IONIS PHARMACEUTICALS INCIONS
IONIS PHARMACEUTICALS INC Income Taxes Disclosure
9. Income Taxes
We adopted ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, on a prospective basis for the year ended December 31, 2025.
Loss before income taxes is comprised of (in thousands):
| Year Ended December 31, | |||||||||||
| 2025 | 2024 | 2023 | |||||||||
| United States | $ | (381,180 | ) | $ | (460,712 | ) | $ | (334,707 | ) | ||
| Foreign | 1,579 | 644 | 742 | ||||||||
| Loss before income taxes | $ | (379,601 | ) | $ | (460,068 | ) | $ | (333,965 | ) | ||
Our income tax expense (benefit) was as follows (in thousands):
| Year Ended December 31, | |||||||||||
| 2025 | 2024 | 2023 | |||||||||
| Current: | |||||||||||
| Federal | $ | (1,015 | ) | $ | (5,492 | ) | $ | 35,861 | |||
| State | 2,580 | (848 | ) | (3,687 | ) | ||||||
| Foreign | 221 | 169 | 147 | ||||||||
| Total current income tax expense (benefit) | 1,786 | (6,171 | ) | 32,321 | |||||||
| Deferred: | |||||||||||
| Federal | - | - | - | ||||||||
| State | - | - | - | ||||||||
| Total deferred income tax expense (benefit) | - | - | - | ||||||||
| Total income tax expense (benefit) | $ | 1,786 | $ | (6,171 | ) | $ | 32,321 | ||||
Our expense (benefit) for income taxes differs from the amount computed by applying the U.S. federal statutory rate to loss before income taxes. The sources and tax effects of the differences, applying ASU 2023-09 prospectively, are as follows (in thousands):
| Year Ended December 31, 2025 | |||||||
| Pre-tax loss | $ | (379,601 | ) | ||||
| Statutory rate | (79,716 | ) | 21.0 | % | |||
| State and local income tax, net of federal income tax effect (a) | 353 | (0.1 | )% | ||||
| Foreign tax effects | (118 | ) | 0.0 | % | |||
| Effect of cross-border tax laws | 459 | (0.1 | )% | ||||
| Changes in unrecognized tax benefits | 12,145 | (3.2 | )% | ||||
| Changes in valuation allowances | 93,773 | (24.7 | )% | ||||
| Tax credits: | |||||||
| Research and development tax credits | (17,754 | ) | 4.7 | % | |||
| Orphan drug tax credits | (30,521 | ) | 8.0 | % | |||
| Non-taxable or non-deductible items: | |||||||
| Stock-based compensation | 19,269 | (5.1 | )% | ||||
| Other | 4,184 | (1.1 | )% | ||||
| Other | (288 | ) | 0.1 | % | |||
| Effective rate | $ | 1,786 | (0.5 | )% | |||
(a) State taxes in made up the majority (greater than 50 percent) of the tax effect in this category.
Our expense (benefit) for income taxes differs from the amount computed by applying the U.S. federal statutory rate to loss before income taxes. The sources and tax effects of the differences, applying ASC 740 prior to the adoption of ASU 2023-09, are as follows (in thousands):
| Year Ended December 31, | |||||||||||||||
| 2024 | 2023 | ||||||||||||||
| Pre-tax loss | $ | (460,068 | ) | $ | (333,965 | ) | |||||||||
| Statutory rate | (96,614 | ) | 21.0 | % | (70,133 | ) | 21.0 | % | |||||||
| State income tax net of federal benefit | (11,889 | ) | 2.6 | % | (22,597 | ) | 6.8 | % | |||||||
| Foreign | 15 | 0.0 | % | (22 | ) | 0.0 | % | ||||||||
| Net change in valuation allowance | 152,590 | (33.2 | )% | 175,388 | (52.5 | )% | |||||||||
| Tax credits | (53,497 | ) | 11.6 | % | (67,131 | ) | 20.1 | % | |||||||
| Tax rate change | 10,815 | (2.4 | )% | 1,023 | (0.3 | )% | |||||||||
| Non-deductible compensation | 1,895 | (0.4 | )% | 3,814 | (1.1 | )% | |||||||||
| Other non-deductible items | 188 | 0.0 | % | 327 | (0.1 | )% | |||||||||
| Foreign-derived intangible income benefit | (21,071 | ) | 4.6 | % | (7,493 | ) | 2.2 | % | |||||||
| Stock-based compensation | 10,732 | (2.3 | )% | 19,546 | (5.9 | )% | |||||||||
| Other | 665 | (0.2 | )% | (401 | ) | 0.1 | % | ||||||||
| Effective rate | $ | (6,171 | ) | 1.3 | % | $ | 32,321 | (9.7 | )% | ||||||
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.
Significant components of our deferred tax assets and liabilities as of December 31, 2025 and 2024 are as follows (in thousands):
| Year Ended December 31, | |||||||
| 2025 | 2024 | ||||||
| Deferred Tax Assets: | |||||||
| Net operating loss carryovers | $ | 290,851 | $ | 95,851 | |||
| Tax credits | 361,056 | 310,703 | |||||
| Deferred revenue | 38,830 | 54,063 | |||||
| Stock-based compensation | 67,585 | 82,660 | |||||
| Intangible and capital assets | 76,283 | 93,541 | |||||
| Convertible debt | 1,305 | 9,310 | |||||
| Capitalized research and development expenses | 233,485 | 323,560 | |||||
| Long-term lease liabilities | 71,871 | 41,481 | |||||
| Sale of future royalties | 156,870 | 148,918 | |||||
| Other | 12,755 | 14,024 | |||||
| Total deferred tax assets | $ | 1,310,891 | $ | 1,174,111 | |||
| Deferred Tax Liabilities: | |||||||
| Fixed assets | (8,062 | ) | (5,719 | ) | |||
| Right-of-use assets | (58,740 | ) | (36,788 | ) | |||
| Other | (7,154 | ) | (1,896 | ) | |||
| Net deferred tax asset | $ | 1,236,935 | $ | 1,129,708 | |||
| Valuation allowance | (1,236,935 | ) | (1,129,708 | ) | |||
| Total net deferred tax assets and liabilities | $ | - | $ | - | |||
As of December 31, 2025, we maintained a full valuation allowance on our net deferred tax assets. We determined the valuation allowance in accordance with the provisions of ASC 740, Accounting for Income Taxes, which requires an assessment of both positive and negative evidence when determining whether it is more likely than not that deferred tax assets are realizable. Our recent history of cumulative losses and expected near-term future losses require us to record a full valuation allowance against all net deferred tax assets. We will maintain a full valuation allowance on net deferred tax assets until sufficient positive evidence exists to support reversal of the valuation allowance.
Our valuation allowance increased by $107 million from December 31, 2024 to December 31, 2025. The increase in valuation allowance was primarily related to increases in our federal net operating loss from our current year loss and deduction for previously capitalized domestic research and development expenses permitted under H.R.1 - 119th Congress.
At December 31, 2025, we had federal and state, primarily California, tax net operating loss carryforwards of $1,206.5 million and $570.6 million, respectively. Our federal tax loss carryforwards are available indefinitely. Our California tax loss carryforwards will begin to expire in 2032. At December 31, 2025, we also had federal and California research and development tax credit carryforwards of $285.5 million and $151.7 million, respectively. Our federal research and development tax credit carryforwards will begin to expire in 2037. Our California research and development tax credit carryforwards are available indefinitely. Our 2023 current tax expense includes a benefit of approximately $3.2 million related to the utilization of state tax loss carryforwards, primarily California.
Utilization of the net operating loss and tax credit carryforwards may be subject to an annual limitation due to the ownership change limitations provided by the Internal Revenue Code of 1986, as amended, and similar state provisions. The annual limitation may result in the expiration of net operating losses and credits before utilization.
We analyze filing positions in all U.S. federal, state and foreign jurisdictions where we file income tax returns, and all open tax years in these jurisdictions to determine if we have any uncertain tax positions on any of our income tax returns. We recognize the impact of an uncertain tax position on an income tax return at the largest amount that the relevant taxing authority is more-likely-than-not to sustain upon audit. We do not recognize uncertain income tax positions if they have less than 50 percent likelihood of the applicable tax authority sustaining our position.
The following table summarizes our gross unrecognized tax benefits (in thousands):
| Year Ended December 31, | |||||||||||
| 2025 | 2024 | 2023 | |||||||||
| Beginning balance of unrecognized tax benefits | $ | 41,161 | $ | 43,298 | $ | 56,567 | |||||
| Decrease for lapse of statute of limitations | (137 | ) | (7,579 | ) | (14,993 | ) | |||||
| Decrease for prior period tax positions | - | (110 | ) | (737 | ) | ||||||
| Increase for prior period tax positions | 5,776 | 1,902 | 429 | ||||||||
| Increase for current period tax positions | 7,162 | 3,650 | 2,032 | ||||||||
| Ending balance of unrecognized tax benefits | $ | 53,962 | $ | 41,161 | $ | 43,298 | |||||
Included in the balance of unrecognized tax benefits at December 31, 2025, 2024 and 2023 was $0.2 million, $0.3 million and $0.3 million respectively, that if we recognized, could impact our effective tax rate, subject to our remaining valuation allowance.
We recognize interest and/or penalties related to income tax matters in income tax expense. During the years ended December 31, 2025, 2024 and 2023, we recognized $0.1 million, $0.1 million and $0.1 million, respectively, of accrued interest and penalties related to gross unrecognized tax benefits.
We are subject to taxation in the U.S. and various state and foreign jurisdictions. We are currently under examination by the Internal Revenue Service for tax year 2023, and U.S. federal tax years 2022 and 2024 remain open to examination. In addition, tax years 2021 through 2024 remain open to examination by major state taxing jurisdictions, primarily California. Net operating loss and credit carryforwards generated prior to these periods may still be adjusted upon examination by the Internal Revenue Service or state tax authorities if they have been used in an open period or are used in a future period.
Accounting guidance for income taxes requires a deferred tax liability to be established for the tax impact of undistributed earnings of foreign subsidiaries unless it can be shown that these earnings will be permanently reinvested outside the U.S. If our foreign earnings were to be repatriated in the future, the estimated tax liability would be nominal.
Income taxes paid (net of refunds received), applying ASU 2023-09 prospectively during the tax year ended December 31, 2025, are as follows (in thousands):
| Year Ended December 31, 2025 | |||
| Federal | $ | (37 | ) |
| State: | |||
| California | (405 | ) | |
| Kentucky | (288 | ) | |
| Tennessee | 42 | ||
| Other states | 3 | ||
| Total state | (648 | ) | |
| Foreign | 46 | ||
| Total income tax refunds, net | $ | (639 | ) |
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 26, 2026 | Showing above |
| 2024 | Feb 19, 2025 | |
| 2023 | Feb 21, 2024 | |
| 2022 | Feb 22, 2023 | |
| 2021 | Feb 25, 2022 | |
| 2020 | Feb 24, 2021 | |
| 2019 | Mar 2, 2020 | |
| 2018 | Mar 1, 2019 | |
| 2017 | Feb 28, 2018 | |
| 2016 | Mar 1, 2017 | |
| 2015 | Feb 26, 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.