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Income Taxes
 12 Months Ended
Dec. 31, 2024
Income Tax Disclosure [Abstract]  
Income Taxes Note 4: Income Taxes

ProKidney is considered to be an exempted Cayman Islands company and is presently not subject to income taxes or income tax filing requirements in the Cayman Islands or the United States.

The Company’s subsidiary, PKLP, is organized as a limited partnership and is classified as a partnership for U.S. income tax purposes, and as such, only records a provision for federal and state income taxes on its subsidiaries organized as C corporations or which have elected to be treated as corporations for U.S. federal income tax purposes.

The Company’s subsidiaries, ProKidney-US and ProKidney Acquisition Company, are treated as a C corporation, and therefore a provision for federal and state taxes has been recorded.

The Company’s subsidiary, ProKidney-KY, has been granted, by the Government in Council of the Cayman Islands, tax concessions under an undertaking certificate exempting it from any tax levied on profits, income, gains or appreciations in relation to its operations or in the nature of estate duty or inheritance tax for a period of twenty years from January 20, 2016. ProKidney-KY elected to be treated as an entity disregarded from its owner for U.S. tax purposes, and as a result, it has not recorded an income tax provision.

The provision for income tax expense consisted of the following for the years ended December 31, 2024, 2023 and 2022 (in thousands):

 

 

December 31, 2024

 

 

December 31, 2023

 

 

December 31, 2022

 

Current:

 

 

 

 

 

 

 

 

Federal

$

(610

)

 

$

5,918

 

 

$

896

 

State

 

12

 

 

 

78

 

 

 

–

 

Total current income tax (benefit) expense

 

(598

)

 

 

5,996

 

 

 

896

 

 

 

 

 

 

 

 

 

 

Deferred:

 

 

 

 

 

 

 

 

Federal

 

–

 

 

 

–

 

 

 

–

 

State

 

–

 

 

 

–

 

 

 

–

 

Total deferred income tax expense (benefit)

 

–

 

 

 

–

 

 

 

–

 

Income tax (benefit) expense

$

(598

)

 

$

5,996

 

 

$

896

 

 

The difference between the statutory rate in the Cayman Islands of 0% and the effective income tax rate was as follows:

 

 

December 31, 2024

 

 

December 31, 2023

 

 

December 31, 2022

 

Current:

 

 

 

 

 

 

 

 

Income taxes at statutory rate

 

0.0

%

 

 

0.0

%

 

 

0.0

%

Income of taxed entity

 

0.5

 

 

 

3.7

 

 

 

2.6

 

Federal Credits

 

1.0

 

 

 

1.3

 

 

 

0.8

 

Share-based compensation

 

(1.5

)

 

 

(2.2

)

 

 

(2.4

)

Provision to return adjustment

 

(3.2

)

 

–

 

 

–

 

Change in valuation allowance

 

3.7

 

 

 

(7.3

)

 

 

(1.4

)

Other

 

(0.1

)

 

 

(0.1

)

 

 

(0.2

)

Effective income tax rate

 

0.4

%

 

 

(4.6

)%

 

 

(0.6

)%

 

Components of the Company’s deferred tax assets and liabilities included in the consolidated balance sheet consisted of the following (in thousands):

 

 

December 31, 2024

 

 

December 31, 2023

 

Deferred tax assets:

 

 

 

 

 

Accrued compensation

$

1,816

 

 

$

1,302

 

Leases

 

98

 

 

 

34

 

Share-based compensation

 

5,702

 

 

 

3,163

 

Research and experimental costs capitalized

 

–

 

 

 

9,556

 

Net operating loss carryforwards

 

143

 

 

 

294

 

Start-up costs

 

232

 

 

 

32

 

Deferred tax assets before valuation allowance

 

7,991

 

 

 

14,381

 

Valuation allowance

 

(6,928

)

 

 

(12,888

)

Total deferred tax assets

$

1,063

 

 

$

1,493

 

 

 

 

 

 

 

Deferred tax liabilities:

 

 

 

 

 

Fixed assets

$

1,051

 

 

$

1,481

 

Prepaid expenses

 

12

 

 

 

12

 

Total deferred income tax liabilities

 

1,063

 

 

 

1,493

 

Net deferred tax asset

$

–

 

 

$

–

 

As discussed in Note 6, the Company is party to a tax receivable agreement with a related party which provides for the payment by the Company to holders of PKLP prior to the Closing (“Closing ProKidney Unitholders”) of 85% of the amount of cash savings, if any, in U.S. federal, state and local income tax or franchise tax that the Company actually realizes (or, in some circumstances, the Company is deemed to realize) as a result of certain transactions. As no transactions have occurred which would trigger a liability under this agreement, the Company has not recognized any liability related to this agreement as of December 31, 2024.

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, available taxes in the carryback periods, projected future taxable income and tax planning strategies in making this assessment. Accordingly, management has concluded that it is not more likely than not that it will recognize the deferred tax assets, and the Company has provided a valuation allowance of $6,928,000 and $12,888,000, respectively for December 31, 2024 and 2023, to offset the net deferred tax assets.

As of December 31, 2024 and 2023, the Company has net operating loss carryforwards of $626,000 and $1,278,000, respectively, for federal and state purposes. For federal purposes have an indefinite life and for state income tax purposes, the losses begin to expire in 2038.

A reconciliation of the beginning and ending amount of total unrecognized tax benefits for the years ended December 31, 2024 and 2023 consisted of the following (in thousands):

 

 

December 31, 2024

 

 

December 31, 2023

 

Unrecognized tax benefits (gross):

 

 

 

 

 

Benefits at the beginning of the year

$

568

 

 

$

311

 

Increase related to prior year tax positions

 

–

 

 

 

28

 

Decrease related to prior year tax positions

 

(65

)

 

 

–

 

Increase related to current year tax positions

 

245

 

 

 

229

 

Benefits at the end of the year

$

748

 

 

$

568

 

 

There were no net unrecognized tax benefits as of December 31, 2024 which, if recognized, would affect our effective tax rate. We expect none of the gross unrecognized tax benefits will decrease within the next year.

Tax years 2021 through 2024 remain subject to examination by federal and state authorities.