SPRUCE BIOSCIENCES, INC. Income Taxes Disclosure

11. Income Taxes

The Company did not have any income tax expense for the years ended December 31, 2025 and 2024. The reconciliation of the federal statutory income tax rate to the Company’s effective tax rate is as follows:

Deferred Tax Assets and Liabilities

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 the Company’s net deferred tax assets and liabilities are as follows (in thousands):

Management regularly assesses the ability to realize deferred tax assets recorded based upon the weight of available evidence, including such factors as recent earnings history and expected future taxable income on a jurisdiction by jurisdiction basis. In the event that the Company changes its determination as to the amount of realizable deferred tax assets, the Company will adjust its valuation allowance with a corresponding impact to the provision for income taxes in the period in which such determination is made. The Company’s management believes that, based on a number of factors, it is more likely than not, that all or some portion of the deferred tax assets will not be realized; and accordingly, for the year ended December 31, 2025, the Company has provided a valuation allowance against the Company’s U.S. net deferred tax assets. The valuation allowance decreased by $14.6 million during the year ended December 31, 2025, primarily due to the impact of Internal Revenue Code Section 382 ownership change limitations on the Company's tax attributes including research and development and Orphan Drug credits offset by an increase in net operating loss due to the election to expense Section 174 research and development costs in the current year. The valuation allowance increased by $18.2 million during the year ended December 31, 2024, primarily due to an increase in the net operating loss (primarily from pre-tax book loss) and the current year capitalization of Section 174 research and experimental costs.

As of December 31, 2025, the Company had net operating loss carryforwards for federal and state income tax purposes of approximately $163.1 million and $150.0 million, respectively, both of which will begin to expire in 2036 with $155.9 million of the Company's federal net operating loss carryforwards lasting indefinitely.

As of December 31, 2025, the Company had general business credit and state research and development credit carryforwards of approximately $34.2 million and $2.8 million, respectively. The federal general business credit carryforwards will begin to expire in 2036 while the California research credit carryforwards have an indefinite life.

The Internal Revenue Code of 1986, as amended, imposes restrictions on the utilization of net operating losses in the event of an “ownership change” of a corporation. Accordingly, a company’s ability to use net operating losses may be limited as prescribed under Internal Revenue Code Section 382 (“IRC Section 382”). Events which may cause limitations in the amount of the net operating losses that the Company may use in any one year include, but are not limited to, a cumulative ownership change of more than 50% over a three-year period. Utilization of the federal and state net operating losses may be subject to substantial annual limitation due to the ownership change limitations provided by the IRC Section 382 and similar state provisions. The Company identified an ownership change in October 2025 and performed an analysis on potential limitations under IRC Section 382. The Company does not believe there is a limitation on its ability to utilize its net operating losses from the October 2025 ownership change.

As a result of the ownership change identified in October of 2025, the Company analyzed potential limitations on the Company's tax attributes. Based on this analysis, the Company wrote off the deferred tax assets related to its

research and development credits and Orphan Drug credits to the extent that they are mathematically impossible to utilize with the calculated limitations under Section 382/383. Research and development credits of $1.8 million and $33.3 million of Orphan Drug credits were written off during the year ended December 31, 2025.

The Company files income tax returns in the U.S. federal jurisdiction and California state jurisdiction. The Company is not currently under audit by the Internal Revenue Service or any other similar state, local, or foreign authority. All tax years remain open to examination by major taxing jurisdictions to which the Company is subject.

Uncertain Income Tax Positions

The Company had approximately $0.8 million and $4.3 million of unrecognized tax benefits as of December 31, 2025 and 2024, respectively. No liability related to uncertain tax positions is recorded in the financial statements due to the fact the liabilities have been netted against deferred attribute carryovers. The unrecognized tax benefits would not impact the annual effective tax rate if recognized because the Company has recorded a valuation allowance on its deferred tax assets. The Company does not expect the amount of unrecognized tax benefits to materially change in the next 12 months. As of December 31, 2025 and 2024, the Company has not recognized any tax-related penalties or interest in its financial statements.