i3 Verticals, Inc.IIIV
i3 Verticals, Inc. Income Taxes Disclosure
INCOME TAXES
i3 Verticals, Inc. is taxed as a corporation and pays corporate federal, state and local taxes on income allocated to it from i3 Verticals, LLC based on i3 Verticals, Inc.'s economic interest in i3 Verticals, LLC. i3 Verticals, LLC's members, including the Company, are liable for federal, state and local income taxes based on their share of i3 Verticals, LLC's pass-through taxable income. i3 Verticals, LLC is not a taxable entity for federal income tax purposes, but is subject to and reports entity level tax in both Tennessee and Texas. In addition, certain subsidiaries of i3 Verticals, LLC are corporations that are subject to state and federal income taxes.
On July 4, 2025, the U.S. enacted the tax legislation known as the One Big Beautiful Bill Act which includes, among other provisions, changes to federal income tax provisions including the allowance of immediate expensing of qualifying research and development expenses and permanent extensions of certain provision within the Tax Cuts and Jobs Act. The legislation has multiple effective dates, with certain provisions effective in 2025 and others taking effect in later years. There was no material impact to the Company's effective tax rate for the year ended September 30, 2025.
The Company's income tax (benefit) expense for continuing operations during the years ended September 30, 2025, 2024 and 2023 were the following:
| Year ended September 30, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Current: | |||||||||||||||||
| Federal tax expense | $ | 3,494 | $ | 2,383 | $ | 2,363 | |||||||||||
| State tax expense | 1,191 | 735 | 1,156 | ||||||||||||||
| Deferred: | |||||||||||||||||
| Federal tax (benefit) expense | (492) | 561 | (8,129) | ||||||||||||||
| State tax expense (benefit) | 1,073 | (9,147) | 1,103 | ||||||||||||||
| Income tax expense (benefit) | $ | 5,266 | $ | (5,468) | $ | (3,507) | |||||||||||
A reconciliation of income tax expense (benefit) from continuing operations computed at the U.S. federal statutory income tax rate to the Company’s effective income tax rate is as follows:
| Year ended September 30, | ||||||||||||||||||||||||||
| 2025 | 2024 | 2023 | ||||||||||||||||||||||||
| Expected U.S. federal income taxes at statutory rate | $ | 2,458 | 22.6 | % | $ | (4,518) | 21.0 | % | $ | (5,944) | 21.0 | % | ||||||||||||||
| Partnership income not taxed at federal level | (2,134) | (19.7) | % | 476 | (2.2) | % | 1,813 | (6.5) | % | |||||||||||||||||
| Valuation allowance | 874 | 8.0 | % | 2,331 | (10.8) | % | (1,753) | 6.2 | % | |||||||||||||||||
| State and local income taxes, net of federal benefit | 1,383 | 12.7 | % | (2,716) | 12.6 | % | 2,207 | (7.8) | % | |||||||||||||||||
| Nondeductible expenses and other permanent items | 71 | 0.7 | % | 53 | (0.2) | % | 69 | (0.2) | % | |||||||||||||||||
| Revaluation of debt and other debt transaction differences | (96) | (0.9) | % | (261) | 1.2 | % | 536 | (1.9) | % | |||||||||||||||||
| Equity-based compensation | 2,405 | 22.1 | % | 11 | (0.1) | % | 4 | — | % | |||||||||||||||||
| Change in liability for uncertain tax positions | (3) | — | % | 218 | (1.0) | % | 155 | (0.5) | % | |||||||||||||||||
| Return to provision adjustments | 652 | 6.0 | % | (239) | 1.1 | % | (290) | 1.0 | % | |||||||||||||||||
| Federal tax credits | (348) | (3.2) | % | (773) | 3.6 | % | (411) | 1.5 | % | |||||||||||||||||
| Other | 4 | — | % | (50) | 0.2 | % | 107 | (0.4) | % | |||||||||||||||||
| Income tax expense (benefit) | $ | 5,266 | 48.4 | % | $ | (5,468) | 25.4 | % | $ | (3,507) | 12.4 | % | ||||||||||||||
Deferred income taxes are provided for the temporary differences between the financial reporting basis and tax basis of the Company’s assets and liabilities. Net deferred taxes spanning multiple jurisdictions as of September 30, 2025 and 2024 were as follows:
| September 30, | |||||||||||
| 2025 | 2024 | ||||||||||
| Deferred tax assets: | |||||||||||
| Investment in partnership | $ | 50,997 | $ | 52,039 | |||||||
| Stock-based compensation | 13,228 | 15,241 | |||||||||
| Accrued expenses | 49 | 59 | |||||||||
| Net operating loss carryforwards | 992 | 367 | |||||||||
| Section 163j carryforward | 5,003 | 4,604 | |||||||||
| Federal tax credits | 181 | — | |||||||||
| Operating lease liabilities | 154 | 286 | |||||||||
| Other | 75 | 17 | |||||||||
| Gross deferred tax assets | 70,679 | 72,613 | |||||||||
| Valuation allowance | (15,026) | (17,631) | |||||||||
| Deferred tax liabilities: | |||||||||||
| Intangible assets | (15,019) | (17,131) | |||||||||
| Operating lease right of use assets | (145) | (267) | |||||||||
| Other | (425) | (541) | |||||||||
| Net deferred tax asset | $ | 40,064 | $ | 37,043 | |||||||
Deferred tax assets associated with federal net operating loss carryforwards were $213 as of September 30, 2025, and begin to expire 2035. Deferred tax assets for federal tax credits were $181 as of September 30, 2025, and begin to expire in 2045.
State net operating loss carryforwards as of September 30, 2025 totaled $15,217 on a pre-tax-effected basis, resulting in a deferred tax asset of $947. The state net operating loss carryforwards will begin to expire in 2027.
The Company maintains a valuation allowance of $15,026 against a portion of the gross deferred tax asset, primarily related to the portion of its deductible outside basis difference in its investment in i3 Verticals, LLC, that is capital in nature. The change in the valuation allowance resulted in an increase of $874, an increase of $2,331, and a decrease of $1,753 to income tax expense in the years ended September 30, 2025, 2024 and 2023, respectively. If the Company determines that the likelihood of realization of existing deferred tax assets changes, a corresponding increase or decrease to valuation allowances will be recognized as an increase or reduction to income tax expense in the period that determination is made.
The following table summarizes the activity related to our gross unrecognized tax benefits, excluding accrued interest and penalties, as of September 30, 2025 and 2024, respectively:
| Gross unrecognized tax benefits as of September 30, 2022 | $ | 83 | |||
| Increase in current year tax positions | 108 | ||||
| Increase in prior year tax positions | 73 | ||||
| Settlements and other reductions | 26 | ||||
| Gross unrecognized tax benefits as of September 30, 2023 | 238 | ||||
| Increase in current year tax positions | 197 | ||||
| Increase in prior year tax positions | 78 | ||||
| Settlements and other reductions | 57 | ||||
| Gross unrecognized tax benefits as of September 30, 2024 | 456 | ||||
| Increase in current year tax positions | 87 | ||||
| Decrease in prior year tax positions | (116) | ||||
| Settlements and other reductions | — | ||||
| Gross unrecognized tax benefits as of September 30, 2025 | $ | 427 | |||
Estimated interest and penalties related to the underpayment of income taxes are classified as a component of tax expense in the consolidated statements of operations and totaled $26 for the year ended September 30, 2025, and $0 for the years ended September 30, 2024 and 2023. As of September 30, 2025, 2024 and 2023, accrued interest and penalties related to income taxes and potential income tax penalties were $26. As of September 30, 2024 and 2023, we had no accrued interest and penalties related to income taxes and potential income tax penalties. These totals are reflected in noncurrent Other long-term liabilities in the consolidated balance sheets
The Company is no longer subject to U.S. federal, state, or local examinations by tax authorities for years before 2021. As of September 30, 2025, 2024 and 2023, there were unrecognized tax benefits of $427, $456, and $238, respectively, that if recognized would affect the annual effective tax rate.
Tax Receivable Agreement
On June 25, 2018, the Company entered into a Tax Receivable Agreement with i3 Verticals, LLC and each of the Continuing Equity Owners (the “Tax Receivable Agreement”) that provides for the payment by the Company to the Continuing Equity Owners of 85% of the amount of certain tax benefits, if any, that it actually realizes, or in some circumstances, is deemed to realize in its tax reporting, as a result of (i) future redemptions funded by the Company or exchanges, or deemed exchanges in certain circumstances, of Common Units of i3 Verticals, LLC for Class A common stock of i3 Verticals, Inc. or cash, and (ii) certain additional tax benefits attributable to payments made under the Tax Receivable Agreement. These tax benefit payments are not conditioned upon one or more of the Continuing Equity Owners maintaining a continued ownership interest in i3 Verticals, LLC. If a Continuing Equity Owner transfers Common Units but does not assign to the transferee of such units its rights under the Tax Receivable Agreement, such Continuing Equity Owner generally will continue to be entitled to receive payments under the Tax Receivable Agreement arising in respect of a subsequent exchange of such Common Units. In general, the Continuing Equity Owners’ rights under the Tax Receivable Agreement may not be assigned, sold, pledged or otherwise alienated to any person, other than certain permitted transferees, without (a) the Company's prior written consent, which should not be unreasonably withheld, conditioned or delayed, and (b) such persons becoming a party to the Tax Receivable Agreement and agreeing to succeed to the applicable Continuing Equity Owner’s interest therein. The Company expects to benefit from the remaining 15% of the tax benefits, if any, that the Company may realize.
When Class B common stock is exchanged for Class A common stock, this triggers an increase in the tax basis of the Company's Common Units in i3 Verticals, LLC subject to the provisions of the Tax Receivable Agreement. During the year ended September 30, 2023, the Company acquired an aggregate of 24,748 common units of i3 Verticals, LLC in connection with the redemption of common units, which resulted in an increase in the tax basis of our investment in i3 Verticals, LLC subject to the provisions of the Tax Receivable Agreement. As a result of these exchanges, during the year ended September 30, 2023, the Company recognized an increase to its net deferred tax assets in the amount of $208, and corresponding Tax Receivable Agreement liabilities of $177, representing 85% of the tax benefits due to the Continuing Equity Owners. The Company also recognized a decrease to its net deferred tax assets of $932 across all exchanges as a result of a tax rate change during the year ended September 30, 2023.
During the year ended September 30, 2024, the Company acquired an aggregate of 60,718 common units of i3 Verticals, LLC in connection with the redemption of common units, which resulted in an increase in the tax basis of our investment in i3 Verticals, LLC subject to the provisions of the Tax Receivable Agreement. As a result of these exchanges, during the year ended September 30, 2024, the Company recognized an increase to its net deferred tax assets in the amount of $426, and corresponding Tax Receivable Agreement liabilities of $362, representing 85% of the tax benefits due to the Continuing Equity Owners. The Company also recognized a decrease to its net deferred tax assets of $1,187 across all exchanges as a result of a tax rate change during the year ended September 30, 2024.
During the year ended September 30, 2025, the Company acquired an aggregate of 1,281,739 common units of i3 Verticals, LLC in connection with the redemption of common units, which resulted in an increase in the tax basis of our investment in i3 Verticals, LLC subject to the provisions of the Tax Receivable Agreement. As a result of these exchanges, during the year ended September 30, 2025, the Company recognized an increase to its net deferred tax assets in the amount of $9,398, and corresponding Tax Receivable Agreement liabilities of $6,211, representing 85% of the tax benefits due to the Continuing Equity Owners. The Company also recognized a decrease to its net deferred tax assets of $805 across all exchanges as a result of a tax rate change during the year ended September 30, 2025.
The deferred tax asset balance was $37,872 as of September 30, 2025. The Company also has a corresponding Tax Receivable Agreement liability of $34,911, of which $2,720 was recorded in accrued expenses and other current liabilities and $32,191 was recorded in long-term tax receivable agreement obligations as of September 30, 2025.
Payments to the Continuing Equity Owners related to exchanges through September 30, 2025 will range from $0 to $5,364 per year and are expected to be paid over the next 22 years. The amounts recorded as of September 30, 2025, approximate the current estimate of expected tax savings and are subject to change after the filing of the Company’s U.S. federal and state income tax returns. Future payments under the Tax Receivable Agreement with respect to subsequent exchanges would be in addition to these amounts.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Nov 21, 2025 | Showing above |
| 2020 | Nov 23, 2020 | |
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.