Vor Biopharma Inc. Income Taxes Disclosure
13. Income Taxes
The Company accounts for income taxes under FASB ASC 740 (“ASC 740”). For the years ended December 31, 2024 and 2023, the Company did not record a current or deferred income tax expense or benefit. The following table reconciles the federal statutory income rate to the Company’s effective income tax rate:
|
|
Year Ended December 31, |
||
|
|
2024 |
|
2023 |
Federal income tax rate |
|
21.0 % |
|
21.0 % |
State income tax benefit |
|
5.6 % |
|
6.1 % |
Permanent items |
|
(1.6) % |
|
(0.9) % |
Research tax credits |
|
4.8 % |
|
5.7 % |
Other |
|
— |
|
(0.4) % |
Valuation allowance |
|
(29.8) % |
|
(31.5) % |
Effective income tax rate |
|
— |
|
— |
Deferred tax assets and liabilities reflect the net tax effects of net operating loss and tax credit carryforwards and temporary differences between the carrying amount of assets and liabilities for financial reporting and the amounts used for tax purposes.
Significant components of the Company’s deferred tax assets and liabilities were as follows:
|
|
December 31, |
|
|||||
(in thousands) |
|
2024 |
|
|
2023 |
|
||
Deferred tax assets: |
|
|
|
|
|
|
||
Accrued expenses |
|
$ |
1,651 |
|
|
$ |
1,428 |
|
Federal net operating loss carryforwards |
|
|
51,217 |
|
|
|
39,934 |
|
State net operating loss carryforwards |
|
|
14,828 |
|
|
|
11,423 |
|
Tax credits |
|
|
22,725 |
|
|
|
17,062 |
|
Stock compensation |
|
|
1,733 |
|
|
|
1,545 |
|
R&D capitalization |
|
|
46,973 |
|
|
|
33,503 |
|
Amortization |
|
|
1,582 |
|
|
|
1,464 |
|
Lease liability |
|
|
8,634 |
|
|
|
9,746 |
|
Total deferred tax assets |
|
|
149,343 |
|
|
|
116,105 |
|
Valuation allowance |
|
|
(139,216 |
) |
|
|
(104,403 |
) |
Net total deferred tax assets |
|
$ |
10,127 |
|
|
$ |
11,702 |
|
Deferred tax liabilities: |
|
|
|
|
|
|
||
Lease right of use asset |
|
|
(9,495 |
) |
|
|
(10,945 |
) |
Depreciation and amortization |
|
|
(632 |
) |
|
|
(757 |
) |
Total deferred tax liabilities |
|
$ |
(10,127 |
) |
|
$ |
(11,702 |
) |
Net deferred tax assets |
|
$ |
— |
|
|
$ |
— |
|
The Company has weighed the positive and negative evidence to assess the recoverability of its deferred tax assets. Realization of future tax benefits is dependent on many factors, including the Company’s ability to generate taxable income. After this assessment, the Company determined it was more likely than not that the Company will not realize the benefit of its deferred tax assets. As a result, the Company has provided a full valuation allowance against its net deferred tax assets. The valuation allowance for deferred tax assets as of December 31, 2024 and 2023 was $139.2 million and $104.4 million, respectively. For the years ended December 31, 2024 and 2023, the Company recorded an increase in the valuation allowance of $34.8 million and $36.1 million, respectively, primarily related to net operating losses incurred by the Company.
As of December 31, 2024, the Company had gross U.S. federal net operating loss carryforwards of $243.9 million including $242.0 million that had an indefinite carryforward period and $1.9 million that were subject to expiration at various dates through 2037. As of December 31, 2024, the Company had state net operating loss carryforwards of $234.7 million which will expire at various dates through 2044. As of December 31, 2024, the Company had U.S. federal research and development tax credit carryforwards of $16.8 million which will expire at various dates through 2044 and state research and credit carryforwards of $7.5 million which will expire at various dates through 2039. The net operating loss and tax credit carryforwards are subject to review and possible adjustment by the Internal Revenue Service and state tax authorities.
Net operating loss and tax credit carryforwards may become subject to an annual limitation in the event of certain cumulative changes in the ownership interest of significant shareholders over a three-year period in excess of 50%, as defined under Sections 382 and 383 of the Code, respectively, as well as similar state provisions. This could limit the amount of tax attributes that can be utilized annually to offset future taxable income or tax liabilities. The amount of the annual limitation is determined based on the value of the Company immediately prior to the ownership change. Subsequent ownership changes may further affect the limitation in future years. The Company has not determined whether an ownership change has occurred and as such, the Company’s net operating losses may be limited. Any limitation may result in expiration of a portion of the net operating loss carryforwards or research development credit carryforwards before utilization.
The Company has not, as yet, conducted a study of research and development credit carryforwards. Such a study, once undertaken by the Company, may result in an adjustment to the research and development credit carryforwards. However, a full valuation allowance has been provided against the Company’s research and development credits and, if any adjustment is required, such adjustment would be offset by an adjustment to the valuation allowance. Thus, there would be no impact to the balance sheet or statement of operations if any adjustment is required.
As of December 31, 2024 and 2023, the Company did not have any unrecognized tax benefits. Any future interest and penalties related to income tax matters would be recognized in the provision for income tax. As of December 31, 2024 and 2023, the Company did not have a balance of accrued interest and penalties related to uncertain tax positions.
The Company files income tax returns in the United States and various states. As of December 31, 2024, there were no income tax examinations in progress.
The tax years 2020 through present remain open to examination by major taxing jurisdictions to which the Company is subject, which are primarily in the United States. In addition, tax years prior to 2019 resulted in losses and the Company also generated research and development tax credits during those years. Since carryforward attributes generated in these years may be utilized in future years, years prior to 2019 may still be adjusted upon examination by the Internal Revenue Service or state tax authorities if they have or will be used in a future period.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.