Fortress Biotech, Inc. Income Taxes Disclosure

17. Income Taxes

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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 components of the income tax provision are as follows:

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For the years ended December 31, 2025 and 2024, income tax expense (benefit) was ($0.6) million and $0.3 million, respectively, resulting in an effective income tax rate of 1.9% and -0.2%. The income tax benefit in 2025 is primarily driven by uncovered deferred tax liabilities related to investments in subsidiaries, state income taxes and state uncertain tax positions, and interest that rolled off and accrued related to a prior-year uncertain tax position.  

The Company has incurred net operating losses since inception. The Company has not reflected any benefit of such net operating loss carryforwards (“NOL”) in the accompanying Consolidated Financial Statements and has established a valuation allowance of $294.1 million against its net deferred tax assets. 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 significant components of the Company’s deferred taxes consist of the following:

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The Company adopted ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, on a prospective basis. As a result, the 2025 rate reconciliation is presented in accordance with the new disclosure requirements, while the 2024 reconciliation continues to be presented under the disclosure requirements in effect for that period.

A reconciliation of income tax computed at the federal statutory rate to the provision for income taxes pursuant to the disclosure requirements of ASU 2023-09 for the year ended December 31, 2025, was as follows:

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A reconciliation of the statutory tax rates and the effective tax rates for the year ended December 31, 2024 is as follows:

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The Company files a consolidated income tax return with subsidiaries in which the Company has an 80% or greater ownership interest. Subsidiaries and partner companies in which the Company does not have an 80% or more ownership are not included in the Company’s consolidated income tax group and file their own separate income tax return. As a result, certain corporate entities included in these financial statements are not able to combine or offset their taxable income or losses with other entities’ tax attributes.

ASC 740 requires a valuation allowance to reduce the deferred tax assets reported if, based on the weight of all positive and negative evidence, it is more likely than not that some portion, or all, of the deferred tax assets will not be realized. Realization of the deferred tax assets is substantially dependent on the Company’s ability to generate sufficient taxable income within certain future periods. Management has considered the Company’s history of cumulative tax and book losses incurred since inception, and the other positive and negative evidence, and has concluded that it is more likely than not that the Company will not realize the benefits of the net deferred tax assets as of December 31, 2025 and 2024. Accordingly, a full valuation allowance has been established against the net deferred tax assets as of December 31, 2025 and 2024. The valuation allowance decreased by a net $83.9 million during the current year.

The Company has incurred net operating losses (“NOLs”) since inception. At December 31, 2025, the Company had federal NOLs of $659.4 million, which will begin to expire in the year 2032, state NOLs of $1,130.7 million, which will begin to expire in 2026, and federal income tax credits of $30.1 million and state income tax credits of $5.1 million, which will begin to expire in 2028. Approximately $496.1 million of the federal NOLs and $24.2 million of the state NOLs can be carried forward indefinitely. Under the provisions of Section 382 of the Internal Revenue Code, a corporation that undergoes an “ownership change”, as defined therein, is subject to limitations on its use of pre-change NOLs and income tax credits carryforwards to offset future tax liabilities. It appears the Company underwent previous ownership changes potentially limiting its use of tax attributes. The Company has recorded a full valuation allowance on all of its deferred tax assets, as it believes that it is more likely than not that the deferred tax assets will not be realized regardless of whether an “ownership change” has occurred.

In accordance with the provisions related to accounting for uncertainty in income taxes, the Company recognizes the benefit of tax position if the position is “more likely than not” to prevail upon examination by the relevant tax authority.  The table below sets forth a reconciliation of the beginning and ending amount of unrecognized tax benefits:

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For the year ended December 31, 2025, the Company has $1.0 million of unrecognized tax benefits. If the $1.0 million of unrecognized tax benefits is recognized, approximately $0.2 million would affect the effective tax rate. At this time, the estimate of the range of the reasonably possible outcomes cannot be made.

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The Company classifies interest and penalties related to uncertain tax positions as income tax expense. The Company has accrued for $0.1 million and approximately $0.2 million of such interest as of December 31, 2025 and 2024, respectively. No penalties have been accrued for. The NOLs from tax years 2012 through 2024 remain open to examination (and adjustment) by the Internal Revenue Service and state taxing authorities. In addition, due to net operating losses, all federal tax years dating back to 2012 remain open for the assessment of income taxes. The expiration of the statute of limitations for state income and franchise tax returns varies by state.

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On July 4, 2025, President Donald J. Trump signed the “One Big Beautiful Bill Act” (OBBBA) into law. Key corporate tax provisions include the restoration of 100% bonus depreciation, immediate expensing for domestic research and experimental expenditures, changes to interest limitation rules, and expanded aggregation requirements for compensation deductibility limits. In accordance with ASC 740, the Company recognized the effects of the new tax law in the period enacted. As a result, the Company immediately expensed current-year domestic research and experimental expenditures and elected to continue amortizing its existing domestic capitalized research and experimental expenditures over their remaining useful lives. Urica Therapeutics, Inc. and Cyprium Therapeutics, Inc., however, elected to accelerate amortization of the previously unamortized costs over one-year and two-year periods, respectively. Due to the Company having a full valuation allowance, there were no impacts to the effective tax rate.

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Income taxes paid (net of refunds received) by jurisdiction, pursuant to the disclosure requirements of ASU 2023-09, were as follows:

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