Intuitive Machines, Inc.LUNR
Intuitive Machines, Inc. Income Taxes Disclosure
NOTE 7 - INCOME TAXES
The Company’s consolidated income tax provision consisted of the following components (in thousands):
| Year Ended December 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| Current: | |||||||||||
| Federal | $ | — | $ | — | |||||||
| State | 41 | 33 | |||||||||
| Deferred: | |||||||||||
| Federal | — | — | |||||||||
| State and local | (4) | 7 | |||||||||
| Total income tax provision (benefit) | $ | 37 | $ | 40 | |||||||
The reconciliation of the income tax provision computed at the Company’s effective tax rate is as follows (in thousands except for rates):
| Year Ended December 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| Income/(loss) before income taxes | $ | (346,885) | $ | 10,180 | |||||||
| Statutory income tax rate | 21.0 | % | 21.0 | % | |||||||
| Expected income tax expense/(benefit) | (72,846) | 2,137 | |||||||||
| Noncontrolling interest | 13,458 | 10,705 | |||||||||
| Fair value on earn-out liabilities | 25,226 | (13,913) | |||||||||
| Fair value on warrant liabilities | 18,646 | — | |||||||||
| Other permanent differences | (99) | (1,796) | |||||||||
| Stock compensation | (480) | — | |||||||||
| Research and development benefit | — | (611) | |||||||||
| State income tax expense | (5,593) | (741) | |||||||||
| Change in valuation allowance | 21,997 | 4,359 | |||||||||
| Other | (272) | (100) | |||||||||
| Total income tax provision (benefit) | $ | 37 | $ | 40 | |||||||
| Effective tax rate | (0.01) | % | 0.39 | % | |||||||
The Company’s effective tax rates for the years ended December 31, 2024 and 2023 were (0.01)% and 0.39%, respectively. For year ended December 31, 2024, our effective tax rate differed from the statutory rate of 21% primarily due to deferred taxes for which no benefit is being recorded and losses attributable to noncontrolling interest unitholders that are taxable on their respective share of taxable income. For the year ended December 31, 2023, our effective tax rate differed from the statutory rate of 21% primarily due to Intuitive Machines, LLC's status as a partnership for United States federal income tax purposes.
The significant components of the Company’s deferred tax assets and liabilities are as follows (in thousands):
| Year Ended December 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| Deferred tax assets: | |||||||||||
| Net operating losses | $ | 3,256 | $ | 391 | |||||||
| Restricted stock options | 629 | 184 | |||||||||
| Deferred revenue | 25 | 11 | |||||||||
| Investment in Intuitive Machines, LLC | 334,982 | 70,280 | |||||||||
| Other deferred tax assets | 664 | 1,103 | |||||||||
| Total deferred tax assets | 339,556 | 71,969 | |||||||||
| Valuation allowance | (339,543) | (71,948) | |||||||||
| Net deferred tax assets | 13 | 21 | |||||||||
| Deferred tax liabilities: | |||||||||||
| Section 481(a) adjustment | (13) | (21) | |||||||||
| Total deferred tax liabilities | (13) | (21) | |||||||||
| Net deferred tax asset (liability) | $ | — | $ | — | |||||||
As a result of the Business Combination, the Company was appointed as the sole managing member of Intuitive Machines, LLC. Prior to the close of the Business Combination, the Company's financial reporting predecessor, Intuitive Machines, LLC, was treated as a pass-through entity for tax purposes and no provision, except for certain state taxes, was made in the
consolidated financial statements for income taxes. Any income tax items for the periods prior to the close of the Business Combination are related to Intuitive Machines, LLC.
The Company is a corporation and thus is subject to U.S. federal, state and local income taxes. Intuitive Machines, LLC is a partnership for U.S. federal income tax purposes and therefore does not pay U.S. federal income tax on its taxable income. Instead, the Intuitive Machines, LLC unitholders, including the Company, are liable for U.S. federal income tax on their respective shares of Intuitive Machines, LLC’s taxable income. Intuitive Machines, LLC is liable for income taxes in those states which tax entities classified as partnerships for U.S. federal income tax purposes.
The Company accounts for income taxes using the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the estimated future tax consequences attributable to temporary differences between the consolidated financial statement carrying amounts of existing assets and liabilities and their respective tax base. Deferred tax assets and liabilities are determined on the basis of the differences between the consolidated financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the temporary differences are expected to be settled or recovered. Changes in deferred tax assets and liabilities are recorded in the provision for income taxes.
Valuation Allowance
The Company has established a valuation allowance related to its domestic and state net deferred tax assets. In assessing the realizability of deferred tax assets, the Company considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. The Company considers the scheduled reversal of deferred tax liabilities, projected future income, and tax planning strategies in making this assessment. The Company continues to closely monitor and weigh all available evidence, including both positive and negative, in making its determination whether to maintain a valuation allowance.
Tax Receivable Agreement
In conjunction with the consummation of the Transactions, Intuitive Machines, Inc. entered into a related party transaction, Tax Receivable Agreement (the “TRA”) with Intuitive Machines, LLC and certain Intuitive Machines, LLC members (the “TRA Holders”). Pursuant to the TRA, Intuitive Machines, Inc. is required to pay the TRA Holders 85% of the amount of the cash tax savings, if any, in U.S. federal, state, and local taxes that are based on, or measured with respect to, net income or profits, and any interest related thereto that the Company realizes, or is deemed to realize, as a result of certain tax attributes, including:
•existing tax basis in certain assets of Intuitive Machines, LLC and its subsidiaries;
•tax basis adjustments resulting from taxable exchanges of Intuitive Machines, LLC Common Units acquired by the Company;
•certain tax benefits realized by the Company as a result of the Business Combination; and
•tax deductions in respect of portions of certain payments made under the TRA.
All such payments to the TRA Holders are the obligations of the Company, and not that of Intuitive Machines, LLC. As of December 31, 2024, based primarily on historical losses of the Company, management has determined it is more-likely-than-not that the Company will be unable to utilize its deferred tax assets subject to the TRA; therefore, management applies a full valuation allowance to deferred tax asset for a corresponding liability under the TRA related to the tax savings the Company may realize from the utilization of tax deductions related to basis adjustments created by the transactions in the Business Combination Agreement. As of December 31, 2024, management does not expect a TRA liability to be recorded. Subsequent remeasurement of the TRA liability on December 31, 2024, from September 30, 2024, resulted in recognition of other income of $0.5 million recognized in other income (expense), net in the consolidated statements of operations.
Net Operating Loss
As of December 31, 2024, the company had approximately $13.7 million of federal net operating loss carryforwards (“NOL carryforwards”), which do not have an expiration date. The Company’s deferred tax assets, including these NOL
carryforwards have been reduced by a valuation allowance due to a determination made that it is more likely than not that some or all of the deferred assets will not be realized based on the weight of all available evidence.
Uncertain Tax Positions
For the periods ending December 31, 2024, and 2023, the Company has no reserves for uncertain tax positions.
The Company filed Form 3115, Application for Change in Accounting Method, with the Internal Revenue Service (“IRS”) to request permission to change from its impermissible method of accounting for launch costs to a permissible method. The requested change is nonautomatic and as such requires advance consent from the IRS. On October 18, 2023, the Company received affirmative written consent from the IRS and subsequently reversed the uncertain tax position.
The Company files income tax returns in the U.S., including federal and various state filings. The number of years that are open under the statute of limitations and subject to audit varies depending on the tax jurisdiction. We remain subject to U.S. federal tax examinations for years after 2020.
Beginning in 2022, the Tax Cuts and Jobs Act of 2017 (“TCJA”) eliminates the option to deduct research and development expenditures currently and requires taxpayers to capitalize and amortize them. Research and development expenses must be amortized over five years for research performed in the U.S. and fifteen years for research performed outside the U.S. Although Congress is considering legislation that would defer the amortization requirement to later years, it is not certain that the provision will be repealed or otherwise modified. In 2024, the Company has estimated $17.2 million of research and expenditures subject to capitalization and subsequent amortization for federal tax purposes.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.