Rani Therapeutics Holdings, Inc. Income Taxes Disclosure

14. Income Taxes

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes. The components that comprise the Company’s net deferred taxes consist of the following (in thousands):

The Company determines its valuation allowance on deferred tax assets by considering both positive and negative evidence in order to ascertain whether it is more likely than not that deferred tax assets will be realized. Realization of deferred tax assets is dependent upon the generation of future taxable income, if any, the timing and amount of which are uncertain. Because of the Company’s recent history of operating losses, the Company believes that recognition of the deferred tax assets arising from the above-mentioned future tax benefits is currently not likely to be realized and, accordingly, has recognized a full valuation allowance on its deferred tax assets. The valuation allowance increased by $10.0 million and $8.1 million for the years ended December 31, 2025 and 2024, respectively, primarily due to the increase in the Company’s net operating losses (“NOL”) during the period.

Pursuant to Internal Revenue Code (“IRC”) Sections 382 and 383, annual use of the Company’s research and development credit carryforwards may be limited in the event a cumulative change in ownership of more than 50% occurs within a three-year period. As of December 31, 2025, the Company has not performed an IRC Section 382 or 383 analysis. If a change in ownership were to have occurred, additional tax credit carryforwards could be eliminated or restricted. If eliminated, the related asset would be removed from the deferred tax asset schedule with a corresponding reduction in the valuation allowance.

The Company is subject to United States federal and California income taxes and is not currently under examination by any federal or state taxing authorities. Due to the Company's net operating loss carryforwards, its federal and California returns are open to examination by the Internal Revenue Service and the California Franchise Tax Board for years beginning in 2021.

Included in the balance of unrecognized tax benefits at December 31, 2025 is $0.7 million that if recognized would impact the Company’s income tax benefit and effective tax rate. The Company does not expect any significant increases or decreases in its unrecognized tax benefits within the next twelve months.

Recent Legislation

On July 4, 2025, the One Big Beautiful Bill Act (the “OBBBA”) was signed into law, which enacts significant changes to U.S. tax and related laws. Some of the provisions of the OBBBA affecting corporations include but are not limited to restoring the current deductibility of domestic research and experimental expenses, increasing the limit of the deduction of interest expense deduction limitation under Section 163(j) of the Internal Revenue Code of 1986, as amended, to thirty percent of EBITDA, and allowing one hundred percent bonus depreciation on eligible property acquired after January 19, 2025. The OBBBA has varying effective dates, with certain provisions effective in 2025 and others with multiple effective dates through 2027. The Company has evaluated the potential impact of the OBBBA and expects it to result primarily in a timing difference, with no material impact on its effective tax rate.