards of $6.1 million and $1.7 million, respectively. The federal tax credit carryforwards will begin to expire in 2026 unless previously utilized. The California research tax credits do not expire.

 

Pursuant to IRC Sections 382 and 383, annual use of the Company’s NOL and R&D credit carryforwards may be limited in the event that a cumulative change in ownership of more than 50% occurs within a three-year period. Although the Company has not completed an IRC Section 382/383 analysis regarding the limitation of NOL and R&D credit carryforwards as of December 31, 2025, the Company estimates that approximately $1.5 million of tax benefits related to NOL and R&D carryforwards acquired in 2015 will expire unused. Accordingly, the related NOL and R&D credit carryforwards have been removed from deferred tax assets accompanied by a corresponding reduction of the valuation allowance. Due to the existence of the valuation allowance, limitations created by current and future ownership changes, if any, related to the Company’s operations in the United States will not impact its effective tax rate. Any additional ownership changes may further limit the ability to use the NOL and R&D credit carryforwards.

 

The following table summarizes the activity related to the Company’s unrecognized tax benefits:

 SCHEDULE OF UNRECOGNIZED TAX BENEFITS

		2025				2024
		Year ending December 31,
		2025				2024
Balance at beginning of year		$	1,826,993			$	1,685,360
Increases related to current year tax positions			165,811				141,023
Increases related to prior year tax positions			–				1,054
Decreases related to prior year tax positions			(27,587	)			(444	)
Balance at end of year		$	1,965,217			$	1,826,993

 

As of December 31, 2025 and 2024, the Company had unrecognized tax benefits of $2.0 million and $1.8 million, respectively. Due to the existence of the valuation allowance, none of the unrecognized tax benefits would affect the effective tax rate. The Company’s policy is to recognize interest and penalties from uncertain tax positions in income tax expense. The Company did not record any interest or penalties for the years ended December 31, 2025 or 2024 and had no accrued interest on the consolidated balance sheets as of December 31, 2025 or 2024.

 

The Company and its subsidiaries are subject to U.S. federal income tax as well as income tax in multiple state jurisdictions. With few exceptions, the Company is no longer subject to United States federal income tax examinations for years before 2022 and state and local income tax examinations before 2021. However, to the extent allowed by law, the tax authorities may have the right to examine prior periods where net operating losses were generated and carried forward, and make adjustments up to the amount of the NOL carryforward amount. The Company is not currently under examination by the Internal Revenue Service or any state or local tax authority.

 

On July 4, 2025, the One Big Beautiful Bill Act (“OBBBA”) was signed into law, which enacts significant changes to U.S. tax and related laws. Some of the provisions of the new tax law affecting corporations include, but are not limited to, expensing of domestic research expenses, increasing the limit of the deduction of interest expense deduction to thirty percent of EBITDA, and one hundred percent bonus depreciation on eligible property acquired after January 19, 2025. The provisions of the OBBBA became effective for the Company during the three months ended September 30, 2025. The new tax law did not have a material impact on the Company’s current or future effective rate for income taxes or cash taxes paid.