Terrestrial Energy Inc. /DE/ Income Taxes Disclosure
16. Income Taxes
The income tax expense (benefit) for 2025 and 2024 are as follows:
| 2025 | | 2024 | |||
Current: |
| |
| | ||
Federal | $ | — | $ | 35,088 | ||
State |
| 700 |
| — | ||
Foreign |
| 1,849 |
| 1,278 | ||
Total current income tax |
| 2,549 |
| 36,366 | ||
Deferred: |
| |
| | ||
Federal |
| 15,401 |
| (15,401) | ||
State |
| — |
| — | ||
Foreign |
| — |
| — | ||
Total deferred tax |
| 15,401 |
| (15,401) | ||
Total income tax expense | $ | 17,950 | $ | 20,965 | ||
A reconciliation between domestic and international earnings (loss) before income taxes is as follows:
| 2025 | | 2024 | |||
Domestic | $ | (17,127,042) | $ | (1,374,250) | ||
International |
| (10,871,649) |
| (10,090,195) | ||
Net loss before income taxes | $ | (27,998,691) | $ | (11,464,445) | ||
A reconciliation between the effective income tax rate and the federal statutory income tax rate is as follows:
2025 | 2024 | ||||||||||
Federal tax at statutory rate | $ | (5,879,725) | 21.0 | % | $ | (2,407,533) | 21.0 | % | |||
Permanent book/tax differences |
| 1,317,897 | (4.7) |
|
| 676,297 | (5.9) | ||||
Return to provision adjustments |
| 1,392,136 | (5.0) |
|
| (65,996) | 0.6 | ||||
Difference in tax rates |
| (539,994) | 1.9 |
|
| (586,767) | 5.1 | ||||
Impact of Canadian dollar exchange rate changes |
| (1,013,116) | 3.6 |
|
| 1,560,416 | (13.6) | ||||
Change in valuation allowance |
| 4,740,752 | (16.9) |
|
| 844,548 | (7.4) | ||||
$ | 17,950 | (0.1) | % | $ | 20,965 | (0.2) | % | ||||
Deferred Income Tax
The significant components of the deferred tax assets and liabilities consisted of the following:
| 2025 | | 2024 | |||
Deferred tax assets: |
| |
| | ||
R&D expenses | $ | 3,485,406 | $ | 3,380,350 | ||
Net operating loss carryforwards |
| 17,547,661 |
| 13,401,755 | ||
Tax credit carryforwards |
| 2,445,772 |
| 3,133,678 | ||
Operating lease liabilities |
| 498,400 |
| 239,253 | ||
Stock based compensation |
| 502,016 |
| — | ||
R&D intangible tax pool section 174 |
| 622,270 |
| — | ||
Other |
| 93,988 |
| 73,668 | ||
Total gross deferred tax assets |
| 25,195,513 |
| 20,228,704 | ||
Valuation allowance |
| (24,640,726) |
| (19,821,008) | ||
Total deferred tax assets, net of valuation allowance |
| 554,787 |
| 407,696 | ||
Deferred tax liabilities |
| |
| | ||
Property and equipment |
| (94,585) |
| (60,460) | ||
Intangible assets |
| (27,892) |
| (96,660) | ||
Right of use assets |
| (432,310) |
| (176,333) | ||
Convertible debt |
| — |
| (740,196) | ||
Total gross deferred tax liabilities |
| (554,787) |
| (1,073,649) | ||
Net deferred tax liabilities | $ | — | $ | (665,953) | ||
In assessing the realizability of deferred tax assets, management considers all positive and negative evidence to determine whether it is more likely than not that some portion of all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the period in which those temporary differences become deductible. Due to the uncertainty of the Company’s ability to realize the benefit of the deferred tax assets, primarily related to the history of cumulative operating losses, the net deferred tax assets are offset by a valuation allowance at December 31, 2025 and 2024. As of December 31, 2025, the Company recorded a valuation allowance of $24,640,726 compared to $19,821,008 as of December 31, 2024.
As of December 31, 2025 and 2024, the Company had no unrecognized tax benefits. The Company’s policy is to recognize interest and penalties related to income tax matters in income tax expense. As of both December 31, 2025 and December 31, 2024, the Company had no accrual for any for net interest and penalties.
As of December 31, 2025 and 2024, the Company had net operating loss carryforwards (“NOLs”) of $67,261,109 and $50,927,528, respectively, comprised of $62,233,225 Canadian NOLs which have a 20-year expiration period and will begin to expire in 2035 and $5,027,884 U.S NOLs with indefinite carryforward period, Canadian federal tax credit carryforwards of $2,197,097 and $3,187,456, respectively, that have a 20-year expiration period and will begin to expire in 2039, Canadian state tax credit carryforwards of $830,310 and $790,898, respectively, that have a 20-year expiration and will begin to expire in 2035, and foreign tax credit carryforwards of $0 and $7,136, respectively, that have a 20-year expiration period and will begin to expire in 2041.
The Company is subject to U.S. federal and state income tax, Canadian federal and provincial income tax, as well as various other foreign jurisdictions that impose an income tax. The years that remain subject to examination are primarily 2021 and later.
On July 4, 2025, the One Big Beautiful Bill Act (“OBBBA”) was enacted in the United States. The OBBBA includes significant tax law changes, including the permanent extension of certain provisions from the U.S. Tax Cuts and Jobs Act, modifications to the international tax framework, and the reinstatement of favorable business tax provisions. These include 100% bonus depreciation, immediate expensing of Section 174 domestic research and experimental expenditures, and revised limitations under Section 163(j) on the deductibility of business interest expense. The legislation has multiple effective dates, with certain provisions effective beginning in 2025, and others implemented through 2027. We evaluated the impact of the OBBBA and determined its provisions do not have a material impact on our overall tax liability both for the current year and in the succeeding years.
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.