Kezar Life Sciences, Inc.KZR
Kezar Life Sciences, Inc. Income Taxes Disclosure
Income Taxes
No provision for income taxes was recorded for the years ended December 31, 2025, 2024 and 2023. The U.S. federal deferred tax assets generated from the Company’s net operating losses have been fully reserved, as the Company believes it is not more likely than not that the benefit will be realized.
The following table presents domestic and foreign components of net loss for the periods presented (in thousands):
| Year Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Domestic | $ | (60,452) | $ | (83,475) | $ | (101,613) | |||||||||||
| Foreign | 4,419 | (261) | (257) | ||||||||||||||
| Total | $ | (56,033) | $ | (83,736) | $ | (101,870) | |||||||||||
The components of the provision for (benefit from) income taxes are as follows (in thousands):
| Year Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Current: | |||||||||||||||||
| Federal | $ | — | $ | — | $ | — | |||||||||||
| State | — | — | — | ||||||||||||||
| Foreign | — | — | — | ||||||||||||||
| Total current | — | — | — | ||||||||||||||
| Deferred: | |||||||||||||||||
| Federal | — | — | — | ||||||||||||||
| State | — | — | — | ||||||||||||||
| Foreign | — | — | — | ||||||||||||||
| Total deferred | — | — | — | ||||||||||||||
| Provision for (benefit from) income taxes | $ | — | $ | — | $ | — | |||||||||||
There was no income tax expense nor benefit for the years ended December 31, 2025, 2024, and 2023.
Beginning in 2025 annual reporting, the Company adopted ASU 2023-09 prospectively. See Note 2 for additional details on the adoption of ASU 2023-09. A reconciliation of the U.S. federal statutory income tax rate to the effective tax rate pursuant to the disclosure requirements of ASU 2023-09 for the year ended December 31, 2025 is as follows (in thousands, except percentages):
| Year Ended December 31, 2025 | ||||||||||||||
| U.S federal statutory tax rate | $ | (11,767) | 21.0 | % | ||||||||||
| State and local income taxes, net of federal income tax effect | — | — | ||||||||||||
| Foreign tax effects | ||||||||||||||
| Australia | ||||||||||||||
| Rate differential | 177 | (0.3) | ||||||||||||
| Intercompany debt forgiveness | (4,325) | 7.7 | ||||||||||||
| Change in valuation allowance | 3,220 | (5.8) | ||||||||||||
| Tax credits: | ||||||||||||||
| Research and development credit | (1,039) | 1.9 | ||||||||||||
| Change in valuation allowance | 7,828 | (14.0) | ||||||||||||
| Nondeductible items: | ||||||||||||||
| Stock-based compensation | 5,010 | (8.9) | ||||||||||||
| Intercompany debt forgiveness - foreign subsidiary | 1,062 | (1.9) | ||||||||||||
| Other | (166) | 0.3 | ||||||||||||
| Provision for income taxes | $ | — | — | % | ||||||||||
A reconciliation of the U.S. federal statutory income tax rate to the effective tax rate for the years ended December 31, 2024 and 2023, prior to the adoption of ASU 2023-09, is as follows:
| Year Ended December 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| Federal statutory income tax rate | 21.0 | % | 21.0 | % | |||||||
| State taxes, net of federal benefit | 0.2 | 3.0 | |||||||||
| Foreign tax rate differential | 0.0 | 0.0 | |||||||||
| Permanent differences | (0.3) | (2.1) | |||||||||
| Research and development credit | 2.2 | 3.2 | |||||||||
| Change in valuation allowance | (23.1) | (25.1) | |||||||||
| Provision for income taxes | — | % | — | % | |||||||
The components of the deferred tax assets and liabilities are as follows (in thousands):
| Year Ended December 31, | |||||||||||
| 2025 | 2024 | ||||||||||
| Deferred tax assets | |||||||||||
| Reserves and accruals | $ | 3,413 | $ | 7,097 | |||||||
| Net operating loss carryforwards | 60,417 | 50,318 | |||||||||
| Research and development credit carryforwards | 16,106 | 14,659 | |||||||||
| Lease Liabilities | 489 | 1,230 | |||||||||
| R&D Capitalization | 29,916 | 29,840 | |||||||||
| Gross deferred tax assets | 110,341 | 103,144 | |||||||||
| Valuation allowance | (110,176) | (102,485) | |||||||||
| Net deferred tax assets | 165 | 659 | |||||||||
| Deferred tax liabilities | |||||||||||
| Property and equipment | (7) | (263) | |||||||||
| Right-of-use asset | (158) | (396) | |||||||||
| Net deferred tax assets | $ | — | $ | — | |||||||
On July 4, 2025, the One Big Beautiful Bill Act (“OBBBA”) was enacted in the United States. The OBBBA includes several significant tax provisions, such as the permanent extension of certain expiring provisions of the Tax Cuts and Jobs Act, modifications to the international tax framework and the restoration of certain business provisions. The legislation has multiple effective dates, with certain provision effective in 2025 and others implemented through 2027. The Company evaluated the impact of the OBBBA and determined that it did not have a material impact on the Company’s consolidated financial statements for the year ended December 31, 2025.
Realization of the deferred tax assets is dependent upon future taxable income. Since the amount and timing of future income are uncertain, the net deferred tax assets, as of December 31, 2025, and December 31, 2024 have been fully offset by a valuation allowance. The valuation allowance increased approximately $7.7 million, $20.0 million and $25.6 million during the years ended December 31, 2025, 2024, and 2023, respectively.
As of December 31, 2025, the Company had federal net operating loss (“NOL”) carryforward of $272.7 million and a federal research and development tax credit carryforward of $15.9 million. If not utilized sooner, the federal NOL generated through December 31, 2017 and tax credit carryforwards will expire, beginning in 2035. Federal net operating loss carryforwards of $250.6 million generated from years ended after December 31, 2017, carryforward indefinitely. As of December 31, 2025 the Company had a state NOL carryforward of $45.5 million, which will expire beginning in 2035, and a state research and development tax credit carryforward of $6.9 million, which does not expire.
In general, if the Company experiences a greater than 50 percentage point aggregate change in ownership over a three-year period (a Section 382 ownership change), utilization of the Company’s pre-change NOL carryforwards is subject to an annual limitation under Section 382 of the Code and similar California laws. The annual limitation generally is determined by multiplying the value of the Company’s stock at the time of such ownership change (subject to certain adjustments) by the applicable long-term tax-exempt rate. Such limitations may result in expiration of a portion of the NOL carryforwards before utilization. The Company has not performed a Section 382 analysis through December 31, 2025 and the Company has not utilized any NOL carryforwards through December 31, 2025. In addition, the Company’s deferred tax assets are subject to a full valuation allowance, and thus no benefit for deferred tax assets is recorded on the Company’s books. The Company’s ability to use the remaining NOL carryforwards may be further limited if the Company experiences a Section 382 ownership change as a result of future changes in the Company’s stock ownership.
The Company had $5.5 million of unrecognized tax benefits as of December 31, 2025. No liability related to uncertain tax positions is recorded on the financial statements. All uncertain tax positions are currently recorded as a reduction to the Company’s deferred tax assets, which are subject to a valuation allowance. If recognized, none of the unrecognized tax benefits would affect the effective tax rate. The Company’s policy is to include interest and penalties related to unrecognized tax benefits within the provision for income taxes, as necessary. The Company did not recognize any accrued interest and penalties related to gross unrecognized tax benefits related to the year ended December 31, 2025. A reconciliation of the Company’s unrecognized tax benefits for the year ended December 31, 2025 and 2024 is as follows (in thousands):
| Year Ended December 31, | |||||||||||
| 2025 | 2024 | ||||||||||
| Balance at the beginning of the year | $ | 5,007 | $ | 4,074 | |||||||
| Decrease related to prior year tax positions | — | — | |||||||||
| Increase related to current year tax positions | 519 | 933 | |||||||||
| Balance at the end of the year | $ | 5,526 | $ | 5,007 | |||||||
The Company files income tax returns in the United States federal jurisdiction, state jurisdictions and Australia. The Company currently has no federal, state or other jurisdictional tax examinations in progress. All years are open for examination by federal, state and Australian authorities.
Cash paid for income taxes, net of refunds received, was zero for all jurisdictions for the year ended December 31, 2025.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Mar 27, 2026 | Showing above |
| 2024 | Mar 25, 2025 | |
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.