12. INCOME TAXES

TKO Group Holdings, Inc. was incorporated as a Delaware corporation in March 2023. As the sole managing member of TKO OpCo, TKO Group Holdings, Inc. ultimately controls the business affairs of TKO OpCo. TKO Group Holdings, Inc. is subject to corporate income taxes on its share of taxable income of TKO OpCo. TKO OpCo is treated as a partnership for U.S. federal income tax purposes and is therefore generally not subject to U.S. corporate income tax. TKO OpCo’s foreign subsidiaries are subject to entity-level taxes. TKO OpCo’s U.S. subsidiaries are subject to withholding taxes on sales in certain foreign jurisdictions which are included as a component of foreign current taxes. TKO OpCo is subject to entity-level income taxes in certain U.S. state and local jurisdictions.

In accordance with ASC 740, each interim period is considered integral to the annual period and tax expense is generally determined using an estimate of the annual effective income tax rate (“AETR”). The Company records income tax expense each quarter using the estimated AETR to provide for income taxes on a current year-to-date basis, adjusted for discrete items that are noted in the relevant period. In accordance with the authoritative guidance for accounting for income taxes in interim periods, the Company computed its income tax provision for the three and six months ended June 30, 2026 and 2025, respectively, adjusted for discrete items as noted.

The provision for income taxes for the three months ended June 30, 2026 and 2025 was $53.2 million and $46.5 million, respectively, based on pretax income of $361.6 million and $312.3 million, respectively. The effective tax rate was 14.7% and 14.9% for the three months ended June 30, 2026 and 2025, respectively. The tax provision for three months ended June 30, 2026 differs from tax provision in the same period in 2025 primarily due to the increase in pretax income. The provision for income taxes for the six months ended June 30, 2026 and 2025 was $87.2 million and $67.7 million, respectively, based on pretax income of $643.7 million and $496.5 million, respectively. The effective tax rate was 13.5% and 13.6% for the six months ended June 30, 2026 and 2025, respectively. The tax provision for the six months ended June 30, 2026 differs from tax provision in the same period in 2025 primarily due to the increase in pretax income. Any tax balances reflected on the Company’s consolidated balance sheets as of June 30, 2026 will be adjusted accordingly to reflect the actual financial results for the year ending December 31, 2026.

The Company’s effective tax rate differs from the U.S. federal statutory rate primarily due to state and local income taxes, non-controlling interest, withholding taxes in foreign jurisdictions that are not based on net income, and increased income subject to tax in foreign jurisdictions which differ from the U.S. federal statutory income tax rate.

As of June 30, 2026 and December 31, 2025, the Company had unrecognized tax benefits of $41.4 million and $36.7 million, respectively, for which the Company is unable to make a reasonable and reliable estimate of the period in which these liabilities will be settled with the respective tax authorities. We recognize interest and penalties related to unrecognized tax benefits as a component of income tax expense (benefit) on the Company's consolidated statement of operations. Accrued interest and penalties of $17.1 million and $14.4 million are included as a component of the related tax liabilities on the Company's consolidated balance sheets as of June 30, 2026 and December 31, 2025, respectively. Of the $58.5 million combined unrecognized tax benefits and accrued interest and penalties as of June 30, 2026, $44.0 million is subject to an offsetting indemnity asset, as set forth in the Endeavor Asset Acquisition Agreement, which is included as a component of Other assets on the Company's consolidated balance sheets.

The Company records valuation allowances against its net deferred tax assets when it is more likely than not that all, or a portion, of a deferred tax asset will not be realized. The Company evaluates the realizability of its deferred tax assets by assessing the likelihood that its deferred tax assets will be recovered based on all available positive and negative evidence, including historical results, reversals of deferred tax liabilities, estimates of future taxable income, tax planning strategies and results of operations.