Evommune, Inc. Income Taxes Disclosure

10. Income Taxes

For the years ended December 31, 2025 and 2024 the Company was not required to pay, and did not pay, federal or state income taxes. A reconciliation of the Company's statutory income tax rate to the Company's effective income tax rate is as follows:

As of December 31, 2025 and 2024, the Company had federal net operating loss ("NOL") carryforwards of $44.1 million and $38.5 million, respectively, which can be carried forward indefinitely. As of December 31, 2025 and 2024, the Company had state NOL carryforwards of $38.8. The state NOL carryforwards begin to expire in 2040.

As of December 31, 2025 and 2024, the Company also has federal tax credits of $6.5 million and $4.2 million, respectively, which begin to expire in 2040, and state tax credits of $1.6 million and $1.2 million, respectively, which do not expire.

Future realization of the tax benefits of existing temporary differences and net operating loss carryforwards ultimately depends on the existence of sufficient taxable income within the carryforward period. As of December 31, 2025 and 2024, the Company performed an evaluation to determine whether a valuation allowance was needed. The Company considered all available evidence, both positive and negative, which included the results of operations for the current and preceding years. The Company determined that it was not possible to reasonably quantify future taxable income and determined that it is more likely than not that all of the deferred tax assets will not be realized. Accordingly, the Company maintained a full valuation allowance as of December 31, 2025 and 2024.

Under Internal Revenue Code Section 382, if a corporation undergoes an “ownership change,” the corporation’s ability to use its pre-change NOL carryforwards and other pre-change tax attributes to offset its post-change income may be limited. The Company completed a formal Section 382 study that determined an “ownership change” had occurred in August 2021 and November 2025, which limits the Company’s ability to utilize its then existing tax attributes. The Company expects to be able to utilize all of its pre-change and post change federal NOL carryforwards and as such, has not recorded a deferred tax asset reduction. With regard to state NOLs and federal tax credits, the section 382 limitation should not prevent the full utilization of these attributes, provided the Company generates sufficient future taxable income to utilize these attribute before they expire. Tax losses generated since the Company’s inception in 2020 may be used to offset only 80% of taxable income and carryforward indefinitely, which may require the Company to pay federal income taxes in future years despite generating a loss for federal income tax purposes in prior years. Future changes in the Company's stock ownership, which may be outside of the Company's control, may trigger an “ownership change.” In addition, future equity offerings or acquisitions that have equity as a component of the purchase price could result in an “ownership change.” If an additional “ownership change” does occur in the future, utilization of the NOL carryforwards or other tax attributes may be limited, which could potentially result in increased future tax liability to the Company.

The calculation of the Company's tax liabilities involves dealing with uncertainties in the application of complex tax laws and regulations for both federal taxes and the many states in which the Company operates or does business in. ASC 740 states that a tax benefit from an uncertain tax position may be recognized when it is more likely than not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, on the basis of the technical merits.

The Company records uncertain tax positions as liabilities in accordance with ASC 740 and adjust these liabilities when the Company's judgment changes as a result of the evaluation of new information not previously available. Because of the complexity of some of these uncertainties, the ultimate resolution may result in a payment that is materially different from the Company's current estimate of the unrecognized tax benefit liabilities. These differences will be reflected as increases or decreases to income tax expense in the period in which new information is available. As of December 31, 2025 and 2024, the Company has recorded unrecognized tax benefits and if recognized would not impact the effective tax rate and has not recognized any interest or penalties related to unrecognized tax benefits.

The Company files tax returns as prescribed by the tax laws of the jurisdictions in which it operates. In the normal course of business, the Company is subject to examination by federal and state jurisdictions, where applicable. There are currently no pending tax examinations. The Company’s tax years are still open under statute from December 31, 2020, to the present.