NET Power Inc.NPWR

NET Power Inc. Income Taxes Disclosure

10-KFiled Mar 9, 20264 min read
NOTE 12 — Income Taxes
The following table presents the components of the Company’s net loss before income tax:
Year Ended December 31,
$ in thousands20252024
United States$(1,677,718)$(175,032)
Foreign(14)(192)
Total net loss before income tax$(1,677,732)$(175,224)
The following table presents the components of the Company’s current and deferred income taxes:
Year Ended December 31,
$ in thousands20252024
Federal
     Deferred tax benefit$4,306 $10,491 
Total federal4,306 10,491 
State and local
     Current tax expense (1)— 
     Deferred tax benefit— 89 
Total state and local(1)89 
Total$4,305 $10,580 
The following table presents the Company’s effective income tax rate:
Year Ended December 31,
20252024
U.S. federal statutory rate21.0 %21.0 %
Increase (decrease) due to:
     State income taxes, net of federal income tax benefit— %0.1 %
     Non-controlling interests(13.7)%(13.8)%
     Valuation allowance(8.2)%— %
Warrants0.9 %(3.0)%
R&D Credit0.1 %0.5 %
Other0.2 %1.2 %
Effective tax rate0.3 %6.0 %
The following table presents the effects of temporary differences arising from deferred income taxes:
December 31,
$ in thousands20252024
Deferred tax assets
     Federal net operating losses$12,896 $4,808 
     State net operating losses1,324 551 
     Investment in OpCo104,724 10,816 
R&D credit carryforward2,032 1,308 
Warrants4,429 — 
Other80 74 
Deferred tax assets, gross125,485 17,557 
Valuation allowance(125,485)(11,293)
Deferred tax assets, net— 6,264 
Deferred tax liabilities
Warrants— (10,570)
Deferred tax liabilities, gross— (10,570)
Deferred tax liabilities, net$— $(4,306)

As of December 31, 2025, the Company recorded a deferred tax asset of $125.5 million, which was offset by a valuation allowance of $125.5 million. The change in the valuation allowance of $114.2 million for the year ended December 31, 2025 is primarily due to the change in the balance of the deferred tax asset attributable to Net Power Inc.’s investment in OpCo. The Company considered sources of income and determined that the deferred tax assets in the amount of $125.5 million and $11.3 million were not more-likely-than-not to be realized as of December 31, 2025 and 2024 and therefore established a valuation allowance as of the respective dates.
As of December 31, 2025, the Company has federal, state, and foreign income tax net operating loss carryforwards of $61.4 million, $53.0 million, and $0.2 million. The Company recorded a $12.9 million deferred tax asset for the federal net operating loss, a $1.3 million deferred tax asset for state net operating loss, and a $0.1 million deferred tax asset for foreign net operating loss, which were all offset by a valuation allowance based on the determination that these losses are not more-likely-than-not to be realized. Federal net operating losses are carried forward indefinitely and state and foreign net operating loss carryforwards will
begin to expire in 2043. The Company also recognized $2.0 million of R&D credit carryforward which will begin to expire in 2043 and is offset by a valuation allowance.
As of December 31, 2025, the Company recorded no unrecognized tax benefits that, if recognized, would decrease the Company’s effective tax rate. The measurement of unrecognized tax benefits is not expected to significantly change during the twelve months following the date of the consolidated balance sheets. Management evaluated the Company’s tax positions and concluded that the Company had taken no uncertain tax positions that require adjustment to comply with applicable accounting guidance.
The Company and its subsidiaries file U.S. federal income tax returns as well as tax returns in various state jurisdictions. OpCo files U.S. federal and state tax returns. Generally, tax years between 2020 and 2023 remain open to examination by the tax authorities in these jurisdictions.
Although the outcomes of tax examination are uncertain, management believes that adequate provisions for income taxes have been made. If outcomes differ materially from management’s estimates, those outcomes could have a material impact on the Company’s financial condition and results of operations. Differences between actual results and assumptions or changes in assumptions in future periods are recorded in the period they become known. To the extent additional information becomes available prior to resolution, such accruals are adjusted to reflect probable outcomes.
On July 4, 2025, the OBBBA was enacted in the U.S, which includes significant 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 favorable tax treatment for certain business provisions. The legislation has multiple effective dates, with certain provisions effective in 2025 and others implemented through 2027. We have evaluated the OBBBA and determined that there were no material impacts to our consolidated financial statements.
Tax Receivable Agreement
In March 2025, due to the Company’s decision to pause new purchase commitments for Project Permian’s long-lead equipment and commencement of a value engineering exercise to determine project cost reductions and better understand Project Permian’s expected economic feasibility, the Company determined it was not more likely than not that its deferred tax assets subject to the Tax Receivable Agreement would be realized and therefore reduced the TRA liability to zero as payments under the TRA were not considered probable. Accordingly, in March 2025, the Company recognized a $21.3 million reduction in the Tax Receivable Agreement liability, which is recorded in Change in Tax Receivable Agreement liability in the consolidated statements of operations and comprehensive loss for the year ended December 31, 2025.
On May 12, 2025, pursuant to its rights under the TRA, the Company delivered to the agent of the TRA holders notice of the Company’s intent to terminate the TRA (the “Early Termination Notice”). No early termination payment was payable to any TRA holder. The Early Termination Notice became final and binding on June 12, 2025.

Historical Timeline

Fiscal YearFiled
2025Mar 9, 2026Showing above
2024Mar 10, 2025
2023Mar 11, 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.

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