EXPAND ENERGY CorpEXE

EXPAND ENERGY Corp Income Taxes Disclosure

10-KFiled Feb 18, 20267 min read
9.Income Taxes
The components of the income tax expense (benefit) for each of the periods presented below are as follows:
Years Ended December 31,
202520242023
Current Tax Expense (Benefit)
US Federal$8 $(1)$264 
US State and Local7 (3)6 
Total Current Tax Expense (Benefit)15 (4)270 
Deferred Tax Expense (Benefit)
US Federal410 (178)381 
US State and Local38 55 47 
Total Deferred Tax Expense (Benefit)448 (123)428 
Total Income Tax Expense (Benefit)
US Federal418 (179)645 
US State and Local45 52 53 
Total Income Tax Expense (Benefit)$463 $(127)$698 
The income tax expense (benefit) reported in our consolidated statement of operations is different from the federal income tax expense (benefit) computed using the federal statutory rate for the following reasons:
Years Ended December 31,
202520242023
U.S. Federal Statutory Tax Rate$479 21.0 %$(177)21.0 %$655 21.0 %
State and Local Income Taxes, Net of Federal Income Tax Effect(a)
42 1.8 %29 (3.4)%51 1.6 %
Tax credits
Research and development tax credits(46)(2.0)%(32)3.8 %(10)(0.3)%
Changes in Valuation Allowances11 0.5 %9 (1.1)%(28)(0.9)%
Nontaxable or nondeductible items
Merger Related Costs(21)(0.9)%33 (3.9)%— — %
Other3 0.1 %1 (0.1)%3 0.1 %
Changes in Unrecognized Tax Benefits— — %— — %6 0.2 %
Other adjustments
Return to provision(35)(1.5)%— — %(16)(0.5)%
Capital loss expirations30 1.3 %5 (0.6)%26 0.8 %
Other— — %5 (0.6)%11 0.4 %
Effective Tax Rate$463 20.3 %$(127)15.1 %$698 22.4 %
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(a)State taxes in Louisiana, Pennsylvania and West Virginia made up the majority (greater than 50 percent) of the tax effect in this category.
In 2025, the Company’s overall effective tax rate increased compared to 2024 due to the prior year’s deferred remeasurement due to Louisiana law change and also the impact of the merger costs. Due to the prior year pre-tax loss, these items caused the effective tax rate to be lower than the statutory national rate. The Company’s effective tax rate in 2024 decreased from 2023 due to the aforementioned remeasurement due to Louisiana’s law change. The return to provision adjustment in 2025 includes the impact of tax basis and attribute true ups from filing the final Southwestern tax returns during the year.
Deferred income taxes are provided to reflect temporary differences in the tax basis of assets and liabilities and their reported amounts in the financial statements. The tax-effected temporary differences, net operating loss (“NOL”) carryforwards and excess business interest expense carryforwards that comprise our deferred income taxes are as follows:
December 31, 2025December 31, 2024
Deferred tax liabilities:
Property, plant and equipment$(2,250)$(1,730)
Derivative instruments(72)— 
Investments(82)— 
Contracts(71)— 
Right of use lease asset(24)(36)
Other(5)(3)
Deferred tax liabilities(2,504)(1,769)
Deferred tax assets:
Net operating loss carryforwards1,613 1,258 
Carrying value of debt1 4 
Excess business interest expense carryforward654 777 
Capital loss carryforwards70 103 
Tax credit carryforwards107 53 
Contract liabilities286 261 
Asset retirement obligations169 123 
Future lease payments25 36 
Accrued liabilities22 39 
Derivative instruments— 13 
Other32 24 
Deferred tax assets2,979 2,691 
Valuation allowance(344)(343)
Deferred tax assets after valuation allowance2,635 2,348 
Net deferred tax asset$131 $579 
Reflected in the accompanying balance sheets as:
Deferred income tax assets$168 $589 
Other long-term liabilities(37)(10)
Total$131 $579 

As of December 31, 2025 and 2024, we had deferred tax assets of $2.979 billion and $2.691 billion, respectively, upon which we had a valuation allowance of $344 million and $343 million, respectively.

We maintain a partial valuation allowance of $344 million against a portion of our federal and state deferred tax assets such as NOLs, credit carryovers, and capital losses, which may expire before we are able to utilize them due to the application of the limitations under Section 382 and the ordering in which such attributes may be applied.
Our ability to utilize NOL carryforwards, disallowed business interest carryforwards, tax credits and possibly other tax attributes to reduce future taxable income and federal income tax is subject to various limitations under Section 382 of the Code. The utilization of such attributes may be subject to an annual limitation under Section 382 of the Code should transactions involving our equity result in a cumulative shift of more than 50% in the beneficial ownership of our stock during any three-year testing period (an “Ownership Change”).
The Company experienced an Ownership Change in 2021 and as a result of the Southwestern Merger on October 1, 2024. As a result, certain limitations apply to our NOL carryforwards, disallowed business interest
carryforwards and general business credits. Some states impose similar limitations on tax attribute utilization upon experiencing an Ownership Change. Accordingly, our deferred tax asset position is reflective of such limitations.
On October 1, 2024, we completed the Southwestern Merger. For federal income tax purposes, the transaction qualified as a tax-free merger under Section 368 of the Code and, as a result, we acquired carryover tax basis in Southwestern’s assets and liabilities. We recorded a $479 million net deferred tax liability determined through business combination accounting. Additionally, we acquired NOL and interest expense carryforwards which were previously subject to base annual Section 382 limitations of $2 million and $48 million. The acquired NOL and interest expense carryforwards that were not previously subject to a base annual Section 382 limitation are now subject to a base annual Section 382 limitation of approximately $269 million as a result of the merger. The base annual limitation is estimated to be increased over the first five years for recognized built-in gains.

As of December 31, 2025, and after taking into account each of the foregoing matters, the federal NOLs are as follows:

Net operating losses, by year of expiration:
2031$9 
20323 
20332 
20342 
203579 
2036642 
2037726 
Indefinitely lived5,302 
Total federal net operating losses$6,765 
We had state NOL carryforwards of approximately $4.818 billion. Several states adopt the federal NOL carryforward period such that our more recent state NOLs do not expire. The state NOL carryforwards are subject to apportioned amounts of the federal Section 382 limitations.
As of December 31, 2025 and 2024, we have an income tax receivable of $83 million and $32 million included in other current assets within our consolidated balance sheets, respectively.
On July 4, 2025, the current Presidential Administration signed into law the One Big Beautiful Bill Act (the “OBBBA”). This bill restores 100% bonus depreciation for property acquired and placed into service after January 19, 2025, restores the immediate expensing of research expenditures, and provides for parity between the treatment of intangible drilling costs and depreciation for purposes of the CAMT. The enactment of the OBBBA did not impact beginning of the year deferred tax balances, as there was no change in the applicable tax rate. However, the OBBBA and its provisions contributed to a reduction in the Company’s expected current tax expense and is expected to have a material reduction to tax expense in future years.
Accounting guidance for recognizing and measuring uncertain tax positions requires a more likely than not threshold condition be met on a tax position, based solely on the technical merits of being sustained, before any benefit of the tax position can be recognized in the financial statements. Guidance is also provided regarding recognition, classification and disclosure of uncertain tax positions. If recognized, $31 million of the uncertain tax positions identified would have an effect on the effective tax rate. As of December 31, 2025, we had $2 million accrued for interest related to these uncertain tax positions. As of December 31, 2024, we had $1 million accrued for interest related to these uncertain tax positions. We recognize interest related to uncertain tax positions as a component of interest expense. Penalties, if any, related to uncertain tax positions would be recorded in other expenses.
A reconciliation of the beginning and ending balances of unrecognized tax benefits is as follows:
Years Ended December 31,
202520242023
Balance at January 1$80 $68 $69 
Additions based on tax positions related to the current year7 3 3 
Additions to tax positions of prior years1 1 3 
Additions to tax positions related to acquisitions— 9 — 
Settlements— — (5)
Reductions to tax positions of prior years(24)(1)(2)
Balance at December 31$64 $80 $68 
Our federal and state income tax returns are subject to examination by federal and state tax authorities. Our tax years 2022 through 2025 remain open for all purposes of examination by the IRS as well as the Southwestern 2022 through 2023 returns, and the Southwestern short period return for January 1, 2024 through October 1, 2024. However, certain earlier tax years remain open for adjustment to the extent of their NOL carryforwards available for future utilization.
In addition, tax years 2022 through 2025 as well as certain earlier years remain open for examination by state tax authorities. We do not anticipate that the outcome of any federal or state audit will have a significant impact on our financial position or results of operations.

Historical Timeline

Fiscal YearFiled
2025Feb 18, 2026Showing above
2024Feb 26, 2025
2023Feb 21, 2024
2022Feb 22, 2023
2021Feb 24, 2022
2020Mar 1, 2021
2019Feb 27, 2020
2018Feb 27, 2019
2017Feb 22, 2018
2016Mar 3, 2017
2015Feb 25, 2016

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.

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