XTI Aerospace, Inc. Income Taxes Disclosure

Note 21 – Income Taxes

 

The domestic and foreign components of loss from continuing operations before income taxes for the years ended December 31, 2024 and 2023 are as follows (in thousands):

 

		For the Years Ended December 31,
		2024				2023
Domestic		$	(30,876	)		$	(25,066	)
Foreign			(4,711	)			—
Net Loss, before tax		$	(35,587	)		$	(25,066	)

 

The income tax provision (benefit) for the years ended December 31, 2024 and 2023 consists of the following (in thousands):

 

		For the Years Ended December 31,
		2024				2023
Foreign
Current		$	—			$	—
Deferred			(1,088	)			—
U.S. federal
Current			—				—
Deferred			(4,023	)			(1,647	)
State and local
Current			16				—
Deferred			(1,061	)			(345	)
			(6,156	)			(1,992	)
Change in valuation allowance			6,172				1,992
Income Tax Provision (Benefit)		$	16			$	—

 

The reconciliation between the U.S. statutory federal income tax rate and the Company’s effective rate for the years ended December 31, 2024 and 2023 is as follows:

 

		For the Years Ended December 31,
		2024				2023
U.S. federal statutory rate			21.0	%			21.0	%
State income taxes, net of federal benefit			2.2	%			4.4	%
162(m) compensation limit			(7.1	)%			(0.2	)%
Transaction costs			(2.1	)%			—	%
Convertible notes / warrant inducement expense			(3.8	)%			(6.7	)%
Convertible notes – fair value adjustment			7.3	%			(9.7	)%
Foreign income tax rate difference			0.8	%			—	%
Other permanent items			(1.8	)%			(1.0	)%
Provision to return adjustment			0.1	%			—	%
Rate change			0.1	%			—	%
Other			(0.1	)%			(0.8	)%
Change in valuation allowance			(16.6	)%			(7.0	)%
Effective Rate			(0.0	)%			0.0	%

As of December 31, 2024 and 2023, the Company’s deferred tax assets and liabilities consisted of the effects of temporary differences attributable to the following (in thousands):

 

		As of December 31,
		2024				2023
Deferred Tax Asset
Loss carryovers		$	59,366			$	3,867
Stock based compensation			4,103				2,443
Research credits			—				—
Accrued expenses			791				1,348
Reserves			—				—
Intangibles			181				—
Fixed assets			—				—
Unrealized gain			144				—
Section 174 capital research			3,955				866
Other			702
Total Deferred Tax Asset			69,242				8,524
Less: valuation allowance			(69,017	)			(8,524	)
Deferred Tax Asset, Net of Valuation Allowance		$	225			$	—

 

		As of December 31,
		2024				2023
Deferred Tax Liabilities
Intangible assets		$	—			$	—
Fixed assets			(7	)			—
Other			(218	)			—
Capitalized research			—				—
Total deferred tax liabilities			(225	)			—
Net Deferred Tax Asset (Liability)		$	—			$	—

At December 31, 2024, the Company did not have any undistributed earnings of its foreign subsidiaries. As a result, no additional income or withholding taxes have been provided for. The Company does not anticipate any impacts of the global intangible low taxed income (“GILTI”) and base erosion anti-abuse tax (“BEAT) and as such, the Company has not recorded any impact associated with either GILTI or BEAT.

 

In accordance with Section 382 of the Internal Revenue Code, deductibility of the Company’s NOL carryover is subject to an annual limitation in the event of a change of control, as defined by the regulations. The Company performed an analysis to determine the annual limitation as a result of the changes in ownership that occurred during 2023 and 2024. Ownership changes occurred during the 2023 and 2024 periods and are limited in their use. The NOL available to offset future taxable income is approximately $96.9 million, subject to Section 382 limitations. The NOL generated in 2017 of $5.3 million, will expire in December 31, 2037 if not utilized. The remaining NOLs generated after 2017 have an indefinite life and do not expire.

 

As of December 31, 2024, Nanotron GmbH, which was acquired through the merger, had approximately $45.7 million, respectively, of German NOL carryovers available to offset future taxable income. Although these NOLs do not expire, minimum taxation restrictions apply such that only a percentage of taxable income may be offset by NOL carryovers. All of these NOLs are available to the Company as a part of the continuing activity.

 

As of December 31, 2024 Intranav GmbH, which was acquired through the merger, had approximately $11.3 million of German NOL carryovers available to offset future taxable income. Although these NOLs do not expire, minimum taxation restrictions apply such that only a percentage of taxable income may be offset by NOL carryovers. All of these NOLs are available to the Company as a part of the continuing activity.

 

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. In assessing the realization of deferred tax assets, management considers, whether it is “more likely than not”, that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which temporary differences representing net future deductible amounts become deductible.

 

ASC 740, “Income Taxes” requires that a valuation allowance be established when it is “more likely than not” that all, or a portion of, deferred tax assets will not be realized. A review of all available positive and negative evidence needs to be considered, including the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies. After consideration of all the information available, management believes that uncertainty exists with respect to future realization of its deferred tax assets with respect to XTI Aerospace, Inc, Nanotron, Intranav GmbH, Inpixon Holding (UK) Limited and has, therefore, established a full valuation allowance as of December 31, 2024. As of December 31, 2024 and 2023, the change in valuation allowance was an increase of the valuation allowance of $3.9 million, excluding the recording of Inpixon for the merger.

 

ASC 740 also clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements and prescribes a recognition threshold and measurement process for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more likely than not to be sustained upon examination by taxing authorities. ASC 740 also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. The Company is required to file income tax returns in the United States (federal), Germany, United Kingdom, and in various state jurisdictions in the United States. These filings include discontinued activity periods. Based on the Company’s evaluation, it has been concluded that there are no material uncertain tax positions requiring recognition in the Company’s consolidated financial statements in years ended December 31, 2024 and December 31, 2023.

 

The Company’s policy for recording interest and penalties associated with unrecognized tax benefits is to record such interest and penalties as interest expense and as a component of income tax expense. There were no amounts accrued for interest or penalties for the years ended December 31, 2024 and 2023. Management does not expect any material changes in its unrecognized tax benefits in the next year.

 

The Company operates in multiple tax jurisdictions and, in the normal course of business, its tax returns are subject to examination by various taxing authorities. Such examinations may result in future assessments by these taxing authorities. The Company is subject to examination by U.S. tax authorities beginning with the year ended December 31, 2021.