Unicycive Therapeutics, Inc. Income Taxes Disclosure

14.	Income Taxes

 

A reconciliation of the provision for income taxes to the amount computed by applying the statutory income tax rate of 21% to the net loss is summarized for the years ended December 31, 2023, and 2024 is as follows:

 

		Year Ended				Year Ended
		December 31, 2023				December 31, 2024
Income taxes (benefit) at statutory rates			21.00	%			21.00	%
State income tax (benefit), net of federal benefit			0.48	%			5.84	%
Change in valuation allowance			(12.24	)%			(23.12	)%
Fair value adjustment on warrants			(7.08	)%			(3.32	)%
Other			(2.16	)%			(0.40	)%
Effective income tax rate			-	%			-	%

 

For the years ended December 31, 2023 and 2024, the Company did not record a deferred income tax expense or benefit. Income tax expense has been nominal for the years ended December 31, 2023 and 2024.

 

Deferred tax assets and liabilities are recognized for the expected tax consequences attributable to the differences between financial reporting and the tax basis of existing assets and liabilities and operating loss carryforward, and they are measured using enacted tax rates expected to be in effect when differences are expected to reverse. A valuation allowance is recorded for loss carryforwards and other deferred tax assets where it is more likely than not that such loss carryforward and deferred tax asset will not be realized. Significant components of the Company’s deferred tax assets at December 31, 2023 and 2024 are shown below (in thousands):

 

		December 31,				December 31,
		2023				2024
Deferred tax assets:
Stock-based compensation		$	427			$	730
Net operating losses carryforwards			5,976				11,022
Depreciation and Amortization			389				960
Capitalized research			4,106				6,572
Accrued expenses			439				553
Gross deferred tax assets			11,337				19,837
Less: Valuation allowance			(11,176	)			(19,668	)
Net deferred tax assets, net of valuation allowance		$	161			$	169
Deferred tax liabilities:
Other		$	(161	)		$	(169	)
Total deferred tax liabilities			(161	)			(169	)
Net deferred tax assets / liabilities		$	-			$	-

The valuation allowance increased by $8.5 million during the year ended December 31, 2024. The Company has concluded, based upon ASC 740, that it is more likely than not the Company will not realize any benefit from the deferred tax assets related to certain Federal and state net operating loss and credit carryforwards. Accordingly, the Company has established a full valuation allowance against its Federal and state deferred tax assets.

 

As of December 31, 2024, the Company had available Federal and state net operating loss carryforwards of approximately $39.2 million and $40.0 million, respectively, to reduce future taxable income, if any. Federal net operating losses generated prior to 2018 and all state net operating losses generated expire in varying amounts beginning in 2037. The net operating losses generated after 2017 do not expire and will be able to offset 80% of taxable income generated in the future.

 

As of December 31, 2024, the Company had research and development credit carryforwards of approximately $1,353,000 and $631,000 available to reduce future taxable income, if any, for federal and state income tax purposes, respectively. These credits have been provided a full reserve under ASC 740-10. The federal credit carryforwards begin to expire in 2037, and the state credit carryforwards can be carried forward indefinitely.

 

Utilization of net operating losses and tax credits may be subject to an annual limitation due to ownership change limitations provided in the Internal Revenue Code of 1986, as amended (the “Code”), and similar state provisions. The effect of an ownership change would be the imposition of annual limitation on the use of net operating loss (“NOL”) carryforwards attributable to periods before the change in ownership. An assessment of such ownership changes under Section 382 of the Code was not completed through December 31, 2024, and as such the Company is not able to determine the impact on the NOLs and tax credit carryforwards, if any, as of the date of the financial statements. To the extent that an assessment is completed in the future, the Company’s ability to utilize tax attributes could be restricted on a year-by-year basis and certain attributes could expire before they are utilized.

 

The Company applies the guidance under ASC 740, subtopic 10-50-15, Unrecognized Tax Benefit Related Disclosures (formerly FASB Interpretation 48, Accounting for Uncertainty in Income Taxes). For benefits to be realized, a tax position must be more likely than not to be sustained upon examination by tax authorities. The amount recognized is measured as the largest amount of benefit that is greater than 50% likely of being realized upon settlement. This interpretation also provides guidance on measurement, de-recognition, classification, interest and penalties.

 

The following table summarizes the changes to the Company’s gross unrecognized tax benefits for the years ended December 31, 2023 and 2024 (in thousands):

 

		Year Ended December 31,				Year Ended December 31,
		2023				2024
Beginning balance		$	690			$	1,027
Additions related to current year positions			152				958
Additions related to prior year positions			184				-
Ending balance		$	1,027			$	1,985

 

As of December 31, 2023 and 2024, the total unrecognized tax benefit was approximately $1.0 million and $2.0 million, respectively. The Company does not expect any material changes to the estimated amount of liability associated with its uncertain tax positions within the next 12 months. The Company’s policy is to recognize interest and penalties related to uncertain tax positions in income tax expense. As of December 31, 2024, the Company had no accrued interest and penalties related to uncertain tax positions.

 

The Company files U.S. and state income tax returns with varying statutes of limitations. Tax years 2018 and forward remain open to examination due to the carryover of NOL carryforwards. There are no ongoing examinations by taxing authorities at this time.