OFS Capital CorpOFS
OFS Capital Corp Income Taxes Disclosure
Federal Income Tax
Filing status: The Company has elected to be taxed as a RIC under Subchapter M of the Code. In order to maintain its status as a RIC, the Company is required to distribute annually to its stockholders at least 90% of its ICTI, as defined by the Code. Additionally, to avoid a 4% U.S. federal excise tax on undistributed earnings the Company is required to distribute each calendar year the sum of (i) 98% of its ordinary income for such calendar year, (ii) 98.2% of its net capital gains for the one-year period ending October 31 of that calendar year, and (iii) any income recognized, but not distributed, in preceding years and on which the Company paid no U.S. federal income tax. Maintenance of the Company's RIC status also requires adherence to certain source of income and asset diversification requirements.
OFSCC-MB and OFSCCFS-NYBG, Inc., entities taxed as corporations under Subchapter C of the Code (collectively, the “Taxable Blocker Subsidiaries”), are consolidated in the Company’s GAAP financial statements but are not included in the determination of ICTI or the RIC compliance requirements of the Company. The income of the Taxable Blocker Subsidiaries, net of applicable income taxes, is not included in the Company’s ICTI until distributed by the Taxable Blocker Subsidiaries, which may result in timing and character differences between the Company’s GAAP and tax-basis net investment income and realized gains and losses.
Taxable income and distributions: As of December 31, 2025, the Company met the source of income and asset diversification requirements, and intends to continue to meet these requirements. As of December 31, 2025, the Company has accrued refunds of $121 related to prior years’ excise tax overpayments. The Company’s ICTI differs from the net increase (decrease) in net assets resulting from operations primarily due to differences in income recognition on the unrealized appreciation/depreciation of investments, income recognition for CLO subordinated note investments, income from the Company’s equity investments in pass-through entities, capital gains and losses and the net creation or utilization of capital loss carryforwards.
The distributions paid to stockholders are reported as ordinary income, long-term capital gains and returns of capital. The tax character of distributions paid were as follows:
| Year Ended December 31, | |||||||||||||||||
2025(1) | 2024 | 2023 | |||||||||||||||
| Ordinary taxable income | $ | 5,228 | $ | 18,221 | $ | 17,954 | |||||||||||
| Long-term capital gain | — | — | — | ||||||||||||||
| Return of capital | 10,716 | — | — | ||||||||||||||
| Total distributions to common stockholders | $ | 15,944 | $ | 18,221 | $ | 17,954 | |||||||||||
(1) The calculation of 2025 U.S. federal taxable income is based on certain estimated amounts, including information received from third parties and, as a result, actual 2025 U.S. federal taxable income will not be finally determined until the Company’s 2025 U.S. federal tax return is filed in 2026 (and, therefore, such estimate is subject to change).
Tax-basis components of distributable earnings (accumulated losses) as of December 31, 2025 and 2024, were as follows:
| December 31, | |||||||||||
| 2025 | 2024 | ||||||||||
| Ordinary income (RIC) | $ | — | $ | 267 | |||||||
| Undistributed earnings and profits (OFSCC-MB; C-Corporation) | — | 2,498 | |||||||||
| Net operating loss carryforward (OFSCC-MB; C-Corporation) | 4 | 79 | |||||||||
| Capital loss carryforwards: | |||||||||||
RIC – short-term, non-expiring | (5,159) | (5,087) | |||||||||
RIC – long-term, non-expiring | (70,800) | (63,080) | |||||||||
The Company records reclassifications to its capital accounts related to permanent differences between GAAP and tax treatment of excise taxes and other permanent differences. The Company recorded reclassifications to (increase) decrease additional paid-in capital against total distributable earnings (accumulated loss) of $1, $(71) and $0 for the years ended December 31, 2025, 2024 and 2023, respectively. These reclassifications have no effect on total net assets or net asset value per common share.
The estimated tax-basis cost of investments and associated tax-basis gross unrealized appreciation (depreciation) inherent in the fair value of investments as of December 31, 2025 and 2024, were as follows:
| December 31, | |||||||||||
| 2025 | 2024 | ||||||||||
| Tax-basis amortized cost of investments | $ | 318,932 | $ | 358,210 | |||||||
| Tax-basis gross unrealized appreciation on investments | 88,060 | 103,808 | |||||||||
| Tax-basis gross unrealized depreciation on investments | (64,977) | (52,353) | |||||||||
| Tax-basis net unrealized appreciation on investments | 23,083 | 51,455 | |||||||||
| Fair value of investments | $ | 342,015 | $ | 409,665 | |||||||
Deferred taxes: The Company recognizes deferred taxes on the unrealized appreciation or depreciation of securities held through its Taxable Blocker Subsidiaries and other basis differences, including available loss carry forwards and suspended interest expense deductions reported by portfolio companies. Deferred tax assets and liabilities are measured using enacted corporate federal tax rates and estimated state tax burdens expected to apply to taxable income in the years in which those unrealized gains and losses are realized. The recoverability of deferred tax assets is assessed and a valuation allowance is recorded to the extent that it is more likely than not that any portion of the deferred tax asset will not be realized on the basis of the projected taxable income or other taxable events in OFSCC-MB.
The tax-basis unrealized appreciation (depreciation) of investments by tax entity inherent in the fair value of investments as of December 31, 2025 and 2024, were as follows:
| December 31, | |||||||||||
| 2025 | 2024 | ||||||||||
| Total tax-basis net unrealized appreciation on investments held by RIC entities | $ | 27,890 | $ | 49,423 | |||||||
| Taxable Blocker Subsidiaries (C-Corps): | |||||||||||
| Gross unrealized appreciation on investments | 3,131 | 2,041 | |||||||||
| Gross unrealized depreciation on investments | (7,938) | (9) | |||||||||
| Total net unrealized appreciation (depreciation) on investments on investments held by Taxable Blocker Subsidiaries | (4,807) | 2,032 | |||||||||
| Total tax-basis net unrealized appreciation on investments | $ | 23,083 | $ | 51,455 | |||||||
Deferred tax assets and liabilities as of December 31, 2025 and 2024, were as follows:
| December 31, | |||||||||||
| 2025 | 2024 | ||||||||||
| Total deferred tax assets | $ | 2,263 | $ | 3 | |||||||
| Valuation allowance on deferred tax assets | (2,260) | — | |||||||||
| Total deferred tax liabilities | (893) | (582) | |||||||||
Deferred tax liabilities and assets with tax basis unrealized gain and losses differs from the amount that would have resulted from applying the federal rate of 21% to unrealized gains and losses because of state income taxes, net of the associated federal tax benefit. Deferred tax assets are recognized to the extent the Company believes it is more likely than not that such assets will be realized. The realization of deferred tax assets is dependent upon the generation of sufficient future taxable income during the periods in which the related temporary differences become deductible. As of December 31, 2025, the Company recorded a valuation allowance of $2,260 against its deferred tax assets, resulting in net deferred tax assets of $0. The valuation allowance primarily relates to deferred tax assets associated with deductible temporary differences for which the Company concluded that realization is not more likely than not. If the Company’s assessment of the need for a valuation allowance were to change, such change could have a material impact on the Company’s effective tax rate in the period of the change.
The Company adopted ASU 2023-09 on a prospective basis for the year ended December 31, 2025 and has included the following table as a result of its adoption, which presents income taxes paid (net of refunds received) for the year ended December 31, 2025:
| Year Ended December 31, 2025 | |||||
| U.S. federal income taxes | $ | 17 | |||
| U.S. state and local income taxes | 4 | ||||
| Total cash paid for income taxes | $ | 21 | |||
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Mar 3, 2026 | Showing above |
| 2024 | Mar 4, 2025 | |
| 2023 | Mar 5, 2024 | |
| 2022 | Mar 3, 2023 | |
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.