RIGEL PHARMACEUTICALS INC Income Taxes Disclosure

14. INCOME TAXES

The provision for income tax for the year ended December 31, 2024 of $0.9 million was related to foreign withholding tax and state taxes. We have not recorded federal income taxes due to the sufficient NOL carryforwards that were generated prior to the enactment of the Tax Act, as well as significant research and development credit carryforwards. We continue to record a full valuation allowance on our deferred tax assets considering our cumulative losses in prior years. For the years ended December 31, 2023 and 2022, there was no foreign withholding tax, and we have not recorded state and federal income taxes due to our pre-tax book losses and a full valuation allowance was recorded against our deferred tax assets.

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of our deferred tax assets are as follows (in thousands):

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The valuation allowance decreased by approximately $9.4 million, and increased by $1.0 million and $15.3 million for the years ended December 31, 2024, 2023 and 2022, respectively.

The realization of deferred tax assets is dependent if there are sufficient positive evidences that exist to conclude that it is more-likely-than-not that our deferred tax assets will be realized. This assessment requires significant judgment. In making this determination, all available evidence, both positive and negative, shall be considered to determine whether, based on the weight of that evidence, a valuation allowance for deferred tax assets is needed. If sufficient positive evidence may become available to allow us to reach a conclusion that a portion of the valuation allowance against the deferred tax assets may be reversed, the reversal would result in an income tax benefit for the quarterly and annual fiscal period in which we determine to release such valuation allowance.

The reconciliation of the statutory federal income tax rate to the effective tax rate was as follows:

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In general, under Section 382 of the Internal Revenue Code (Section 382), a corporation that undergoes an ownership change is subject to limitations on its ability to utilize its pre-change NOL carryovers and tax credits to offset future taxable income. Our existing NOL carryforwards and tax credits are subject to limitations arising from ownership changes which occurred in previous periods. We finalized our analysis of potential ownership changes and concluded our Section 382 owner shift analysis during the year ended December 31, 2012. We have updated our NOL carryforwards to reflect the results of the Section 382 owner shift analysis as of December 31, 2024. We did not experience any significant changes in ownership in the periods presented. Future changes in our stock ownership, some of which are outside of our control, could result in an ownership change under Section 382 and result in additional limitations.

As of December 31, 2024, we had NOL carryforwards for federal income tax purposes of approximately $940.9 million. Of the federal NOL carryforward, $801.7 million, which expire beginning in the year 2026 and the remaining NOL carryforwards can be carried forward indefinitely, subject to annual limitation of 80% of taxable income. We also had state NOL carryforwards of approximately $375.1 million, which expire beginning in the year 2028.

We have general business credits of approximately $44.6 million, which will expire beginning in 2025, if not utilized, and is consisted of research and development credits and orphan drug credits. We also have state research and development tax credits of approximately $32.4 million, which have no expiration date.

The following table summarizes the activity related to our gross unrecognized tax benefits (in thousands):

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During the years ended December 2024, 2023 and 2022, the amount of unrecognized tax benefits increased due to additional research and development and orphan drug credits generated during those years. In 2023, we engaged our tax consultant to perform an orphan credits study for years 2015 to 2020. The results of the study decreased the unrecognized tax benefits by $4.7 million. The reversal of the uncertain tax benefits did not affect our effective tax rate as we continue to maintain a full valuation allowance against our deferred tax assets.

We are subject to federal income tax and various state taxes. Because of NOL and research credit carryovers, substantially all of our tax years remain open to examination.

Our policy is to recognize interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense. We currently have no tax positions that would be subject to interest or penalties.

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