IRONWOOD PHARMACEUTICALS INC Income Taxes Disclosure

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13. Income Taxes

The Company is subject to U.S. federal, state, and foreign income taxes. The components of income before income taxes during the years ended on December 31, 2025 and 2024 consisted of the following (in thousands):

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The components of the provision for (benefit from) income taxes during the years ended December 31, 2025 and 2024 consisted of the following (in thousands):

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During the year ended December 31, 2025, the Company recorded income tax expense of $46.0 million, comprised of non-cash tax expense of $40.9 million and cash tax expense of $5.1 million, primarily for state income taxes in certain states in which state taxable income exceeded available net operating losses. During the year ended December 31, 2024, the Company recorded income tax expense of $64.3 million, comprised of non-cash tax expense of $57.8 million and cash tax expense of $6.5 million for state income taxes in certain states in which state taxable income exceeded available net operating losses. Due to the Company’s ability to utilize its net operating losses to offset federal taxable income and taxable income in many states, the majority of the Company’s tax provision is a non-cash tax expense until the Company’s net operating losses have been fully utilized.

A reconciliation of income taxes computed using the U.S. federal statutory rate of 21% to that reflected in the consolidated statements of income, after the adoption of ASU 2023-09, is as follows (in thousands, except percentages):

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A reconciliation of income taxes computed using the U.S. federal statutory rate of 21% to that reflected in the consolidated statements of income, prior to the adoption of ASU 2023-09, is as follows (in thousands):

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The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities. These differences are measured using the enacted statutory tax rates that are expected to be in effect for the years in which differences are expected to reverse. Deferred tax assets and liabilities were determined based on the difference between financial statement and tax bases using enacted tax rates in effect for the year in which the differences are expected to reverse.

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On a periodic basis, the Company reassesses the valuation allowance on its deferred income tax assets, weighing positive and negative evidence to assess the recoverability of the deferred tax assets. As of December 31, 2025 and 2024, the Company maintained a valuation allowance of $126.3 million and $106.3 million, respectively, on deferred tax assets not expected to be realized, related primarily to deferred tax assets acquired in the VectivBio Acquisition comprised primarily of net operating loss carryforwards in Switzerland, as well as certain state net operating losses and state tax credits that are expected to expire prior to utilization.

The valuation allowance increased by $20.0 million during the year ended December 31, 2025, primarily to offset foreign net operating losses incurred in Switzerland.

The valuation allowance increased by $20.6 million during the year ended December 31, 2024 primarily to offset the foreign net operating losses incurred in Switzerland, to offset certain state net operating losses that are expected to expire prior to utilization, and to offset certain US tax credits that are expected to expire prior to utilization.

Subject to the limitations described below, as of December 31, 2025, the Company had federal net operating loss carryforwards of $190.3 million, of which $60.6 million is subject to expiration between 2036 and 2037 and $129.6 million may be carried forward indefinitely. As of December 31, 2025, the Company had state net operating loss carryforwards of $286.5 million to offset future state taxable income, which is subject to expiration at various dates through 2040. The Company also had tax credit carryforwards of $59.7 million as of December 31, 2025 to offset future federal and state income taxes, which is subject to expiration at various dates through 2045. The Company had foreign net operating loss carryforwards of $798.6 million, which are subject to expiration at various dates through 2032.

Utilization of federal and state net operating loss carryforwards and research and development credit carryforwards may be subject to a substantial annual limitation due to ownership change limitations that could occur in the future in accordance with Section 382 of the Internal Revenue Code of 1986 (“IRC Section 382”) and with Section 383 of the Internal Revenue Code of 1986, as well as similar state provisions. These ownership changes may limit the amount of net operating loss carryforwards and research and development credit carryforwards that can be utilized annually to offset future taxable income and taxes, respectively. In general, an ownership change, as defined by IRC Section 382, results from transactions increasing the ownership of certain stockholders or public groups in the stock of a corporation by more than 50 percentage points over a three-year period.

The following table summarizes the changes in the Company’s unrecognized income tax benefits for the years ended December 31, 2025 and 2024 (in thousands):

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The Company had gross unrecognized tax benefits of $11.9 million and $11.6 million as of December 31, 2025 and 2024, respectively. Of the $11.9 million of total unrecognized tax benefits as of December 31, 2025, $7.8 million would, if recognized, affect the Company’s effective tax rate, and the remaining amount would not affect the Company’s effective tax rate, as it relates to a temporary timing difference. Reserves for uncertain tax positions of $13.1 million and $11.8 million are recorded in other liabilities on the Company’s consolidated balance sheets as of December 31, 2025 and 2024, respectively.

The Company recognizes interest and penalties, if any, related to uncertain tax positions in income tax expense. The Company recognized $0.9 million and $0.8 million of interest and penalties related to uncertain tax positions during the years ended December 31, 2025 and 2024, respectively. As of December 31, 2025 and 2024, $6.0 million and $5.1 million of interest and penalties have been accrued, respectively.

The statute of limitations for assessment by the Internal Revenue Service (“IRS”) and state tax authorities is open for tax years ended December 31, 2022 through the present, although net operating losses generated from years prior to 2022 could be subject to examination and adjustments to the extent utilized in future years. There are currently no federal or state income tax audits in progress. The statute of limitations for assessment for foreign jurisdictions is open for tax years ended December 31, 2021 through the present.

The Company made the following income tax payments (net of refunds received) during the year ended December 31, 2025 (in thousands):

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* The amount of income taxes paid during the year does not meet the 5% disaggregation threshold.