INTELLIGENT PROTECTION MANAGEMENT CORP. Income Taxes Disclosure

8. Income Taxes

 

The Company is subject to evolving global minimum tax rules developed by the Organization for Economic Co-operation and Development (“OECD”), commonly referred to as Pillar Two, which generally impose a 15% minimum effective tax rate on large multinational enterprises. Although the Pillar Two model rules provide a framework for applying the minimum tax, countries may enact Pillar Two slightly differently than the model rules and on different timelines and may adjust domestic tax incentives in response to Pillar Two. In January 2025, the United States issued an executive order announcing opposition to aspects of these rules. In January 2026, the OECD/G20 announced the Side-by-Side (SbS) package, implemented as administrative guidance and modifying the operation of Pillar Two rules. The package introduces simplifications and new safe harbors for U.S. and other multinational companies where domestic and international tax systems meet robust requirements to coexist with Pillar Two, which would fully exempt U.S.-parented groups from the application of two of the three Pillar Two top-up taxes. The SbS package also extends the current Transitional Country-by-Country Reporting (CbCR) Safe Harbor by one year, through the end of fiscal year 2027. Based on legislation enacted to date and preliminary testing, Pillar Two had no impact on our 2025 effective tax rate. We currently do not expect Pillar Two to significantly impact our effective tax rate going forward.

 

The components of loss before income tax benefit are presented as follows:

 

		December 31,
		2025				2024
United States		$	(3,065,304	)		$	(3,756,366	)
Foreign			(1,218,031	)			(649,898	)
Loss before Income Taxes		$	(4,283,335	)		$	(4,406,264	)

 

The Company’s (benefit) provision for income taxes is comprised of the following: 

 

		December 31,
		2025				2024
Current:
Federal		$	(13,039	)		$	-
State and local			6,758				11,888
Foreign			16,230				35,520
Total Current Tax Expense			9,949				47,408
Deferred:
Federal			(1,661,100	)			-
State and local			(395,500	)			-
Foreign			(280,148	)			(184,997	)
Total Deferred Tax Benefit			(2,336,748	)			(184,997	)
Total Tax Benefit		$	(2,326,799	)		$	(137,589	)

 

A reconciliation of the provision for income taxes to the amount computed by applying the 21% statutory U.S. federal income tax rate to income before income taxes after the adoption of ASU 2023-09 is as follows:

 

		December 31, 2025
		Amount				Percent
Income tax at statutory federal tax rate		$	(899,652	)			21.0	%
State and local income tax, net of federal income tax effect1			(390,133	)			9.1	%
Foreign tax effects			(24,361	)			0.6	%
Change in valuation allowances			(1,753,177	)			40.9	%
Nontaxable or nondeductible items:
Other nontaxable of nondeductible items			(521	)			0.0	%
Gain on Non-Deductible Goodwill			559,278				(13.1	)%
Other			181,767				(4.2	)%
Effective tax rate		$	(2,326,799	)			54.3	%

 

1	State taxes in California, New Jersey, New York, and New York City made up the majority (greater than 50%) of the tax effect in this category.

A reconciliation of the provision for income taxes to the amount computed by applying the 21% statutory U.S. federal income tax rate to income before income taxes for years prior to the adoption of ASU 2023-09 is as follows:

 

		2025				2024
Income tax benefit at federal statutory rate			21.0	%			21.0	%
Permanent Differences			-	%			-	%
Transaction Costs			(8.2	)%			-	%
State and local taxes			1.1	%			-	%
Valuation allowance			(7.5	)%			(17.2	)%
Deferred tax adjustment			-	%			(0.8	)%
Share based compensation			(3.6	)%			(2.6	)%
Foreign Income Tax Rate Differential			0.3	%			0.4	%
Other			-	%			0.2	%
Effective tax rate			3.1	%			1.0	%

 

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 the Company’s deferred tax assets and liabilities are as follows:

 

		December 31,
		2025				2024
Deferred Tax Assets:
U.S. federal and state net operating losses		$	4,623,197			$	2,578,441
Foreign net operating losses			149,960				-
Share-based compensation			472,537				342,510
Amortization of intangible assets			-				290,536
Lease Liability			320,600				16,981
Capitalized IRC §174 costs			1,478,954				2,638,434
Tax credits			62,969				62,969
Other			308,478				662,165
Subtotal			7,416,695				6,592,036
Less Valuation Allowance:			(5,242,904	)			(6,568,063	)
Total Deferred Tax Assets			2,173,791				23,973
Deferred Tax Liabilities:
Amortization of intangible assets			(1,922,537	)			(430,455	)
Property and equipment			(20,919	)			(12,384	)
Right of Use			(319,395	)			-
Other			(59,838	)			(10,179	)
Total Deferred Tax Liabilities			(2,322,689	)			(453,018	)
Net Deferred Tax Liability		$	(148,898	)		$	(429,045	)

In assessing the Company’s ability to recover its deferred tax assets, the Company evaluated whether it is more likely than not that some portion or the entire deferred tax asset will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income in those periods in which temporary differences become deductible and/or net operating losses can be utilized. The Company considered all positive and negative evidence when determining the amount of the net deferred tax assets that are more likely than not to be realized. This evidence includes, but is not limited to, historical earnings, scheduled reversal of taxable temporary differences, tax planning strategies and projected future taxable income. A significant piece of objective negative evidence evaluated was cumulative loss incurred over the three-year period ended December 31, 2025. Such objective evidence limits the ability to consider other subjective evidence, such as the Company’s projections for future growth. Based on the weight of available evidence, the Company determined that its U.S. deferred tax assets are not realizable on a more-likely-than-not basis and has recorded a valuation allowance against its net U.S. deferred tax assets. The Company’s valuation allowance decreased by $1,454,892 during 2025 largely due to a partial valuation allowance reversal resulting from the NTS business combination which created a source of future taxable income. The Company will continue to evaluate its deferred tax assets to determine whether any changes in circumstances could affect the realization of their future benefit. If it is determined in future periods that portions of the Company’s deferred income tax assets satisfy the realization standards, the valuation allowance will be reduced accordingly.

 

As of December 31, 2025, the Company had U.S. federal net operating loss carryforwards of approximately $18.8 million, of which $10.3 million continue to be subject to a severe annual limitation under Section 382 of the Internal Revenue Code of 1986, as amended (“Section 382”). The remaining $8.5 million not subject to limitation under Section 382 may be used to offset 80% of future taxable income and can be carried forward indefinitely. The Company had total state net operating loss carryforward of $11.3 million, which will begin to expire in varying amounts starting in 2034.

 

The Company applies the applicable authoritative guidance which prescribes a comprehensive model for the manner in which a company should recognize, measure, present and disclose in its financial statements all material uncertain tax positions that the Company has taken or expects to take on a tax return. As of December 31, 2025, the Company had no uncertain tax positions. As such, there are no uncertain tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly increase or decrease within 12 months from December 31, 2025. The tax years 2022-2025 generally remain open to examination by major taxing jurisdictions to which the Company is subject.

 

Income Taxes Paid

 

		December 31, 2025
Income taxes paid, net of refunds received, consisted of the following:
Federal		$	22,500
State and local			3,553
Foreign			26,529
Income taxes paid, net of refunds received		$	52,582