Morgan Stanley Direct Lending Fund Income Taxes Disclosure
(10) INCOME TAXES
For income tax purposes, distributions made to the Company’s stockholders are reported as ordinary income, capital gains, or a combination thereof. The tax character of distributions made were as follows:
|
|
For the Year Ended |
|
|||||||||
|
|
December 31, 2025 |
|
|
December 31, 2024 |
|
|
December 31, 2023 |
|
|||
Distributions paid from: |
|
|
|
|
|
|
|
|
|
|||
Ordinary income (including net short-term capital gains) |
|
$ |
174,035 |
|
|
$ |
195,611 |
|
|
$ |
168,975 |
|
Net long-term capital gains |
|
|
— |
|
|
|
118 |
|
|
|
316 |
|
Total taxable distributions |
|
$ |
174,035 |
|
|
$ |
195,729 |
|
|
$ |
169,291 |
|
Taxable income generally differs from net increase in net assets resulting from operations for financial reporting purposes due to temporary and permanent differences in the recognition of income and expenses, and generally excludes net unrealized gains or losses, and incentive fee accrual associated with any unrealized gains, as unrealized gains or losses are generally not included in taxable income until they are realized.
For the year ended December 31, 2025, the Company estimated U.S. federal taxable income exceeded its distributions made from such taxable income during the year; consequently, the Company has elected to carry forward the excess for distribution to stockholders in 2025. The amount carried forward to 2026 is estimated to be approximately $73,343, of which $73,343 is expected to be ordinary income and $0 is expected to be capital gains, although these amounts will not be finalized until the 2025 tax returns are filed in 2026.
The Company makes certain adjustments to the classification of net assets as a result of permanent book-to-tax differences, which include differences in the book-to-tax treatment of net operating losses, dividend re-designations and timing of the deductibility of certain business expenses, as applicable. To the extent these differences are permanent, they are charged or credited to additional paid-in capital, undistributed net investment income or undistributed net realized gains on investments, as appropriate.
The book-to-tax differences relating to distributions made to the Company’s stockholders resulted in reclassifications among certain capital accounts as follows:
|
|
As of |
|
|||||||||
|
|
December 31, 2025 |
|
|
December 31, 2024 |
|
|
December 31, 2023 |
|
|||
Paid-in capital in excess of par value |
|
$ |
(2,697 |
) |
|
$ |
(1,330 |
) |
|
$ |
(1,515 |
) |
Total distributable earnings (loss) |
|
|
2,697 |
|
|
|
1,330 |
|
|
|
1,515 |
|
The cost and unrealized gain (loss) on the Company’s consolidated financial instruments, as calculated on a tax basis, were as follows (amounts calculated using book-to-tax differences as of the most recent fiscal year ended December 31, 2025, December 31, 2024 and December 31, 2023):
|
|
As of |
|
|||||||||
|
|
December 31, 2025 |
|
|
December 31, 2024 |
|
|
December 31, 2023 |
|
|||
Gross unrealized appreciation |
|
$ |
29,854 |
|
|
$ |
38,155 |
|
|
$ |
19,066 |
|
Gross unrealized depreciation |
|
|
(97,737 |
) |
|
|
(59,527 |
) |
|
|
(52,242 |
) |
Net unrealized appreciation (depreciation) |
|
$ |
(67,883 |
) |
|
$ |
(21,372 |
) |
|
$ |
(33,176 |
) |
Tax cost of investments at year end |
|
$ |
3,838,978 |
|
|
$ |
3,813,066 |
|
|
$ |
3,226,720 |
|
At December 31, 2025 the Company had available for federal income tax purposes unused capital losses of approximately $24,867, of which $12,527 are short-term and $12,340 are long-term, that do not have an expiration date.
To the extent that capital loss carryforwards are used to offset any future capital gains realized, no capital gains tax liability will be incurred by the Company for gains realized and not distributed. To the extent that capital gains are offset, such gains will not be distributed to the shareholders.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 26, 2026 | Showing above |
| 2024 | Feb 27, 2025 | |
| 2023 | Mar 1, 2024 | |
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.