NRX Pharmaceuticals, Inc. Income Taxes Disclosure

13. Income Taxes

 

The Company maintains a full valuation allowance on its net deferred tax asset due to the uncertainty of future taxable income. The Company did not recognize an income tax benefit in the years ended December 31, 2024 and 2023 due to the uncertainty of future taxable income. In the years ended December 31, 2024 and 2023, the difference between the statutory tax rate and the Company’s effective tax rate was due primarily to the valuation allowance recorded to offset any potential tax benefit.

 

A reconciliation of the statutory U.S. federal income tax rate to the Company’s effective tax rate consist of the following:

 

		For the Years Ended December 31,
		2024				2023
Federal statutory rate			(21.00	)%			(21.00	)%
Permanent items			0.05	%			0.18	%
Settlement warrants			1.37	%			(0.02	)%
Stock compensation			(2.23	)%			3.21	%
Loss on Conversion of Note			1.06	%			—	%
State taxes			(0.17	)%			4.74	%
Increase in valuation allowance			18.73	%			9.45	%
R&D credit			—	%			1.66	%
Convertible Note			2.19	%			1.89	%
Other			—	%			(0.11	)%
Effective tax rate			0.00	%			0.00	%

 

The components of income tax provision (benefit) are as follows (in thousands):

 

		As of December 31,
		2024				2023
Federal		$				$
Current			—				—
Deferred			(4,715	)			(4,278	)
Foreign
Current			—				—
Deferred			—				—
State and Local
Current			—				—
Deferred			(43	)			1,428
Change in Valuation Allowance			4,758				2,850
Total		$	—			$	—

 

Deferred income taxes reflect the net tax effects of temporary differences between the carrying value of assets and liabilities for financial reporting purposes and amounts used for income tax purposes. The temporary differences that give rise to deferred tax assets and liabilities are as follows:

 

		As of December 31,
		2024				2023
Deferred tax assets (liabilities):
Net operating loss carryforwards		$	39,753			$	35,860
Common stock warrants			1,830				1,822
174 capitalization			5,186				5,169
Stock-based compensation			2,034				1,400
Bonus and severance accrual			119				167
Other			741				488
Depreciation			2				(2	)
			49,665				44,904
Valuation allowance			(49,665	)			(44,904	)
Deferred tax assets, net of allowance		$	—			$	—

 

As of December 31, 2024 and 2023, the Company had federal net operating losses of approximately $187.1 million and $168.5 million, respectively, and state net operating loss carryforwards of approximately $10.2 million and $10.4 million, respectively. The federal and state net operating loss carryforwards generated in the tax years prior to 2018 will begin to expire, if not utilized, by 2035. Certain Net Operating Losses in these jurisdictions are not subject to expiration.  Utilization of the net operating loss carryforwards may be subject to an annual limitation according to Section 382 of the Internal Revenue Code of 1986 as amended, and similar provisions.

 

ASC 740 requires a valuation allowance to reduce the deferred tax assets reported if, based on the weight of the evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. After consideration of all of the evidence, the Company has recorded a valuation allowance of $49.665 million against its deferred tax assets at December 31, 2024 because management has determined that it is more likely than not that the Company will not recognize the benefits of its federal and state deferred tax assets, primarily due to its history of cumulative net losses incurred since inception and its lack of commercialization of products or generation of revenue from product sales since inception.

 

The Company recognizes interest accrued to unrecognized tax benefits and penalties as income tax expense. The Company accrued total penalties and interest of $0 during the years ended December 31, 2024 and 2023 and in total, as of December 31, 2024 and 2023 has recognized penalties and interest of $0.  

 

The Company files tax returns as prescribed by the tax laws of the jurisdictions in which they operate. In the normal course of business, the Company is subject to examination by federal and foreign jurisdictions where applicable based on the statute of limitations that apply in each jurisdiction. As of December 31, 2024, open years related to all jurisdictions are 2023, 2022, and 2021. 

 

The Company has no open tax audits with any taxing authority as of December 31, 2024.