Xencor IncXNCR
Xencor Inc Income Taxes Disclosure
Income Taxes
Income Tax Provision
Income tax provision consisted of the following:
| Year Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| (in thousands) | |||||||||||||||||
| Current | |||||||||||||||||
| Federal | $ | (671) | $ | 513 | $ | 11,472 | |||||||||||
| State | 3,175 | 1,104 | 2,190 | ||||||||||||||
| Total current tax | $ | 2,504 | $ | 1,617 | $ | 13,662 | |||||||||||
| Deferred | |||||||||||||||||
| Federal | $ | — | $ | — | $ | — | |||||||||||
| State | — | — | — | ||||||||||||||
| Total deferred tax | $ | — | $ | — | $ | — | |||||||||||
| Income tax provision | $ | 2,504 | $ | 1,617 | $ | 13,662 | |||||||||||
The following table presents a reconciliation of the tax expense based on the statutory rate to the Company’s actual tax expense in the consolidated statements of operations and comprehensive loss. A notional 21% tax rate was applied as follows:
| Year Ended December 31, 2025 | |||||||||||
| Amount | Percent | ||||||||||
| (in thousands) | |||||||||||
| U.S. Federal statutory income tax | $ | (18,778) | (21.0) | % | |||||||
| Research and development tax credits | (6,965) | (7.8) | % | ||||||||
| Change in valuation allowance | 17,556 | 19.6 | % | ||||||||
State and local income taxes (1) | 3,175 | 3.6 | % | ||||||||
| Nontaxable or nondeductible items: | |||||||||||
| Nondeductible share-based compensation | 7,069 | 7.8 | % | ||||||||
| Other tax expenses | (6) | — | % | ||||||||
| Changes in unrecognized tax benefits | 939 | 1.1 | % | ||||||||
| Other adjustments | (486) | (0.5) | % | ||||||||
| Income tax provision and effective income tax rate | $ | 2,504 | 2.8 | % | |||||||
(1) State taxes in Massachusetts, Minnesota, New York, and New York City represented the majority (greater than 50 percent) of the tax effect in this category.
| Year Ended December 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| (in thousands) | |||||||||||
| U.S. Federal statutory income tax | $ | (49,334) | $ | (25,123) | |||||||
| Research and development tax credits | (12,124) | (15,816) | |||||||||
| Change in valuation allowance | 56,390 | 57,313 | |||||||||
| State and local income taxes | (1,860) | (1,978) | |||||||||
| Stock-based compensation | 4,712 | 3,132 | |||||||||
| Change in state rate | 1,661 | (176) | |||||||||
| Foreign-derived intangible income deduction | — | (4,915) | |||||||||
| Uncertain tax position | 1,654 | 2,138 | |||||||||
| Deferred tax adjustment | 242 | (1,199) | |||||||||
| Other | 276 | 286 | |||||||||
| Income tax provision | $ | 1,617 | $ | 13,662 | |||||||
Income Taxes Paid, Net of Refunds
Cash paid for income taxes, net of refunds, consisted of the following:
| Year Ended December 31, 2025 | |||||
| Amount | |||||
| (in thousands) | |||||
| Jurisdiction: | |||||
| Federal | $ | 7,359 | |||
| State | (47) | ||||
| Total | $ | 7,312 | |||
Deferred Income Taxes
The following table presents the significant components of the Company’s net deferred tax assets and liabilities:
| December 31, | |||||||||||
| 2025 | 2024 | ||||||||||
| (in thousands) | |||||||||||
Deferred tax assets: | |||||||||||
| Net operating loss carryforwards | $ | 83,754 | $ | 36,355 | |||||||
| Capitalized research and development costs | 80,894 | 93,844 | |||||||||
Tax credits | 60,487 | 48,419 | |||||||||
| Accrued compensation | 20,935 | 21,274 | |||||||||
Royalty financing | 17,208 | 28,123 | |||||||||
Lease liabilities | 14,594 | 14,956 | |||||||||
Equity investments | — | 4,025 | |||||||||
Other | 4 | — | |||||||||
| Total gross deferred tax assets | 277,876 | 246,996 | |||||||||
| Valuation allowance | (246,617) | (227,268) | |||||||||
Total deferred tax assets, net of valuation allowance | 31,259 | 19,728 | |||||||||
Deferred tax liabilities: | |||||||||||
Intangibles | (958) | (2,066) | |||||||||
| Depreciation | (8,373) | (9,272) | |||||||||
| Right-of-use assets | (8,068) | (8,390) | |||||||||
Equity investments | (13,860) | — | |||||||||
| Total gross deferred tax liabilities | (31,259) | (19,728) | |||||||||
Net deferred tax assets (liabilities) | $ | — | $ | — | |||||||
The Company has net deferred tax assets primarily related to capitalized research and development costs, net operating loss carryforwards, and research and development tax credit carryforwards. Due to uncertainty regarding the realization of these deferred tax assets in future tax periods, the Company has recorded a valuation allowance against its deferred tax assets as of December 31, 2025 and 2024. Valuation allowances are recognized to reduce deferred tax assets to the amount that is more likely than not to be realized. The Company has concluded that its net deferred tax assets are not more likely than not to be realized due to cumulative losses incurred in prior years and the lack of sufficient sources of future taxable income. During the year ended December 31, 2025, the valuation allowance increased by $19.3 million.
As of December 31, 2025, the Company had cumulative net operating loss carryforwards for federal and state income tax purposes of $341.1 million and $171.9 million, respectively, and available tax credit carryforwards of approximately $36.2 million for federal income tax purposes and $33.2 million for state income tax purposes, which may be available to offset future taxable income, if any. Of the cumulative net operating loss carryforwards for federal, $43.6 million were generated prior to January 1, 2018 and are subject to expiration, while $297.5 million were incurred after December 31, 2017 and may be carried forward indefinitely, subject to an annual limitation of 80% of future taxable income. To the extent permitted by law, taxing authorities may examine tax returns for prior periods in which net operating losses were generated or utilized and may make adjustments up to the amount of the net operating loss carryforwards claimed.
Federal net operating loss carryforwards begin to expire in 2027, and state net operating loss carryforwards begin to expire in 2035. Federal tax credit carryforwards begin to expire in 2042. Utilization of the Company’s net operating loss and tax credit carryforwards is subject to annual limitations under Section 382 of the Internal Revenue Code due to ownership changes previously experienced by the Company. As a result, certain net operating loss and tax credit carryforwards may expire before being utilized.
Uncertainty in Income Taxes
The following table summarizes the Company’s gross unrecognized tax benefits:
Year Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| (in thousands) | |||||||||||||||||
| Balance at January 1 | $ | 8,905 | $ | 8,905 | $ | — | |||||||||||
| Increase related to prior period tax positions | 1,464 | — | 1,054 | ||||||||||||||
Decrease related to prior period tax positions | (6,653) | — | — | ||||||||||||||
| Increase related to current year tax positions | 1,234 | — | 7,851 | ||||||||||||||
| Decrease related to settlements with tax authorities | (353) | — | — | ||||||||||||||
Gross unrecognized tax benefits at December 31 | $ | 4,597 | $ | 8,905 | $ | 8,905 | |||||||||||
Unrecognized tax benefits were $4.6 million, $8.9 million and $8.9 million for the years ended December 31, 2025, 2024 and 2023, respectively. The decrease in prior year unrecognized tax benefits relates primarily to the conclusion of the Internal Revenue Service (“IRS”) audit for the 2022 tax year and the related impact on the 2023 federal and certain 2022 and 2023 state income tax filings.
The Company files U.S. federal and state income tax returns in jurisdictions with varying statutes of limitations. As of December 31, 2025, the Company’s federal income tax returns for tax years 2023 and forward remain subject to examination by the IRS. For state income tax purposes, tax years 2022 and forward generally remain subject to examination by the respective state tax authorities. In addition, the use of net operating losses or tax credits generated in tax years prior to 2022 may subject returns for those years to examination. The Company will occasionally enter into voluntary disclosure agreements with states, where the statute of limitations would otherwise remain open for all years.
The Company’s policy is to recognize interest and penalties related to income taxes, if any, as a component of income tax expense. The accrued interest and penalties related to unrecognized tax benefits were $0.9 million and $1.7 million as of December 31, 2025 and 2024, respectively. If the unrecognized tax benefits as of December 31, 2025 were ultimately recognized, $2.8 million would affect the effective tax rate, subject to changes in the valuation allowance.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 25, 2026 | Showing above |
| 2024 | Feb 27, 2025 | |
| 2023 | Feb 29, 2024 | |
| 2022 | Feb 27, 2023 | |
| 2021 | Feb 24, 2022 | |
| 2020 | Feb 24, 2021 | |
| 2019 | Feb 25, 2020 | |
| 2018 | Feb 26, 2019 | |
| 2017 | Feb 28, 2018 | |
| 2016 | Mar 1, 2017 | |
| 2015 | Mar 8, 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.