NOTE 14 – INCOME TAXES

The components of income tax provision are as follows:

The tax effects of temporary differences and tax loss carry forwards that give rise to significant portions of deferred tax assets and liabilities as of December 31, 2025 and 2024 are comprised of the following:

The Company has recorded a full valuation allowance against its otherwise recognizable deferred income tax assets as of December 31, 2025 and 2024 with the exception of deferred taxes related to ITSQuest as of December 31, 2024, which was a majority owned company. The Company has determined, after evaluating all positive and negative historical and prospective evidence, that it is more likely than not that the net deferred tax assets will not be realized. During the year ended December 31, 2025, and 2024, there was an increase of $3,295 thousand and $8,096 thousand to the valuation allowance, respectively. The Company’s valuation allowance is $42,759 thousand and $39,463 thousand as of December 31, 2025 and 2024, respectively.

As of December 31, 2025, the Company’s tax return filing group, Unicoin, Inc. and Subsidiaries had federal net operating loss carry-forwards of approximately $81,615 thousand, of which $275 thousand were generated prior to 2018 and will begin expiring in 2037. The remaining $81,340 thousand can be carried forward indefinitely. As of December 31, 2025, the Company had state net operating loss carry-forwards of approximately $46,515 thousand. The state net operating loss carry-forward will begin expiring in 2038. As of December 31, 2025, the company’s majority owned investments in ITSQuest, Inc. and Unicorns, Inc. had federal net operating losses generated after 2018 of $0 and $26,702 thousand, respectively. ITSQuest, Inc. and Unicorns, Inc. had no state operating losses. Unicoin International Inc is incorporated in Panama and generated a net operating loss of $103 thousand.

The following is a reconciliation of the statutory federal income tax rate to our effective tax rate:

As of December 31, 2025, and 2024, we had $118 thousand and $107 thousand, respectively, of unrecognized tax benefits that, if recognized, would not impact the Company’s effective tax rate because of the company’s net operating loss carryforwards and the related valuation allowance. The total amount of unrecognized tax benefits could change within the next 12 months for a number of reasons, including audit settlements, tax examination activities, and the recognition and measurement considerations under this guidance.

The Company applies ASC 740 to determine whether it is more likely than not that a tax position will be sustained upon examination by the appropriate taxing authorities before any tax benefit can be recorded in the financial statements. The following is a tabular reconciliation of our total gross unrecognized tax benefits:

Utilization of the domestic NOL and tax credit forwards may be subject to a substantial annual limitation due to ownership change limitations that may have occurred or that could occur in the future, as required by the Internal Revenue Code Section 382, as well as similar state provisions. In general, an “ownership change,” as defined by the code, results from a transaction or series of transactions over a three-year period resulting in an ownership change of more than 50 percentage points of the outstanding stock of a company by certain stockholders or public groups. Any limitation may result in expiration of all or a portion of the NOL or tax credit carry-forward before utilization.

The Company’s income tax returns for all years remain open to examination by federal and state taxing authorities for a period of three years and four years after the utilization of its NOLs, respectively. ITSQuest, Inc.’s income tax returns remain open to examination for a period of three years by federal and state taxing authorities. Generally, tax authorities can include returns filed within the last three years in an audit. If they identify a substantial error, tax authorities may add additional years, however no more than the last six years.

Other Considerations

The Company records liabilities related to its uncertain tax positions. Tax positions for the Company and its subsidiaries are subject to income tax audits by federal and state tax jurisdictions. The Company believes that it has provided adequate reserves for its income tax uncertainties in all open tax years. As the outcome of the tax audits cannot be predicted with certainty, if any issues addressed in the Company’s tax audits are resolved in a manner inconsistent with management’s expectations, the Company could adjust its provision for income taxes in the future.