Foghorn Therapeutics Inc.FHTX
Foghorn Therapeutics Inc. Income Taxes Disclosure
Income Taxes
For the years ended December 31, 2025 and 2024 the Company recorded no income tax benefits for the net deferred tax assets comprised primarily of net operating losses incurred and research and development tax credits generated in each year, due to its uncertainty of realizing a benefit from these items.
All of the Company’s operating losses since inception have been generated in the United States.
A reconciliation of the U.S. federal statutory income tax rate of 21% to the Company’s effective income tax rate, post the adoption of ASU 2023-09, is as follows (in thousands, except percentages):
| Year Ended December 31, 2025 | |||||||||||
| Amount | Percent | ||||||||||
| Income taxes at U.S. federal statutory rate | $ | (15,600) | 21.0 | % | |||||||
| State income taxes, net of federal benefit | 6 | — | |||||||||
| Nontaxable or nondeductible items | |||||||||||
| Stock-based compensation expense | 1,142 | (1.5) | |||||||||
| Limitation on executive compensation | 811 | (1.1) | |||||||||
| Other | 88 | (0.1) | |||||||||
| Tax Credits | |||||||||||
| Federal research and development tax credits | (2,242) | 3.0 | |||||||||
| Change in valuation allowance | 15,803 | (21.3) | |||||||||
| Other adjustments | (8) | — | |||||||||
| Income tax expense and effective income tax rate | $ | — | 0.0 | % | |||||||
For the year ended December 31, 2025, state income taxes in Massachusetts make up the majority (greater than 50%) of the state income taxes, net of federal benefit category.
A reconciliation of the U.S. federal statutory income tax rate of 21% to the Company’s effective income tax rate, prior to the adoption of ASU 2023-09, is as follows:
| Year Ended December 31, 2024 | |||||
| Income taxes at U.S. federal statutory rate | 21.0 | % | |||
| State income taxes, net of federal benefit | 4.8 | ||||
| Federal and state research and development tax credits | 4.9 | ||||
| Stock-based compensation expense | (0.9) | ||||
| Nondeductible/nontaxable permanent items | (0.1) | ||||
| Other | (2.6) | ||||
| Change in valuation allowance | (27.1) | ||||
| Effective income tax rate | 0.0 | % | |||
Net deferred tax assets consisted of the following (in thousands):
| December 31, | |||||||||||
| 2025 | 2024 | ||||||||||
| Deferred tax assets: | |||||||||||
Net operating loss carryforwards | $ | 55,169 | $ | 14,519 | |||||||
| Capitalized research expenditures | 44,554 | 59,481 | |||||||||
Research and development tax credit carryforwards | 13,086 | 10,044 | |||||||||
| Capitalized start-up costs | 92 | 108 | |||||||||
| Deferred revenue | 68,069 | 76,259 | |||||||||
Accrued expenses | 6 | 3 | |||||||||
Stock-based compensation | 4,048 | 3,861 | |||||||||
Operating lease liabilities | 11,536 | 10,112 | |||||||||
Total deferred tax assets | 196,560 | 174,387 | |||||||||
| Deferred tax liabilities: | |||||||||||
Depreciation | (234) | (1,785) | |||||||||
| Operating lease right-of-use assets | (8,691) | (6,172) | |||||||||
Total deferred tax liabilities | (8,925) | (7,957) | |||||||||
| Valuation allowance | (187,635) | (166,430) | |||||||||
Net deferred tax assets | $ | — | $ | — | |||||||
As of December 31, 2025, the Company had U.S. federal and state net operating loss carryforwards of $198.5 million and $213.5 million, respectively. The U.S. federal net operating loss carryforwards can be carried forward indefinitely but limited to offset 80% of annual taxable income. The state net operating loss carryforwards will begin to expire in 2039. As of December 31, 2025, the Company also had U.S. federal and state research and development tax credit carryforwards of $9.4 million and $3.7 million, respectively, which may be available to offset future tax liabilities and expire at various dates beginning in 2043 and 2037, respectively.
The Tax Cuts and Jobs Act (“TCJA”) requires taxpayers to capitalize and amortize, rather than deduct, research and development (“R&D”) expenditures under section 174 of the Internal Revenue Code of 1986, as amended (the “Code”) for tax years beginning after December 31, 2021. The Company will amortize these costs for tax purposes over 5 years if the R&D was performed in the U.S. and over 15 years if the R&D was performed outside the U.S. These rules became effective for the Company during the year ended December 31, 2022. The Company has capitalized foreign R&D costs of $25.2 million and $25.0 million for the tax years ended December 31, 2025 and December 31, 2024, respectively.
On July 4, 2025, the One Big Beautiful Bill Act (“OBBBA”) was enacted, providing taxpayers the option to fully deduct or continue capitalizing and amortizing domestic R&D expenditures under new Code Section 174A, effective for tax years beginning after December 31, 2024. The OBBBA also provides certain eligible taxpayers with the option to accelerate and deduct the remaining unamortized domestic R&D costs incurred during taxable years ending after December 31, 2021 and before January 1, 2025. The Company has implemented the two-year accelerated expensing for all domestic R&D costs
incurred during taxable years ending after December 31, 2021 and before January 1, 2025. As of December 31, 2025, $75.2 million remains unamortized related to domestic R&D costs. Final elections will be made with the 2025 tax return filing.
The Company has evaluated the positive and negative evidence bearing upon its ability to realize the deferred tax assets. Management has considered the Company’s history of cumulative net losses incurred since inception and its lack of commercialization of any products that would generate revenue from product sales and has concluded that it is more likely than not that the Company will not realize the benefits of the deferred tax assets. Accordingly, a full valuation allowance has been established against the net deferred tax assets as of December 31, 2025 and 2024. Management reevaluates the positive and negative evidence at each reporting period.
The Company has evaluated the positive and negative evidence bearing upon its ability to realize the deferred tax assets. Management has considered the Company’s history of cumulative net losses incurred since inception and its lack of commercialization of any products that would generate revenue from product sales and has concluded that it is more likely than not that the Company will not realize the benefits of the deferred tax assets. Accordingly, a full valuation allowance has been established against the net deferred tax assets as of December 31, 2025 and 2024. Management reevaluates the positive and negative evidence at each reporting period.
The valuation allowance increased by $21.2 million and $23.5 million for the years ended December 31, 2025 and 2024, respectively, primarily as a result of the increase in total deferred tax assets.
Ownership changes may limit the amount of net operating loss carryforwards or research and development tax credit carryforwards that can be utilized to offset future taxable income or tax liability. In general, an ownership change, as defined by Sections 382 and 383 of the Code, results from transactions increasing the ownership of certain shareholders or public groups in the stock of a corporation by more than 50% (by value) over a three-year period. If the Company has experienced a change of control, utilization of the net operating loss carryforwards or research and development tax credit carryforwards would be subject to an annual limitation under Sections 382 and 383 of the Code. Any limitation may result in expiration of a portion of the net operating loss carryforwards or research and development tax credit carryforwards before utilization. To the extent there was a change in control, the Company's tax attributes could be subject to limitation. However, a full valuation allowance has been provided against the deferred tax assets related to the Company’s net operating loss and tax credit carryforwards and, if an adjustment is required, this adjustment would be offset by an adjustment to the valuation allowance.
As of December 31, 2025 and 2024, the Company had not recorded any amounts for unrecognized tax benefits. The Company files income tax returns in the U.S. federal tax jurisdiction and Massachusetts and various other state tax jurisdictions 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. Since the Company is in a loss carryforward position, it is generally subject to examination by the U.S. federal, state, and local income tax authorities for all tax years in which a loss carryforward is available.
The Company made the following income tax payments (net of refunds received) during the year ended December 31, 2025 (in thousands):
| Year Ended December 31, 2025 | |||||
| US state and local | |||||
| Massachusetts | $ | 9 | |||
| Tennessee | (105) | ||||
| Total income tax payments (net of refunds received) | $ | (96) | |||
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Mar 11, 2026 | Showing above |
| 2024 | Mar 6, 2025 | |
| 2023 | Mar 7, 2024 | |
| 2022 | Mar 9, 2023 | |
| 2021 | Mar 10, 2022 | |
| 2020 | Mar 18, 2021 | |
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.