ARS Pharmaceuticals, Inc. Income Taxes Disclosure

14. Income Taxes

For the year ended December 31, 2025, the Company paid income taxes, net of refunds received totaling $0.2 million, including $0.2 million of federal income taxes and less than $0.1 million of other state income taxes.

The Company has established a valuation allowance against net deferred tax assets due to the uncertainty that such assets will be realized. The Company periodically evaluates the recoverability of the deferred assets. At such time as it is determined that it is more likely than not that the deferred tax asset will be realized, the valuation allowance will be reduced. The change in the valuation allowance for the year ended December 31, 2025 was an increase of $36.5 million.

At December 31, 2025, the Company had federal and state net operating loss carryforwards (“NOL”) of $150.5 million and $16.7 million, respectively. Federal NOL carryforwards of $150.5 million, generated after 2017, may be carryforward indefinitely but can only be utilized to offset 80% of future taxable income. The state NOL carryforwards begin expiring in 2035. State NOLs totaling $3.3 million may be carried forward indefinitely. In addition, the Company has federal and state research and development credit carryforwards totaling $4.1 million and $1.0 million, respectively. The federal research and development credit carryforwards will begin to expire in 2039 unless previously utilized. Of the total state research credits, $0.4 million begin to expire in 2038 unless previously utilized, the remainder does not expire. The NOL and credit carryovers noted above do not include the pre-merger amounts attributable to Silverback as noted in the IRC Section 382 disclosure in the paragraph below.

Pursuant to Internal Revenue Code (“IRC”) Sections 382 and 383, annual use of the company’s NOL and 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. The Company has completed an ownership change analysis pursuant to IRC Section 382 through December 31, 2024, including the tax attributes acquired in the Silverback transaction. The Company experienced several ownership changes from inception. All tax attributes reported in the above table have been adjusted based on the result of this analysis. If ownership changes occur in the future, the amount of remaining tax attribute carryforwards available to offset taxable income and income tax expense in future years may be restricted or eliminated. If eliminated, the related asset would be removed from deferred tax assets with a corresponding reduction in the valuation allowance. Due to the existence of the valuation allowance, limitations created by future ownership changes, if any, will not impact the Company’s effective tax rate.

The unrecognized tax benefit amounts are reflected in the determination of the Company’s deferred tax assets. If recognized, none of these amounts would affect the Company’s effective tax rate, since it would be offset by an equal corresponding adjustment in the deferred tax asset valuation allowance.

The Company files income tax returns in the United States, various states, and Ireland. Due to the Company’s losses incurred, the Company's income tax returns for all jurisdictions are subject to examination by tax authorities from inception. The Company’s policy is to recognize interest expense and penalties related to income tax matters as tax expense. At December 31, 2025, there were no significant accruals for interest related to unrecognized tax benefits or tax penalties. The Company has not incurred any material interest or penalties as of the current reporting date with respect to income tax matters.

On July 4, 2025, the One Big Beautiful Bill Act (“OBBBA”) was signed into law, which enacts significant changes to U.S. tax and related laws. Some of the provisions of the new tax law affecting corporations include, but are not limited to, current deduction of domestic research expenses, increasing the limit of the deduction of interest expense deduction to thirty percent of earnings before interest, taxes, depreciation and amortization, and one hundred percent bonus depreciation on eligible property acquired after January 19, 2025. The Company has evaluated the impact the new tax law had on its financial condition and results of operations. The impact of the tax law changes from the OBBBA is included in the Company’s financial statements.