IP STRATEGY HOLDINGS, INC.IPST
IP STRATEGY HOLDINGS, INC. Income Taxes Disclosure
INCOME TAXES
The tax effects of significant items comprising the Company’s deferred taxes as of December 31 are as follows:
| December 31, | |||||||||||
| 2025 | 2024 | ||||||||||
| Deferred Tax Assets | |||||||||||
| Reserves | $ | 101,238 | $ | 88,630 | |||||||
| Deferred Wages | 26,396 | 88,795 | |||||||||
| Lease Liability | 478,328 | 894,703 | |||||||||
| Net Operating Loss Carryforwards | 17,063,213 | 14,036,687 | |||||||||
| Credit Carryforwards | 35,014 | 191,979 | |||||||||
| Fixed Asset Basis | 741,479 | 996,625 | |||||||||
| Restricted Stock Units | 1,654,883 | 1,110,471 | |||||||||
| Mark to Market Adjustment | 26,088,606 | — | |||||||||
| Other Carryforwards | 128,111 | 124,945 | |||||||||
| Total Deferred Tax Assets | 46,317,268 | 17,532,835 | |||||||||
| Less: Valuation Allowance | (43,435,894) | (13,444,812) | |||||||||
| Deferred Tax Liabilities | |||||||||||
| Investment in Flavored Bourbon LLC | (2,412,199) | (3,242,634) | |||||||||
| Right-of-Use Assets | (469,175) | (749,791) | |||||||||
| Intangible Assets | — | (95,598) | |||||||||
| Total Deferred Tax Liabilities | (2,881,374) | (4,088,023) | |||||||||
| Net Deferred Tax Assets | $ | — | $ | — | |||||||
ASC 740 requires that the tax benefit of net operating losses, temporary differences and credit carryforwards be recorded as an asset to the extent that management assesses that realization is “more likely than not.” Realization of the future tax benefits is dependent on the Company’s ability to generate sufficient taxable income within the carryforward period. Because of the Company’s recent history of operating losses, management believes that recognition of the deferred tax assets arising from the above-mentioned future tax benefits is currently not likely to be realized and, accordingly, the Company has provided a full valuation allowance. At December 31, 2025 and 2024 the Company’s valuation allowance were $43.4 million and $13.4 million, respectively. The change in the valuation allowance for the period ended December 31, 2025 was an increase of $30.0 million.
At December 31, 2025 and 2024, the Company has federal net operating loss carryforwards of approximately $74.8 million and $61.5 million, respectively, which have an indefinite carryforward period; and Oregon State net operating loss carryforwards of approximately $22.4 million and $20.0 million, respectively, which begin expiring in 2033. Under
Sections 382 and 383 of the Code, substantial changes in the Company’s ownership may limit the amount of net operating loss and research that could be used annually in the future to offset taxable income. The tax benefits related to future utilization of federal net operating loss carryforwards, credit carryovers, tax credits, and other deferred tax assets may be limited or lost if the cumulative changes in ownership exceeds 50% within any three-year period. During 2025, the Company completed a formal Section 382/383 analysis under the Code regarding the limitation of net operating loss and tax credit carryforwards. Based on the completed Section 382 analysis, we experienced ownership changes on November 25, 2024 and August 15, 2025, primarily as a result of equity transactions including our initial public offering and subsequent capital raising activities, including the August 15, 2025 PIPE transaction. As a result of these ownership changes, our ability to utilize certain NOL carryforwards generated prior to those dates are subject to annual limitations under Section 382.
The Company files income tax returns in the U.S. federal jurisdiction and various state jurisdictions. Due to its operating loss carryforward, the U.S. federal and state statute of limitations remains open for 2018 and onward. The Company has no ongoing or recently closed income tax examinations. The Company recognizes tax benefits from an uncertain position only if it is more likely than not that the position is sustainable, based on its technical merits. Interest and penalties related to uncertain tax positions are classified as income tax expense.
For the years ended December 31, 2025 and 2024, the Company’s income tax provision consisted of current state taxes of $8,490 and $9,150, respectively. and federal provisions of $0 and $0, respectively.
The effective tax rate of the Company’s provision / (benefit) for income taxes differs from the federal statutory rate as follows:
| For the Year Ended December 31,2025 | ||||||||||||||
Effective Tax Rate Reconciliation | Amount | Percent | ||||||||||||
| US Federal Statutory Tax Rate | $ | (28,921,999) | 21.00 | % | ||||||||||
| State and Local Income Taxes, Net of Federal Income Tax Effect | (6,707) | — | % | |||||||||||
| Tax Credits | (31,869) | 0.02 | % | |||||||||||
| Change in Valuation Allowance - Federal | 28,478,939 | (20.68) | % | |||||||||||
| Permanent Items - Other | 296,172 | (0.22) | % | |||||||||||
| Other | 176,974 | (0.13) | % | |||||||||||
| Total | $ | (8,490) | (0.01) | % | ||||||||||
The Company’s tax payments for the year ended December 31, 2025 were as follows:
| For the Year Ended December 31, 2025 | ||||||||
| Tax payments | Amount | |||||||
| Federal | $ | — | ||||||
| State | 3,122 | |||||||
| Foreign | — | |||||||
| Total Tax payment | $ | 3,122 | ||||||
A reconciliation of the Company’s effective tax rate for the year ended December 31, 2024 is as follows:
| Effective Tax Rate Reconciliation | For the Year Ended December 31, 2024 | ||||||||||
| Statutory Rate | 21.00 | % | |||||||||
| State Taxes | (32.56 | %) | |||||||||
| Change in Fair Value of Warrants and Convertible Notes | (430.87 | %) | |||||||||
| Change in Valuation Allowance | 453.62 | % | |||||||||
| Prior Year State Tax True-ups | (10.52 | %) | |||||||||
| Officers Life Insurance | 1.65 | % | |||||||||
| Permanent Items - Other | 3.85 | % | |||||||||
| Tax Credits | (3.78 | %) | |||||||||
| True-ups/Other | (1.12) | % | |||||||||
| Total | 1.27 | % | |||||||||
The expense from and provision for income taxes differs from the amount computed by applying the statutory federal income tax rate of 21% to earnings before taxes, primarily because of the change in fair value of warrant and convertible notes, change in valuation allowance, incentive stock options / restricted stock units, other nondeductible items, state taxes, fair value adjustments, federal tax credits, and true-up adjustments.
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.