Arcus Biosciences, Inc.RCUS
Arcus Biosciences, Inc. Income Taxes Disclosure
Income taxes
Loss before income taxes included the following (in millions):
| Year Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Domestic | $ | (353) | $ | (283) | $ | (301) | |||||||||||
| Foreign | — | 1 | - | ||||||||||||||
| Loss before income taxes | $ | (353) | $ | (282) | $ | (301) | |||||||||||
The provision for income taxes included the following (in millions):
| Year Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Current provision: | |||||||||||||||||
| Federal | $ | — | $ | — | $ | 4 | |||||||||||
| State | — | 1 | 2 | ||||||||||||||
| Total income tax expense | $ | — | $ | 1 | $ | 6 | |||||||||||
Cash paid for income taxes, net of refunds consisted of the following (in millions):
| Year Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Federal | $ | — | $ | — | $ | 4 | |||||||||||
| State | |||||||||||||||||
| Pennsylvania | $ | — | $ | — | $ | 1 | |||||||||||
| Total state | $ | — | $ | — | $ | 1 | |||||||||||
| Total cash paid for income taxes, net of refunds | $ | — | $ | — | $ | 5 | |||||||||||
The reconciliation between the federal statutory income tax and our effective tax was as follows (in millions and as a rate):
| Year Ended December 31, | |||||||||||||||||||||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||||||||||||||||||||
| Federal statutory income taxes | $ | (74) | 21.0 | % | $ | (59) | 21.0 | % | $ | (63) | 21.0 | % | |||||||||||||||||||||||
State taxes, net of federal benefit (1) | — | 0.1 | % | — | (0.1) | % | 2 | (0.8) | % | ||||||||||||||||||||||||||
| Tax credits | |||||||||||||||||||||||||||||||||||
| Domestic research and development credits | (15) | 4.2 | % | (12) | 4.4 | % | (14) | 4.6 | % | ||||||||||||||||||||||||||
| Nontaxable or nondeductible items | |||||||||||||||||||||||||||||||||||
| Equity investment | (12) | 3.4 | % | (12) | 4.1 | % | (1) | 0.4 | % | ||||||||||||||||||||||||||
| Stock based compensation | 4 | (1.1) | % | 5 | (1.9) | % | 6 | (2.1) | % | ||||||||||||||||||||||||||
| Other items | 5 | (1.4) | % | 2 | (0.5) | % | — | — | % | ||||||||||||||||||||||||||
| Change in valuation allowance | 92 | (26.1) | % | 77 | (27.2) | % | 76 | (25.1) | % | ||||||||||||||||||||||||||
| Provision for income taxes | $ | — | 0.1 | % | $ | 1 | (0.2) | % | $ | 6 | (2.0) | % | |||||||||||||||||||||||
(1) State taxes in Pennsylvania and New York made up the majority (greater than 50%) of the tax effect in this category for the year ended December 31, 2023.
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.
Significant components of our deferred tax assets and liabilities were as follows (in millions):
| Year Ended December 31, | |||||||||||
| 2025 | 2024 | ||||||||||
| Deferred tax assets: | |||||||||||
| Federal and state net operating loss carryforwards | $ | 39 | $ | 5 | |||||||
| Research and development credits carryforwards | 59 | 42 | |||||||||
| Stock-based compensation | 26 | 27 | |||||||||
| Depreciation and amortization | 3 | 3 | |||||||||
| Deferred revenue | 19 | 45 | |||||||||
| Lease liability | 22 | 24 | |||||||||
| Capitalized research and development costs | 250 | 178 | |||||||||
| Other | 7 | 6 | |||||||||
| Total deferred tax assets | 425 | 330 | |||||||||
| Deferred tax liabilities: | |||||||||||
| Right-of-use assets | (13) | (14) | |||||||||
| Total deferred tax liabilities | (13) | (14) | |||||||||
| Less valuation allowance | (412) | (316) | |||||||||
| Net deferred tax assets (liabilities) | $ | — | $ | — | |||||||
The accounting for deferred taxes involves the evaluation of a number of factors concerning the realizability of net deferred tax assets. We considered factors such as our history of operating losses, the nature of our 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, including amounts that may arise under the collaboration agreements with Gilead and related program opt-ins. As a result of our evaluation of these factors, including the uncertainty that exists with respect to the option fees and milestone payments, we do 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 and no deferred tax asset is shown in the accompanying Consolidated Balance Sheets. The valuation allowance increased by approximately $96 million and $83 million for the years ended December 31, 2025 and 2024, respectively.
The U.S. enacted the Tax Cuts and Jobs Act in December 2017, which requires companies to capitalize all of their R&D costs for U.S. tax purposes, including software development costs, incurred in tax years beginning after December 31, 2021. Beginning in 2022, for tax purposes we began capitalizing and amortizing R&D costs over a five-year period for domestic research and a fifteen-year period for international research rather than expensing these costs immediately.
The OBBBA was enacted on July 4, 2025. The OBBBA contains several changes to corporate taxation, including permanent repeal of the requirement to capitalize domestic research and experimental expenditures for federal income tax purposes for taxable years beginning after December 31, 2024. The OBBBA does not have a material impact to our consolidated financial statements.
At December 31, 2025, we have federal NOLs of $170 million that have no expiration date and research tax credits of approximately $59 million that begin to expire in 2041. We also have state NOLs of approximately $49 million that begin to expire in 2035, and state research tax credits of approximately $25 million that have no expiration date, and foreign research tax credits of approximately $3 million that have no expiration date. Use of the U.S. federal and state NOLs and credit carryforwards may be subject to a substantial annual limitation due to the ownership change provisions of U.S. tax law, as defined in IRC Sections 382 and 383, and similar state provisions. The annual limitation may result in the expiration of NOLs and credits before use. We have determined that an ownership change, as defined under IRC Section 382, occurred in previous years. While we do not expect these ownership changes to result in the expiration of NOLs and credit carryforwards prior to utilization, we are subject to an annual limitation on the use of its tax attributes. The limitation on the use of NOLs and credit carryforwards could reduce our ability to use a portion of the tax attributes to offset future taxable income.
We have not been audited by the Internal Revenue Service, any state or foreign tax authority. We are subject to taxation in the U.S. and in Australia. Due to NOLs and research credit carryforwards, all of our tax years, from 2018 to 2025, remain open to U.S. federal and California state tax examinations. In addition, our fiscal years from 2021 to 2025 are open to examination in Australia.
Uncertain Tax Positions
We follow the provisions of FASB Accounting Standards Codification 740-10, Accounting for Uncertainty in Income Taxes, which prescribe a comprehensive model for the recognition, measurement, presentation and disclosure in financial statements of uncertain tax positions that have been taken or are expected to be taken on a tax return. No liability related to uncertain tax positions is recorded in the Consolidated Financial Statements. The reserve for unrecognized tax benefits was approximately $24 million and $19 million at December 31, 2025, and 2024, respectively.
Due to the full valuation allowance at December 31, 2025 and 2024, current adjustments to the unrecognized tax benefit will have no material impact on our effective income tax rate; any adjustments made after the valuation allowance is released will have an impact on the tax rate.
Interest and penalties related to unrecognized tax benefits are included in the provision for income taxes. There were no material interest or penalties accrued at December 31, 2025 or 2024.
The following table summarizes the activity related to our unrecognized tax benefits (in millions):
| Year Ended December 31, | |||||||||||
| 2025 | 2024 | ||||||||||
| Beginning balance | $ | 19 | $ | 13 | |||||||
| Additions for tax positions taken in prior year | 1 | 1 | |||||||||
| Additions for tax positions taken in current year | 5 | 5 | |||||||||
| Statute of limitations expiration | (1) | — | |||||||||
| Ending balance | $ | 24 | $ | 19 | |||||||
As of December 31, 2025, the total amount of gross unrecognized tax benefits was $24 million, none of which would, if recognized, have a material impact on our effective tax rate. We do not anticipate material changes to our uncertain tax positions through the next 12 months.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 25, 2026 | Showing above |
| 2024 | Feb 25, 2025 | |
| 2023 | Feb 21, 2024 | |
| 2022 | Feb 28, 2023 | |
| 2021 | Feb 23, 2022 | |
| 2020 | Feb 25, 2021 | |
| 2019 | Mar 5, 2020 | |
| 2018 | Mar 5, 2019 | |
About Income Taxes Disclosures
The income tax disclosure reveals how much a company actually pays in taxes versus what the statutory rate would predict. Analysts focus on the effective tax rate (ETR) reconciliation, which breaks down every item driving the gap between the 21% federal rate and the company's reported ETR — including R&D credits, foreign rate differentials, and state taxes. Deferred tax assets (DTAs) and their valuation allowances signal management's confidence in future profitability: a rising allowance suggests the company doubts it can use accumulated tax benefits. Uncertain tax benefit (UTB) reserves quantify exposure to IRS challenges on aggressive positions.
Key signals to watch: sudden ETR drops without clear operational reasons, large increases in valuation allowances, growing UTB balances, and significant unremitted foreign earnings. Post-TCJA, pay attention to GILTI and BEAT provisions that affect multinational tax structures. Compare the cash taxes paid (from the cash flow statement) against the income tax provision to gauge earnings quality.