MONARCH CASINO & RESORT INC Income Taxes Disclosure

NOTE 7. INCOME TAXES

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In December 2023, the Financial Accounting Standards Board issued updated accounting guidance, ASU 2023-09, on disclosure for income taxes which the Company adopted prospectively as of January 1, 2025. Foreign pretax income, income tax expense, and income taxes paid were immaterial for all periods presented. As a result, foreign amounts have not been separately disaggregated. All pretax income was related to domestic, continuing operations for all periods presented.

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The Company’s income tax provision (benefit) consists of the following (in thousands):

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In conformity with the ASC Topic 718, Compensation-Stock Compensation: Improvements to Employee Share-based Payment Accounting (ASU 2016-09), all excess tax benefits and deficiencies are recognized as income tax expense (income tax benefit) in the Company’s Consolidated Statement of Income. This may result in increased volatility in the Company’s effective tax rate.

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The Company adopted ASU 2023-09 for the year ended December 31, 2025 and applied the new disclosure requirements prospectively to the current annual period.

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The income tax provision differs from that computed at the federal statutory rate. A reconciliation of the federal income tax statutory rate and the Company’s effective tax rate for the year ended December 31, 2025 was as follows (in thousands, except percentages):

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A reconciliation of the federal income tax statutory rate and the Company’s effective tax rate was as follows:

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The effective tax rate varies year-over-year primarily based on the amount of the excess tax benefit on stock compensation. In 2025, 2024 and 2023, the Company recorded against the tax expense $2.2 million, $1.3 million and $0.4 million tax benefit for employee stock-based compensation, respectively.

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In 2025, the effective tax rate is greater than the federal statutory tax rate of 21% primarily as a result of state tax and permanent items of $2.1 million and $1.3 million, respectively, offset by the excess tax benefits on stock compensation of $2.2 million. In 2024, the effective tax rate is greater than the federal statutory tax rate of 21% primarily as a result of state tax of $1.6 million, offset by the excess tax benefits on stock compensation of $1.3 million. In 2023, the effective tax rate is greater than the federal statutory tax rate of 21% primarily as a result of state tax and permanent items of $2.1 million and $2.0 million, respectively.

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The components of the deferred income tax assets and liabilities at December 31, 2025 and 2024, as presented in the consolidated balance sheets, are as follows (in thousands):

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As of December 31, 2025, the Company has state net operating loss (“NOL”) carryforwards of $8.4 million. The Company has utilized all federal NOL carryforwards. The state NOL carryforwards expire in 2030 through 2040.

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The state NOL of $8.4 million, acquired as part of the Monarch Black Hawk acquisition, is subject to Internal Revenue Code change of ownership limitations. Accordingly, future utilization of the carryforwards is subject to an annual base limitation of $1.25 million that can be applied against future taxable income.

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The Company acquired NOLs of Monarch Black Hawk generated in tax years 2000 through 2012. The statute of limitation for assessment for these NOL years is determined by reference to the year the NOL is used to reduce taxable income. Consequently, the separate returns that included Monarch Black Hawk for 2008 through 2012 remain subject to examination by taxing authorities. The Company’s income tax returns from 2022 forward are subject to examination by the taxing authorities.

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ASC 740 require that tax positions be assessed for recognition using a two-step process. A tax position is recognized if it meets a “more likely than not” threshold, and is measured at the largest amount of benefit that is greater than 50 percent likely of being realized. Uncertain tax positions (UTP) must be reviewed at each balance sheet date. Liabilities recorded as a result of this analysis must generally be recorded separately from any current or deferred income tax accounts. The Company’s policy regarding interest and penalties associated with uncertain tax positions is to classify such amounts as income tax expense.

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As of December 31, 2025, we recognized an uncertain tax position, inclusive of accrued interest, of $739 thousand and is included in other long-term liabilities. The total amount of the unrecognized tax benefits that, if recognized, would affect the effective tax rate is $10 thousand. The uncertain tax position results from depreciation taken on property and equipment relating to the ongoing litigation with PCL Construction Services, Inc.

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No uncertain tax positions were recorded as of December 31, 2024 and 2023.

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The following table summarizes the activity related to our uncertain tax position:

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On July 4, 2025, H.R. 1, commonly known as the One Big, Beautiful Bill Act (the “OBBBA”), was enacted. The OBBBA contains significant changes to corporate taxation, including accelerated deductions for capital spending, expensing of research and development costs and increased deductibility of interest expense. The enactment of the OBBBA did not materially impact our 2025 financial statements.