MANNKIND CORP Income Taxes Disclosure

18. Income Taxes

As of December 31, 2025, the Company has concluded that it is more likely than not that the Company may not realize the benefit of its deferred tax assets due to its history of losses. Accordingly, the net deferred tax assets have been fully reserved. The provision for income taxes consists of the following (in thousands):

Deferred income taxes reflect the tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting and income tax purposes. A valuation allowance is established when uncertainty exists as to whether all or a portion of the net deferred tax assets will be realized. Components of the net deferred tax asset as of December 31, 2025 and 2024 are approximately as follows (in thousands):

As of December 31, 2025 and 2024, management assessed the realizability of deferred tax assets. Management evaluated the need for an amount of any valuation allowance for deferred tax assets on a jurisdictional basis. This evaluation utilizes the framework contained in ASC 740, Income Taxes, wherein management analyzes all positive and negative evidence available at the balance sheet date to determine whether all or some portion of our deferred tax assets will not be realized. Under this guidance, a valuation allowance must be established for deferred tax assets when it is more likely than not (a probability level of more than 50%) that they will not be realized.

In concluding on the evaluation, management placed significant emphasis on guidance in ASC 740. As of December 31, 2024 and prior to the acquisition of scPharma, the Company maintained a full valuation allowance on its U.S. deferred tax assets due to cumulative losses. Upon the acquisition of scPharma in October 2025, it recognized $323.6 million of deferred tax liabilities (primarily on differences between the fair value and tax basis of scPharma's identifiable intangible assets). These deferred tax liabilities will generate future taxable income, which strengthened the Company's evidence for the realizability of a portion of its existing NOL and credit carryforwards. Accordingly, the Company reversed $5.0 million of its valuation allowance, resulting in a $5.0 million income tax benefit. After this release, its remaining valuation allowance is $708.9 million, related to net operating loss carryforwards and research and development credits. During the year ended December 31, 2025 the valuation allowance increased by $14.5 million and during the year ended December 31, 2024 the valuation allowance decreased by $3.9 million.

As of December 31, 2025, the Company had federal and state net operating loss carryforwards of approximately $2.2 billion and $1.5 billion available, respectively, to reduce future taxable income. $520.5 million of the federal losses do not expire and the remaining federal losses have started expiring, beginning in 2026 through various future dates.

Pursuant to IRC Sections 382 and 383, annual use of the Company’s federal and certain state net operating losses and research and development credit carryforwards may be limited in the event that a cumulative change in ownership of more than 50% occurs within a three-year period. As a result of the Company's initial public offering, an ownership change within the meaning of IRC Section 382 occurred in August 2004. As a result, federal net operating loss and credit carryforwards of approximately $105.8 million are subject to an annual use limitation of approximately $13.0 million. The annual limitation is cumulative and therefore, if not fully utilized in a year, can be utilized in future years in addition to the Section 382 limitation for those years. All of these attributes are now available for use for the tax year ended December 31, 2024 under Section 382. The Company is in the process of completing a Section 382 analysis beginning from the date of our initial public offering through December 31, 2025, to determine whether additional limitations may be placed on the net operating loss carryforwards and other tax attributes and does not anticipate any additional changes in ownership that meet Section 382 study ownership change threshold. There is a risk that changes in ownership may occur in tax years after December 31, 2025. If a change in ownership were to occur, our net operating loss carryforwards and other tax attributes could be further limited or restricted. If limited, the related asset would be removed from the deferred tax asset schedule with a corresponding reduction in the valuation allowance. Due to the existence of the valuation allowance, limitations created by future ownership changes, if any, related to the Company’s operations in the U.S. will not impact the Company’s effective tax rate.

As of December 31, 2025, the Company had $59.5 million of U.S. federal research and development credits which expire beginning in 2026, and $24.5 million of state research and development credits.

The Company files U.S. federal and state income tax returns in jurisdictions with varying statutes of limitations. In the normal course of business, the Company is subject to examination by taxing authorities throughout the country. These audits could include examining the timing and amount of deductions, the allocation of income among various tax jurisdictions and compliance with federal, state, and local tax laws. The Company's tax years since 2022 and 2021 remain subject to examination by federal and state tax authorities.

A reconciliation of beginning and ending amounts of unrecognized tax benefits was as follows (in thousands):

The Company has assessed its position with regards to uncertainty in tax positions and has not recognized a liability for unrecognized tax benefits. The Company does not expect its unrecognized tax benefits to change significantly over the next 12 months. The Company recognizes interest and penalties accrued related to unrecognized tax benefits in income tax expense. During the years ended December 31, 2025, 2024 and 2023, the Company did not recognize any interest and/or penalties.

In June 2024, California enacted Senate Bills 167 and 175 ("SB 167" and "SB 175"). SB 167 suspends the use of net operating losses ("NOLs") and limits the use of business credits to $5.0 million for the 2024-2026 tax years. Under SB 175, the NOL suspension and credit limitations will not apply for the 2025 and 2026 tax years if certain budget goals are met. Although the Company does not expect this legislation to have a material effect on its results of operations or cash flows, management continues to evaluate any potential impact.

On July 4, 2025, the One Big Beautiful Bill Act (“OBBBA”), which includes a broad range of tax reform provisions, was signed into law in the United States, which includes a new Internal Revenue Code ("IRC") Section 174A. Under Section 174A, commencing with tax years beginning after December 31, 2024, domestic research or experimental expenditures may be deducted in the current period rather than capitalized and amortized over multiple years, as previously required under IRC Section 174. As a result of this legislation, we are deducting our domestic Section 174A expenditures beginning in our 2025 taxable year. OBBBA does not have a material impact on our effective tax rate, financial condition, or results of operations in 2025.