Polaryx Therapeutics, Inc. Income Taxes Disclosure

8. Income Taxes

Income (loss) before provision for income taxes consisted of the following:

A reconciliation of the Company’s statutory income tax rate to the Company’s effective income tax rate is as follows:

The net deferred income tax asset balance related to the following:

As of December 31, 2025 and 2024, the Company had a federal net operating loss (“NOL”) carryforward of $18.7 million and $15.7 million, respectively. As of December 31, 2025 and 2024, the Company had state NOL carryforwards of $15.7 million and $15.7 million, respectively. Of the $18.7 million of federal NOL carryforwards as of December 31, 2025, $1.1 million begins to expire in 2034 and $17.6 million may be carried forward indefinitely. The state NOL carryforwards begin to expire in 2034.

As of December 31, 2025, the Company also had federal tax credits of $50 thousand, which begin to expire in 2042.

Future realization of the tax benefits of existing temporary differences and NOL carryforwards ultimately depends on the existence of sufficient taxable income within the carryforward period. As of December 31, 2025 and 2024, the Company performed an evaluation to determine whether a valuation allowance was needed. The Company considered all available evidence, both positive and negative, which included the results of operations for the current and preceding years. The Company determined that it was not possible to reasonably quantify future taxable income and determined that it is more likely than not that all of the deferred tax assets will not be realized. Accordingly, the Company maintained a full valuation allowance as of December 31, 2025 and 2024. The Company’s valuation allowance increased for the year ended December 31, 2025 by $1.5 million due primarily to the generation of net operating losses.

Under Internal Revenue Code Section 382 (“Section 382”), if a corporation undergoes an “ownership change,” the corporation’s ability to use its pre-change NOL carryforwards and other pre-change tax attributes to offset its post-change income may be limited. We have not completed a study to assess whether an “ownership change” has occurred or whether there have been multiple ownership changes since we became a “loss corporation” as defined in Section 382. Future changes in our stock ownership, which may be outside of our control, may trigger an “ownership change.” In addition, future equity offerings or acquisitions that have equity as a component of the purchase price could result in an “ownership change.” If an “ownership change” has occurred or does occur in the future, utilization of the NOL carryforwards or other tax attributes may be limited, which could potentially result in increased future tax liability to us.

The calculation of the Company’s tax liabilities involves dealing with uncertainties in the application of complex tax laws and regulations for both federal taxes and the many states in which we operate or do business in. ASC 740 states that a tax benefit from an uncertain tax position may be recognized when it is more likely than not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, on the basis of the technical merits.

The Company records uncertain tax positions as liabilities in accordance with ASC 740 and adjusts these liabilities when its judgment changes as a result of the evaluation of new information not previously available. Because of the complexity of some of these uncertainties, the ultimate resolution may result in a payment that is materially different from the Company’s current estimate of the unrecognized tax benefit liabilities. These differences will be reflected as increases or decreases to income tax expense in the period in which new information is available. As of December 31, 2025 and 2024, no uncertain tax positions have been recorded in the financial statements.

The Company files tax returns as prescribed by the tax laws of the jurisdictions in which it operates. In the normal course of business, the Company is subject to examination by federal and state jurisdictions, where applicable. There are currently no pending tax examinations. The Company’s tax years are still open under statute from December 31, 2022 to the present. The resolution of tax matters is not expected to have a material effect on the Company’s financial statements.