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INCOME TAXES
 9 Months Ended
Sep. 30, 2025
Income Tax Disclosure [Abstract]  
INCOME TAXES

7. INCOME TAXES

 

For the nine months ended September 30, 2025, the Company recorded a return-to-provision (RTP) adjustment related to prior year tax estimates. As a result, the effective tax rate (ETR) was (1.4)% for the nine-month period ended September 30, 2025, compared to the U.S. federal statutory rate of 21%. The difference between the Company’s ETR and the statutory rate was primarily driven by the following significant reconciling items:

 

(i)Full valuation allowance on federal, state, and foreign deferred tax assets: As the Company continues to project that it is not more likely than not that deferred tax assets will be realized, no tax benefit was recognized on current quarter losses or deductible temporary differences;

 

(ii)Non-deductible permanent items, including meals & entertainment, officer compensation under IRC §162(m), and penalties, which increased the statutory rate differential;

 

(iii)Absence of discrete benefits from foreign tax credit (FTC) utilization;

 

(iv)No tax rate changes or deferred remeasurement items were recorded in the quarter;

 

(v)Inclusion of an RTP adjustment related to prior year tax estimates.

 

As a result, despite incurring a pre-tax loss during the nine months ended September 30, 2025, the Company recorded an income tax expense of $69.

 

The Company also notes that the prior year December 31, 2024, effective tax rate was 29.75%, primarily due to a discrete gain on the sale of a subsidiary that generated taxable income and allowed the Company to utilize previously reserved capital loss and net operating loss carryforwards, resulting in a partial release of the valuation allowance. No such income or attribute utilization occurred in the current period.

 

Additionally, due to earnings volatility and the non-reliability of full-year forecasted income, management concluded it was not practicable to estimate a reliable annual effective tax rate. As such, the Company applied the discrete method under ASC 740-270-30-18 to calculate the interim income tax provision.

 

The Company will continue to apply the discrete method until reliable forecast data becomes available to support a forecast-based ETR.

 

On July 4, 2025, the President signed into law the One Big Beautiful Bill Act (“OBBBA”), which makes several significant changes to U.S. federal income tax law. Key provisions include:

 

●Extension of 100% bonus depreciation under Internal Revenue Code (“IRC”) Section 168(k) for qualified property acquired after January 19, 2025.
●Expensing of domestic research and experimental expenditures under new IRC Section 174A, applicable for tax years beginning after December 31, 2024, with acceleration options for expenditures incurred between January 1, 2022 and December 31, 2024.
●Modification to the business interest expense limitation under IRC Section 163(j), reinstating EBITDA-based adjustable taxable income (ATI) for tax years beginning after December 31, 2024.

 

The Company has recognized the effects of the OBBBA provisions in its financial results to the extent they are applicable to the nine months ended September 30, 2025. The Company will continue to evaluate the impact of these provisions on its future consolidated financial statements.