Talen Energy CorpTLN

Talen Energy Corp Income Taxes Disclosure

10-KFiled Feb 26, 20266 min read
4. Income Taxes
The components of “Income tax benefit (expense)” for the periods were:
SuccessorPredecessor
Year Ended December 31, 2025Year Ended December 31, 2024May 18 through December 31, 2023January 1 through May 17, 2023
Federal$54 $(113)$3 $(15)
State13 (31)1 (2)
Current income taxes67 (144)4 (17)
Federal(135)47 (55)(184)
State15 (1)— (11)
Deferred income taxes(120)46 (55)(195)
Income tax benefit (expense)$(53)$(98)$(51)$(212)
Income (loss) before income taxes(166)1,111 194 677 
Effective income tax rate(31.9)%8.8 %26.3 %31.3 %
Current tax receivable presented as “Other current assets” on the Consolidated Balance Sheets were $35 million as of December 31, 2025 (Successor) and non-material as of December 31, 2024 (Successor). Current tax liabilities presented as “Other current liabilities” on the Consolidated Balance Sheets were non-material as of December 31, 2025 (Successor) and $53 million as of December 31, 2024 (Successor).
Effective Tax Rate Reconciliations
The following table presents required disclosures pursuant to ASU 2023-09 and reconciles the U.S. federal statutory tax amount and rate to our effective tax amount and rate for the year ended December 31, 2025 (Successor):
Successor
Year Ended December 31, 2025
Federal income tax at statutory tax rate$3521.0%
State income taxes, net of federal benefit (a)
42.4%
Nontaxable or nondeductible items:
Stock-based compensation(72)(43.2)%
Nuclear PTC(2)(1.2)%
Other permanent differences(1)(0.6)%
Changes in valuation allowances(2)(1.2)%
Other adjustments:
Return to provision137.8%
Tax on NDT(28)(16.9)%
Income tax benefit (expense)$(53)(31.9)%
__________________
(a)Pennsylvania state income taxes comprised the majority of the tax effect in this category.
The following table presents the required disclosures prior to our adoption of ASU 2023-09 and reconciles the income tax benefit (expense) at our statutory rate to the income tax benefit (expense) at our effective rate for the following periods:
SuccessorPredecessor
Year Ended December 31, 2024May 18 through December 31, 2023January 1 through May 17, 2023
Income tax benefit (expense) computed at the federal income tax statutory tax rate of 21%
$(234)$(41)$(143)
Income tax increase (decrease) due to:
Change in valuation allowance128 (43)129 
State income taxes, net of federal benefit(48)1 (34)
Nuclear PTC46 — — 
Nuclear decommissioning trust taxes(27)(16)(9)
Reorganization adjustments23 26 (138)
Return to provision11 — — 
Permanent differences3 22 (16)
Other— — (1)
Income tax benefit (expense) $(98)$(51)$(212)
Deferred Taxes
The components of deferred tax liabilities and deferred tax assets were:
Successor
December 31,
2025		December 31,
2024
Property, plant and equipment, net$1,305$465
Nuclear decommissioning trust540502
Unrealized gain on qualifying derivatives—32
Other3—
Deferred tax liabilities1,848999
Less:
Federal net operating loss carryforwards749164
Interest limitation carryforward331340
Acquired fuel supply contract liabilities (a)
151—
Accrued liabilities5330
Accrued pension costs4580
State net operating loss carryforwards1915
Unrealized loss on qualifying derivatives16—
Other—8
Deferred tax assets1,364637
Valuation allowance(2)—
Deferred tax liabilities, net$486$362
__________________
(a)See Note 17 for additional information on acquired fuel supply contract liabilities.
Net Operating Losses
The components of NOL carryforwards were:
Successor
December 31,
2025		December 31,
2024
Federal, indefinite expiration, limited to annual utilization of 80%
$3,566$783
State, expirations 2026 - 2041407310
See “Emergence from Restructuring” below for information on limitations on our NOLs.
Income Taxes Paid Net of Refunds
The amounts of income taxes paid, net of refunds, were:
Successor
Year Ended December 31, 2025
US Federal - Corporate$26 
US Federal - NDT15 
Total federal tax41 
Pennsylvania17 
Other states (a)
13 
Total state tax30 
Total
$71 
__________________
(a)Consists primarily of New Jersey, Maryland, and Texas.
Unrecognized Tax Benefits
Unrecognized tax benefits as of December 31, 2025 (Successor) and 2024 (Successor) were a non-material amount. All tax returns filed for years December 31, 2022 and forward are open to examination by the relevant taxing authorities.
Emergence from Restructuring
The Company evaluated, including the change in control resulting from its Emergence from bankruptcy, the tax impact of its Restructuring as described in Note 19. As part of the Restructuring, a substantial portion of the Company’s prepetition debt was extinguished, resulting in cancellation of debt income (“CODI”). A taxpayer emerging from bankruptcy may exclude CODI from taxable income but must first reduce its tax attributes by the amount of CODI realized. The Company realized CODI of $1.2 billion, which resulted in a partial reduction in tax basis in PP&E assets.
Upon Emergence, the Company experienced an ownership change under Section 382 of the Internal Revenue Code of 1986, as amended (the “Code”). The Code’s Sections 382 and 383 impose limitations on the ability of a company to utilize tax attributes after experiencing an ownership change. States generally have similar tax attribute limitation rules following an ownership change. The Company also applied fresh start accounting. As a result, deferred tax assets and liabilities were adjusted based on the Successor GAAP financial statements. See Note 20 for additional information on fresh start accounting.
Valuation Allowance
Management assesses the available positive and negative evidence to estimate whether it is more likely than not that sufficient future taxable income will be generated to permit the use of existing deferred tax assets. Negative evidence in the form of cumulative losses are no longer present as the Company has returned to profitability. The existence of objective positive evidence allows for consideration of other subjective evidence, including (but not limited to) Talen’s projections for future income which would allow for utilization of all net operating losses and interest limitation carryforwards.
As a result of the assessment, it was determined that it is more likely than not that all federal and most state deferred tax assets will be fully utilized by future taxable income. As of December 31, 2025 (Successor), the Company’s valuation allowance was non-material.
As of December 31, 2024 (Successor), it was more likely than not that federal and state deferred tax assets would be fully utilized by future taxable income. The entire federal and state valuation allowances were released, resulting in a $128 million tax benefit. For the period from May 18 through December 31, 2023 (Successor), a $43 million tax expense was recognized for the increase in federal and state valuation allowances based on the realizability of deferred tax assets. For the period from January 1 through May 17, 2023 (Predecessor), a $129 million benefit was recognized for the reduction in federal and state valuation allowances. The change in valuation allowance estimates was the result of tax attribute reduction from the cancellation of debt income that was realized upon Emergence.
Sale of Nuclear Production Tax Credits
In September 2025, Nuclear PTCs with an aggregate carrying value of $202 million were sold to an unaffiliated third party for cash consideration of $191 million. The $11 million difference between the carrying value and the sales price resulted in loss presented in “Other operating income (expense), net” on the Consolidated Statements of Operations. The Company’s Nuclear PTCs remaining after the sale were utilized in reducing federal income taxes payable.
One Big Beautiful Bill Act
In 2025, the One Big Beautiful Bill Act (the “OBBB”) was signed into law. The OBBB, among other things, makes key elements of the Tax Cuts and Jobs Act permanent, including 100% bonus depreciation, domestic research cost expensing, and the business interest expense limitation. The Company has included the known effects of the OBBB in its income tax provision

Historical Timeline

Fiscal YearFiled
2025Feb 26, 2026Showing above
2024Feb 28, 2025
2015Feb 29, 2016

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.

Other Available Disclosures

RevenueEarnings Per ShareFair ValuePP&ESegmentsDebtCommitmentsStock CompensationNew Standards