VirnetX Holding CorpVHC
VirnetX Holding Corp Income Taxes Disclosure
Note 10 − Income Taxes
We adopted Topic 770 prospectively in 2025. Tax information shown for 2024 is prior to the adoption of Topic 770.
The income tax provision (benefit) is comprised of the following:
|
Year Ended
December 31, 2025
|
Year Ended
December 31, 2024
|
|||||||
|
Current:
|
||||||||
|
Federal
|
$
|
— |
$
|
— |
||||
|
State
|
(2 |
)
|
3 |
|||||
|
Foreign
|
— |
— |
||||||
| (2 |
)
|
3 |
||||||
|
Deferred:
|
||||||||
|
Federal
|
— |
— |
||||||
|
State
|
— |
— |
||||||
| — |
— |
|||||||
|
Total income tax (benefit) provision
|
$
|
(2 |
)
|
$
|
3 |
|||
A reconciliation of the United States federal statutory income tax to our effective income tax rate in 2025, after the adoption of Topic 770 is as follows:
|
Year Ended December 31, 2025
|
||||||||
|
Tax at federal statutory rate
|
$
|
(3,823 |
)
|
21.00 |
%
|
|||
|
State and local income tax, net of federal income tax effect
|
(3 |
)
|
0.01 |
%
|
||||
|
Foreign tax effects
|
3 |
(0.02 |
)%
|
|||||
|
R&D credits
|
(363 |
)
|
1.99 |
%
|
||||
|
Valuation allowance
|
3,694 |
(20.27 |
)%
|
|||||
|
Nontaxable or nondeductible items:
|
||||||||
|
Stock compensation
|
(364 |
)
|
2.00 |
%
|
||||
|
Other non-deductible items
|
241 |
(1.33 |
)%
|
|||||
|
Other adjustments:
|
||||||||
|
Cancelled stock compensation
|
304 |
(1.67 |
)%
|
|||||
|
Other
|
309 |
(1.70 |
)%
|
|||||
|
|
$
|
(2 |
)
|
0.01 |
%
|
|||
For year ended December 31, 2025, the Company has paid income taxes (net of refund) in the following jurisdictions:
|
California
|
1 |
|||
|
Utah
|
— |
|||
|
Georgia
|
— |
|||
|
Arizona
|
— |
|||
|
North Carolina
|
— |
|||
|
Income taxes paid, net of refunds
|
1 |
A reconciliation of the United States federal statutory income tax to our effective income tax rate in 2024, prior to the adoption of Topic 770 is as follows:
|
Year Ended
December 31, 2024
|
||||
|
United States federal statutory rate
|
21.00 |
%
|
||
|
State taxes, net of federal benefit
|
(0.01 |
)%
|
||
|
Valuation allowance
|
(20.50 |
)%
|
||
|
Stock based compensation
|
(0.62 |
)%
|
||
|
Research and development credits
|
1.55 |
%
|
||
|
Other
|
(1.41 |
)%
|
||
|
Effective income tax rate
|
0.01 |
%
|
||
Deferred tax assets (liabilities) consist of the following:
|
As of
December 31, 2025
|
As of
December 31, 2024
|
|||||||
|
Deferred tax assets:
|
||||||||
|
Reserves and accruals
|
$
|
1,752 |
$
|
2,066 |
||||
|
Research and development credits and other credits
|
1,544 |
1,115 |
||||||
|
Net operating loss carry forward
|
22,876 |
17,907 |
||||||
|
Stock based compensation
|
3,098 |
3,451 |
||||||
|
Other
|
1,997 |
2,796 |
||||||
|
Total deferred tax assets
|
$
|
31,267 |
$
|
27,335 |
||||
|
Valuation allowance
|
(29,608 |
)
|
(25,460 |
)
|
||||
|
Deferred tax assets after valuation allowance
|
$
|
1,659 |
$
|
1,875 |
||||
|
Total deferred tax liability:
|
||||||||
|
ROU
|
$
|
(1,548 |
)
|
(1,870 |
)
|
|||
|
Gain or loss on investments
|
(111 |
) | — |
|||||
|
Depreciation and amortization
|
— |
|
(5 |
)
|
||||
|
Net deferred tax assets
|
$
|
— |
$
|
— |
||||
On July 4, 2025, the United States enacted tax legislation, often referred to as the “One Big Beautiful Bill” Act (OBBB). As of December 31, 2025, the OBBB includes several tax related provisions, including the ability to expense certain domestic research and development costs as incurred. Pursuant to IRC Section 174, we capitalized direct and indirect research and development costs for our tax return totaling $0 in 2025 and $5,251 in 2024, of which $3,798 will be amortized in our 2025 tax return and $3,273 was amortized in our 2024 tax return. Unamortized capitalized R&D expenditures as of December 31, 2025 total $9,517.
At December 31, 2025, we had federal and state net operating loss carry forwards of approximately $107,136 and $114,532, respectively. Federal net operating loss carryforwards do not expire. None of the state net operating loss carryforward is apportioned to a deferred tax asset, because currently we do not have operations in states where losses accumulated. The state net operating loss carryforward begins expiring in . We assess valuation allowances for our net deferred tax assets, including NOL carryforwards generated during the years, based on our evaluation of positive and negative evidence, including our history of operating losses and the uncertainty of generating future taxable income that would enable us to realize our deferred tax assets. Our tax years for 2021 and forward are subject to examination by the U.S. tax authority and various state tax authorities.
We are required to recognize the financial statement effects of a tax position when it is more likely than not, based on the technical merits, that the position will be sustained upon examination. At December 31 2025, we recorded an unrecognized tax benefit of $484, none of which will result in change in the effective tax rate when recognized. We do not expect a significant change in uncertain tax positions in the next twelve months. Our policy is to recognize interest and penalties, if any, accrued on any unrecognized tax benefits, as a component of income tax expense. We had no interest or penalties accrued in 2025.
Unrecognized tax benefits consist of the following:
|
As of
December 31, 2025
|
||||
|
Balance, December 31, 2024
|
$
|
— |
||
|
Increases related to prior year tax positions
|
363 |
|||
|
Increases related to current year tax positions
|
121 |
|||
|
Balance, December 31, 2025
|
$
|
484 |
||
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Mar 24, 2026 | Showing above |
| 2024 | Mar 17, 2025 | |
| 2023 | Mar 15, 2024 | |
| 2022 | Mar 31, 2023 | |
| 2021 | Mar 16, 2022 | |
| 2020 | Mar 16, 2021 | |
| 2019 | Mar 16, 2020 | |
| 2018 | Mar 18, 2019 | |
| 2017 | Mar 16, 2018 | |
| 2016 | Mar 16, 2017 | |
| 2015 | Mar 15, 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.