PERDOCEO EDUCATION Corp Income Taxes Disclosure

The provision for income taxes for the years ended December 31, 2025, 2024 and 2023 consists of the following (dollars in thousands):

The following table shows the principal reasons for the difference between the effective income tax rate and the statutory federal income tax rate:

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(1) The states that contribute to the majority (greater than 50%) of the tax effect in this category include California, Florida and Illinois for 2025, Illinois for 2024 and Illinois for 2023.

The amounts of cash taxes paid by the Company are as follows (dollars in thousands):

A reconciliation of the beginning and ending amounts of gross unrecognized tax benefits as of December 31, 2025, 2024 and 2023 is as follows (dollars in thousands):

The total amount of net unrecognized tax benefits that, if recognized, would favorably affect the effective tax rate in future periods was $30.2 million and $27.4 million for the years ended December 31, 2025 and 2024, respectively. As of December 31, 2025, our short and long-term reserves, recorded within current accrued income taxes and other non-current liabilities, respectively, related to FASB’s interpretation No. 48 of ASC Topic 740-10, Accounting for Uncertainty in Income Taxes or (“FIN 48”), were $2.1 million and $30.4 million, respectively. We record interest and penalties related to unrecognized tax benefits within provision for income taxes on our consolidated statements of income. The total amount of accrued interest and penalties resulting from such unrecognized tax benefits was $5.6 million and $4.4 million as of December 31, 2025 and 2024, respectively. For the years ended December 31, 2025, 2024 and 2023, we recognized expenses of less than $1.0 million, less than $1.0 million and less than $0.7 million, respectively, related to interest and penalties from unrecognized tax benefits in our consolidated results of operations.

Perdoceo and its subsidiaries file income tax returns in the U.S. and in various state and local jurisdictions and are routinely examined by tax authorities in these jurisdictions. As of December 31, 2025, the Company's federal income tax returns are open to examinations for the tax years ended December 31, 2022 and forward.

As of December 31, 2025, the Company has a gross deferred tax asset before valuation allowance of $357.8 million and a gross deferred tax liability of $103.4 million. As of December 31, 2024, the Company had a gross deferred tax asset before valuation allowance of $373.0 million and a gross deferred tax liability of $79.1 million.

Included among the Company’s gross deferred tax assets as of December 31, 2025, was a federal net operating loss ("NOL") carryforward of $17.9 million, tax basis amortizable intangible assets of $189.8 million, an interest expense disallowance carryforward of $18.1 million and state NOL carryforwards of $8.3 million. These acquired tax attributes are all subject to an annual utilization limitation. Excluding the acquired state NOLs mentioned above, we have state NOL carryforwards of approximately $212.4 million, which expire between tax years 2025 and 2037. Of this amount, approximately $52.0 million relates to separate state NOL carryforwards and $127.2 million relates to combined state NOL carryforwards, which we anticipate will not be utilized. Valuation allowances have been established against the full amounts of the deferred tax balances for these separate and combined state NOL carryforwards.

As of December 31, 2024, a valuation allowance of $12.0 million was maintained with respect to our equity investment in CCKF and state NOLs. During the year, the Company incurred a $3.8 million capital loss upon the sale of its equity investment in CCKF. In assessing whether the deferred tax asset on the capital loss was realizable, the Company considered the fact that capital losses can only be utilized to offset capital gains and there is neither an opportunity to carry back the capital loss nor are there any material capital gains anticipated within the allowed 5-year carryforward period. Therefore, we determined a full valuation allowance was needed with respect to the capital loss. As of December 31, 2025, our total valuation allowance was $11.5 million, primarily associated with our state NOLs attributable to jurisdictions where we no longer maintain active schools. We will continue to evaluate our valuation allowance in future years for any change in circumstances that causes a change in judgment about the realizability of these deferred tax assets.