QuantumScape Corp Income Taxes Disclosure

Note 10. Income Taxes

The Company has no U.S. provision for income taxes for the years ended December 31, 2025, 2024 and 2023 due to net operating losses generated and full valuation allowance against US deferred tax assets. The Company has a subsidiary in Japan and the foreign tax provision (benefit) in Japan for the years ended December 31, 2025, 2024 and 2023 are $1.5 million, $(0.3) million and $20 thousand, respectively, which are presented in the Consolidated Statements of Operations and Comprehensive Income (Loss).

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. This update requires annual disclosure of disaggregated rate reconciliation categories and income taxes paid by jurisdiction. The amendments are effective for public business entities for fiscal years beginning after December 15, 2024. Accordingly, this guidance is effective for the Company for the calendar year beginning January 1, 2025, on a prospective basis. Early adoption and retrospective application are permitted. Therefore, the Company has adopted a retrospective approach for the effective tax rate disclosure requirement.

Recognition of deferred tax assets is appropriate when realization of such assets is more likely than not. Based upon the weight of available evidence, which includes the Company’s historical operating performance, cumulative net losses since inception, and financial conditions of the consolidated group, the Company has provided a full valuation allowance against all deferred tax assets as of December 31, 2025. The Company’s valuation allowance increased by $111.4 million and $129.7 million for the years ended December 31, 2025 and 2024, respectively. A reconciliation of the beginning and ending balances of the valuation allowance is as follows (amounts in thousands):

As of December 31, 2025, the Company had U.S. federal and state net operating loss carryforwards of approximately $2.60 billion and $2.35 billion, respectively. The U.S. federal net operating loss carryforwards of $170.2 million generated prior to 2018 will expire at various dates beginning in 2030, if not utilized. The remaining U.S. federal net operating loss carryforwards of $2.43 billion can be carried forward indefinitely. The state net operating loss carryforwards will expire at various dates beginning in 2030, if not utilized.

In the event of a change in ownership, as defined under federal and state tax laws, the Company’s net operating loss and tax credit carryforwards could be subject to annual limitations. The annual limitations could result in the expiration of the net operating loss and tax credit carryforwards prior to utilization.

As of December 31, 2025, the Company also has U.S. federal and California research and development credits of $111.5 million and $81.4 million, respectively. The U.S. federal tax credit carryforwards will expire beginning in 2031 if not utilized. The state tax credit carryforwards do not expire.

The Company records unrecognized tax benefits in accordance with ASC 740-10, Income Taxes. ASC 740-10 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of uncertain tax positions taken or expected to be taken in the Company’s income tax return and also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition.

Due to the Company’s full valuation allowance, the unrecognized tax benefits would not materially impact the Company’s effective tax rate when recognized.

The Company’s policy is to classify interest and penalties associated with uncertain tax positions, if any, as a component of its income tax provision. For the years ended December 31, 2025, 2024 and 2023, the Company had no interest or penalties related to unrecognized tax benefits.

The U.S. federal, state and Japan income tax returns remain open under the statute of limitations, as all years since the Company’s formation are subject to potential tax examinations. To the extent the Company has tax attribute carryforwards, the tax years in which the attribute was generated may still be adjusted upon examination by the IRS or state tax authorities to the extent utilized in a future period.

On July 4, 2025, the President signed into law the One Big Beautiful Bill Act (the “OBBBA”), which includes numerous changes to existing tax law including extending or making permanent certain business and international tax measures initially established under the 2017 Tax Cuts and Jobs Act that were set to expire. For example, the OBBBA permanently eliminates the requirement to capitalize and amortize U.S.-based research and experimental expenditures over five years, allowing these expenditures to be fully deductible in the tax year they were incurred. The OBBBA also permanently extends the full expensing of qualifying assets through accelerated bonus depreciation in the tax year such amounts were acquired. Given that the Company maintains a full valuation allowance, the impact of the tax law changes to the financial statements is not material.