Zeo Energy Corp. Income Taxes Disclosure

NOTE 21—INCOME TAXES

 

The Company accounts for income taxes in accordance with ASC 740, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the consolidated financial statements. Deferred tax assets and liabilities are determined based on differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities and are measured using enacted tax rates expected to apply in the years in which those temporary differences are expected to reverse.

 

The Company’s effective tax rate from continuing operations was a (1.7)% provision and a 9.1% benefit for the years ended December 31, 2025 and 2024, respectively. The effective tax rate differs from the U.S. federal statutory tax rate primarily due to the noncontrolling interest ownership in OpCo, which is treated as a partnership for U.S. federal income tax purposes, as well as changes in the valuation allowance on deferred tax assets.

 

The Company evaluated the realizability of its deferred tax assets based on all available positive and negative evidence. Based on this evaluation, the Company determined that it is not more likely than not that certain deferred tax assets will be realized and therefore recorded a valuation allowance against those deferred tax assets as of December 31, 2025.

Due to the Company’s Up-C organizational structure, a portion of the Company’s earnings is attributable to noncontrolling interests in OpCo, which is treated as a partnership for U.S. federal income tax purposes. Accordingly, income attributable to these noncontrolling interests is generally not subject to corporate-level income taxes, which reduces the Company’s overall effective tax rate.

 

The components for the provision of income taxes include:

 

		December 31, 2025				December 31, 2024
Current Federal and State		$	(25,050	)		$	(8,900	)
Deferred Federal and State			(238,599	)			972,690
Total benefit (provision) for income taxes		$	(263,649	)		$	963,790

 

A reconciliation of the statutory US Federal income tax rate to the Company’s effective income tax rate is as follows:

 

		December 31, 2025				December 31, 2024
Federal tax			21.0	%			21.0	%
State tax			(0.4	)%			1.6	%
Investment in OpCo			(0.8	)%			(0.5	)%
Noncontrolling interest in OpCo			(9.0	)%			(12.1	)%
Income attributable to Sunergy prior to business combination			–				(1.0	)%
Other			(0.1	)%			(0.1	)%
Change in valuation allowance			(13.6	)			–
Remeasurement of warrant liability			1.2	%			0.2	%
Effective income tax rate			(1.7	)%			9.1	%

 

The components of the deferred income tax assets and liabilities were as follows:

 

		December 31, 2025				December 31, 2024
Deferred tax assets:
Net operating losses and tax credit carry-forward		$	986,740			$	190,907
Accrued stock compensation			386,841				198,575
Accrued liabilities			–				268,766
Section 743(b)			4,196,394				–
Other			3,363				3,656
Investment in Sunergy			5,824,820				–
Total deferred tax assets			11,398,158				661,904
Valuation allowance			(11,398,158	)			–
Net deferred tax asset		$	–			$	661,904
Deferred tax liabilities:
Investment in Sunergy			–				(423,413	)
Total deferred tax liabilities			–				(423,413	)
Net deferred tax assets		$	–			$	238,491

 

In connection with the Sunergy business combination, the Company recorded deferred tax assets and liabilities related to the difference between the book carrying value of its investment in OpCo and the tax basis of that investment. The resulting deferred tax liability was partially offset by deferred tax assets generated in the transaction. The net impact resulted in the recognition of deferred tax benefits in the consolidated statement of operations and a corresponding adjustment to additional paid-in capital related to the reverse recapitalization accounting.