Quince Therapeutics, Inc. Income Taxes Disclosure

Note 12. Income taxes

Deferred income taxes reflect the net tax effects of (a) temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, and (b) operating losses and tax credit carryforwards.

The Company’s accounting for deferred taxes involves the evaluation of a number of factors concerning the realizability of its net deferred tax assets. The Company primarily considered such factors as its history of operating losses, the nature of the Company’s deferred tax assets, and the timing, likelihood and amount, if any, of future taxable income during the periods in which those temporary differences and carryforwards become deductible. At present, the Company does not believe that it is more likely than not that the deferred tax assets will be realized; accordingly, a full valuation allowance has been established. The valuation allowance decreased by approximately $6.4 million and increased by approximately $6.4 million, respectively for the years ended December 31, 2025 and 2024.

As of December 31, 2025, the Company has federal net operating loss carryforwards of approximately $253.3 million, of which $237.5 million will not expire and $15.8 million begin expiring in 2034. The Company also has state net operating loss carryforwards of approximately $34.8 million which begin to expire in 2034. Additionally, the Company has federal tax credits of approximately $10.4 million which begin to expire in 2036 and state tax credits of approximately $3.0 million which do not expire.

As of December 31, 2025, the Company has foreign net operating loss carryforwards, primarily in Italy, of approximately $119.0 million, which have no expiration date.

Pursuant to the Code Sections 382 and 383, annual use of a company’s U.S. NOL and research and development credit carryforwards may be limited if there is a cumulative change in ownership of greater than 50% within a three-year period. The amount of the annual limitation is determined based on the value of the Company immediately prior to the ownership change. Subsequent ownership changes may further affect the limitation in future years. If limited, the related tax asset would be removed from the deferred tax asset schedule with a corresponding reduction in the valuation allowance. The Company has completed such an analysis pursuant to Sections 382 and 383 in prior years which determined that ownership changes occurred on December 22, 2015 and May 13, 2019, which had no impact on the NOLs available to offset future income. The Company has rolled forward the analysis through December 31, 2023 and no additional ownership changes had occurred. The Company has not completed a Section 382/383 analysis for the period subsequent to December 31, 2023. Subsequent ownership changes may further affect the limitation in future years.

On July 4, 2025, the One Big Beautiful Bill Act (“OBBBA”) was signed into law in the U.S. which contains a broad range of tax reform provisions affecting businesses. The Company evaluated the impact of the OBBBA and determined that it did not have a material impact on the Company’s financial statements for the year ended December 31, 2025.

The Company’s subsidiaries in Australia received cash payments of R&D tax incentives in prior periods, a qualifying condition of which was that the related R&D expenditure was ‘at risk’. During the quarter ended June 30, 2025, the Australian entities were dissolved. It is reasonably possible that the Australian tax authorities may determine that the initial R&D expenditures were not ‘at risk’ and seek to recover the related incentives previously paid to the Company of $0 up to $2.7 million. The outcome of a potential recoupment of amounts by the Australian Tax Authorities is inherently unpredictable and involves a series of complex assessments by management about future events.

The Company follows the provisions of the FASB ASC 740-10, Accounting for Uncertainty in Income Taxes. ASC 740-10 prescribes a comprehensive model for the recognition, measurement, presentation and disclosure in the consolidated financial statements of uncertain tax positions that have been taken or expected to be taken on a tax return. It is the Company’s policy to include penalties and interest related to income tax matters in income tax expense.

The Company is subject to taxation in the United States, Australia, and Italy. Because of the net operating loss and research credit carryforwards, all of the Company’s tax years, from 2014 to 2025, remain open to U.S. federal, California, and other state tax examinations. The Company's Australian subsidiaries remain open to examination from their inception to 2025. The Company’s Italian subsidiary remain open to examination from their inception to 2025. The cash paid for income taxes (net of refunds) during the year was zero for all jurisdictions.

The Company’s foreign subsidiaries are in accumulated deficit positions. Accordingly, the Company has not accrued any provision for taxes associated with the repatriation of undistributed earnings from its foreign subsidiaries as of December 31, 2025.

In December 2025, the Company completed an intercompany transfer of certain intellectual property from its Italian subsidiary to the United States parent entity. Prior to the sale the Company had a $16.4 million deferred tax liability related to the difference between book and tax basis of the intellectual property. As a result of the transfer the deferred tax liability was released and a deferred tax asset recorded of $13.4 million. The deferred tax assets represents the value of future deductions for amortization of the asset in the US, and is offset by the valuation allowance. The tax impact of the intellectual property transfer has been adjusted for associated unrecognized tax benefits, consistent with ASC 740, Income Taxes. The fair value of the intellectual property was determined using an Acquisition Price Method (‘APM’) based on unobservable inputs and includes judgments such as, but not limited to, discount rates, control premium and residual returns. Management’s estimate of fair value is based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates. The increase in the gross unrecognized tax benefits and the unrecognized tax benefit at December 31, 2025 are primarily due to the positions taken with respect to this intercompany transaction. Included in the balance of gross unrecognized tax benefits as December 31, 2025 are potential benefits of $6.4 million that would reduce the Company's effective tax rate. The remainder of our unrecognized tax benefits would not impact our effective tax rate due to a valuation allowance offsetting our deferred tax assets. There were interest and penalties of $0.2 million and $0.2 million accrued as of December 31, 2025 and 2024, respectively.