Annual report [Section 13 and 15(d), not S-K Item 405]

Income Taxes

v3.26.1
Income Taxes
 12 Months Ended
Dec. 31, 2025
Income Tax Disclosure [Abstract]  
Income Taxes
Note 12: Income Taxes
As a result of the Business Combinations, substantially all the Company’s assets and operations are held and conducted by P3 LLC and its subsidiaries, and the Company’s only assets are equity interests in P3 LLC. P3 LLC is treated as a partnership for U.S. federal and most applicable state and local income tax jurisdictions. As a partnership, P3 LLC is generally not subject to taxes, other than entity level state income taxes. Any taxable income or loss generated by P3 LLC is passed through to and included within the taxable income or loss of its members in accordance with the terms of the P3 LLC Amended & Restated Limited Liability Agreement dated as of the Closing Date (“P3 LLC A&R LLC Agreement”). Prior to the Business Combinations, the income and losses of P3 LLC were passed through to its members and nontaxable to P3 LLC.
The Company is taxed as a corporation and pays corporate federal, state, and local taxes on income allocated to it from P3 LLC based on the Company’s economic interest held in P3 LLC. While the Company consolidates P3 LLC for financial purposes as a VIE, the Company will not be taxed on the earnings attributed to the non-controlling interests. As a result, the income tax burden on the earnings taxed on the non-controlling interests is not reported by the Company in its consolidated financial statements.
The components of loss before income taxes were as follows:
Year Ended December 31,
2025 2024
(in thousands)
Domestic $ (321,061) $ (305,991)
Foreign —  — 
Total $ (321,061) $ (305,991)
The components of income tax expense were as follows:
Year Ended December 31,
2025 2024
(in thousands)
Current income taxes:
Federal $ 246  $ 1,217 
State 3,277  4,260 
Total current income taxes 3,523  5,477 
Deferred income taxes:
Federal (1,753) (835)
State 255  (255)
Total deferred income taxes (1,498) (1,090)
Total income tax expense $ 2,025  $ 4,387 
A reconciliation of the statutory federal income tax to the Company’s provision for income taxes (benefit) after the adoption of ASU 2023-09 are summarized as follows (in thousands, except for percentages):
Year Ended December 31,
Amount Percentage
U.S. federal statutory tax rate $ (67,423) 21.0  %
State and local income taxes, net of federal income tax effect (1)
150  —  %
Changes in valuation allowance 29,522  (9.2) %
Nontaxable or nondeductible items
   Losses not subject to tax $ 34,926  (10.9) %
  Other $ 797  (0.2) %
Changes in unrecognized tax benefits $ 3,410  (1.1) %
Other reconciling items $ 643  (0.2) %
Provision expense (benefit) for taxes and effective tax rate $ 2,025  (0.6) %
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(1) State taxes in Oregon made up the majority (greater than 50 percent) of the tax effect in this category.
As previously disclosed for the year ended December 31, 2024, a reconciliation of the statutory federal income tax to the Company’s provision for income taxes (benefit) prior to the adoption of ASU 2023-09 is as follows (in thousands):
Year Ended December 31,
2024
Tax at federal statutory rate $ (64,258)
Non-controlling interest and nontaxable income 36,984 
Change in valuation allowance 29,929 
Investment in P3 LLC (796)
Return to provision 2,006 
Deferred tax adjustments (21)
Other reconciling items 543 
Total $ 4,387 
Effective tax rate (1.4) %
The Company’s tax rate is affected primarily by the recognition of a valuation allowance and the portion of income and expense allocated to the non-controlling interest. It is also affected by discrete items that may occur in any given year such as benefits from changes in the fair value of private placement and public warrants. During the years ended December 31, 2025 and 2024, the Company’s tax rate was impacted by the valuation allowance placed on deferred tax assets in prior periods and losses from non-controlling interest not subject to tax.
The amount of income taxes paid (net of refunds received) are presented below (in thousands). Jurisdictions where income taxes paid exceeded five percent of total income taxes paid (net of refunds received) are disclosed separately.
Year ended
December 31, 2025
$1,443
Federal $ 1,443 
State
   California (129)
   Oregon 125 
   Other — 
Foreign — 
Total income taxes paid (net of refunds received) $ 1,439 
Cash income taxes paid (net of refunds received) were $5.5 million and $0.6 million for the years ended December 31, 2024 and 2023, respectively.
Deferred Income Taxes
Deferred income taxes result from differences in the recognition of amounts for tax and financial reporting purposes, as well as operating loss and tax credit carryforwards.
Significant components of the Company’s deferred income tax assets and liabilities are as follows:
December 31,
2025 2024
(in thousands)
Deferred tax assets:
Investment in P3 LLC $ 38,157  $ 32,438 
Net operating loss carryforwards 51,647  33,087 
Accrued liabilities 234  181 
Goodwill and identifiable intangible assets 1,308  1,712 
Section 163j interest limitation 11,531  5,104 
Other deferred tax assets 386  459 
Total deferred tax assets 103,263  72,981 
Less: valuation allowance (100,417) (71,457)
Net deferred tax assets 2,846  1,524 
Deferred tax liabilities:
Operating lease, right-of-use assets (201) (410)
Other deferred tax liabilities (56) (24)
Total deferred tax liabilities (257) (434)
Net deferred tax asset $ 2,589  $ 1,090 
Deferred tax assets are included in other long-term assets in the Company’s consolidated balance sheets.
The Company recognizes deferred tax assets to the extent it believes that these assets are more likely than not to be realized. The realization of tax benefits of net deferred tax assets is dependent upon future levels of taxable income, of an appropriate character, in the periods the items are expected to be deductible or taxable. Based on the available evidence as of December 31, 2025, the Company believes that it is more likely than not that the tax benefits of the U.S. losses incurred will not be realized. Accordingly, the Company has recorded a valuation allowance against the tax benefits of the U.S. losses incurred. The Company intends to maintain the valuation allowance on the U.S. net deferred tax assets until sufficient positive evidence exists to support a reversal of, or decrease in, the valuation allowance.
As of December 31, 2025, the Company has recognized a net deferred tax asset of $1.1 million in connection with its subsidiary, Medcore HP (“MHP”). Because MHP does not file a consolidated corporate income tax return with the Company, the deferred tax assets of MHP are separately assessed for realizability. Based on the weight of all available evidence as of December 31, 2025, the Company believes that it is more likely than not that the tax benefits of the deferred tax assets of MHP will be realized.
As of December 31, 2025, the Company has recognized a net deferred tax asset of $1.5 million in connection with certain of the Network VIEs. Because the Network VIEs do not file a consolidated corporate income tax return with the Company, the deferred tax assets are separately assessed for realizability. Based on the weight of all available evidence as of December 31, 2025, including cumulative income in recent years, the Company believes that it is more likely than not that the tax benefits of the deferred tax assets of certain of the Network VIEs will be realized.
The balances and activity related to the valuation allowance were as follows:
Amount
(in thousands)
Balance at December 31, 2023 $ (46,370)
   Additions
 (28,119)
   Reductions
 3,032 
Balance at December 31, 2024
 (71,457)
   Additions
 (28,960)
   Reductions
 — 
Balance at December 31, 2025
 $ (100,417)
As of December 31, 2025, the Company has U.S. federal income tax net operating loss carryforwards of $217.2 million available to offset future taxable income, all of which will be carried forward indefinitely, but utilization is limited to 80% of taxable income in any given year. The Company also has state net operating loss carryforwards of $119.8 million, of which $101.8 million will expire over the next 20 years, and $18.0 million will be carried forward indefinitely.
The federal and state net operating loss carryforwards may be subject to limitations under Section 382 and Section 383 of the Internal Revenue Code of 1986 (the “Code”) and similar provisions under state law. The Tax Reform Act of 1986 contains provisions that limit the federal net operating loss carryforwards that may be used in any given year in the event of special occurrences, including significant ownership changes. The Company has completed a Section 382 analysis covering the period January 1, 2018 through September 30, 2025. The Section 382 analysis tested the Company’s stock for each occurrence of stock issuance during the covered period. Through the analysis period, ownership changes were identified resulting in annual limitations to tax attributes; however, due to the indefinite carryforward of U.S. federal income tax net operating losses, no such carryforwards have been derecognized.
Uncertain Tax Positions
The Company is subject to examination for tax years beginning with the year ended December 31, 2020. The Company is not currently under any U.S. federal or state income tax audits for any tax year.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
2025 2024
(in thousands)
Balance at January 1 $ 4,285  — 
Additions based on tax positions taken in a prior year 2,135  — 
Additions based on tax positions related to the current year 335  4,285 
Balance at December 31 $ 6,755  $ 4,285 
As of December 31, 2025, there are $6.8 million unrecognized tax benefits related to state tax filing positions that if recognized would affect the annual effective tax rate. Events that could impact the liability include expiration of the statute of limitations or settlement with the state tax authority.
The Company recorded interest and penalties of $1.0 million related to uncertain tax positions within the income tax provision on the consolidated statement of comprehensive loss during the year ended December 31, 2025. As of December 31, 2025, accrued interest and penalties related to uncertain tax positions of $2.6 million were recorded within other long-term liabilities on the consolidated balance sheet. $1.6 million was recorded during the year ended as of December 31, 2024.
Tax Receivable Agreement
In connection with the Business Combinations, the Company entered into a TRA that provides for the payment by the Company of 85% of the amount of any tax benefits that are realized, or in some cases are deemed to realize, as a result
of (i) increases in the Company’s share of the tax basis in the net assets of P3 LLC resulting from any redemptions or exchanges of P3 LLC, (ii) tax basis increases attributable to payments made under the TRA, and (iii) deductions attributable to imputed interest pursuant to the TRA. The Company expects to benefit from the remaining 15% of any tax benefits that are realized.
Pursuant to the Company’s election under Section 754 of the Code, the Company expects to obtain an increase in its share of the tax basis in the net assets of P3 LLC when Common Units are redeemed or exchanged. The Company intends to treat any redemptions and exchanges of Common Units as direct purchases of the units for U.S. federal income tax purposes. These increases in tax basis may reduce the amounts that the Company would otherwise pay in the future to various tax authorities. They may also decrease gains (or increase losses) on future dispositions of certain capital assets to the extent the tax basis is allocated to those capital assets.
The estimation of liability under the TRA is, by its nature, imprecise and subject to significant assumptions regarding a number of factors, including the timing and amount of taxable income generated by the Company each year, as well as the tax rate then applicable, among other factors. Actual tax benefits realized by the Company may differ from tax benefits calculated under the TRA as a result of the use of certain assumptions in the TRA, including the use of an assumed weighted-average state and local income tax rate to calculate tax benefits.
The payment obligation under the TRA is an obligation of the Company and not of P3 LLC. The payments that the Company will be required to make will generally reduce the amount of the overall cash flow that might have otherwise been available, but the Company expects the cash tax savings realized from the utilization of the related tax benefits will exceed the amount of any required payments.
As of December 31, 2025 and 2024, the TRA liability is estimated to be $12.4 million and $11.5 million, respectively; however, due to the full valuation allowance recorded by the Company, which results in no tax benefits that are to be realized related to the amortization of the step-up, the Company determined that payments to TRA holders are not probable and no TRA liability has been recorded as of December 31, 2025 and 2024. As non-controlling interest holders exercise their right to exchange their Common Units, a TRA liability may be recorded based on 85% of the estimated future tax benefits that the Company may realize as a result of increases in its tax basis of P3 LLC. The amount of the increase in the tax basis, the related estimated tax benefits, and the related TRA liability to be recorded will depend on the price of a share of the Company’s Class A common stock at the time of the relevant redemption or exchange.