INCOME TAXES

12 Months Ended

Dec. 28, 2025

We are the sole managing member of Portillo's OpCo, and as a result, consolidate the financial results of Portillo's OpCo. Portillo's OpCo is treated as a partnership for U.S. federal and most applicable state and local income tax purposes. As a partnership, Portillo's OpCo is generally not subject to U.S. federal and state and local income taxes. Any taxable income or loss generated by Portillo's OpCo is passed through to and included in the taxable income or loss of its members, including us, based upon the respective member's ownership percentage in Portillo's OpCo. We are subject to U.S. federal income taxes, in addition to state and local income taxes with respect to our allocable share of any taxable income or loss of Portillo's OpCo, as well as any stand-alone income or loss generated by Portillo's Inc.

Income Tax Expense

The components of income tax expense are as follows (in thousands):


	Fiscal Years Ended
	December 28, 2025		December 29, 2024		December 31, 2023
Current income taxes:
Federal	$	—	$	—	$	—
State and local	29		28		(1)
Total current income taxes	29		28		(1)
Deferred income taxes:
Federal	1,838		3,767		3,750
State and local	1,130		3,004		(501)
Total deferred income taxes	2,968		6,771		3,249
Income tax expense	$	2,997	$	6,799	$	3,248

Reconciliations of income tax expense computed at the U.S. federal statutory income tax rate to the recognized income tax expense and the U.S. statutory income tax rate to our effective tax rates are as follows (in thousands):


	Fiscal Years Ended
	December 28, 2025				December 29, 2024				December 31, 2023
Expected U.S. federal income taxes at statutory rate	$	5,059	21.0	%	$	8,794	21.0	%	$	5,894	21.0	%
State and local income taxes, net of federal benefit (1)	1,153		4.8	%	3,026		7.2	%	(502)		(1.8)	%
Changes in valuation allowances	(114)		(0.5)	%	(1,478)		(3.5)	%	(1,610)		(5.7)	%
Nontaxable or nondeductible items:
Sec. 162(m) disallowance	140		0.6	%	919		2.2	%	578		2.1	%
Non-controlling interest	(371)		(1.6)	%	(1,167)		(2.8)	%	(1,343)		(4.8)	%
Other	(68)		(0.3)	%	(262)		(0.6)	%	(146)		(0.5)	%
Other adjustments:
LLC flow-through structure	(2,802)		(11.6)	%	(3,033)		(7.3)	%	377		1.2	%
Income tax expense	$	2,997	12.4	%	$	6,799	16.2	%	$	3,248	11.5	%

(1) State taxes in Illinois made up the majority (greater than 50 percent) of the tax effect in this category.

Our effective income tax rates for the years ended December 28, 2025, December 29, 2024 and December 31, 2023 were 12.4%, 16.2% and 11.5%, respectively. The decrease in our effective income tax rate from the year ended December 28, 2025 to the year ended December 29, 2024 was primarily driven by a decrease in the valuation allowance related to the separation of Mr. Osanloo and year-over-year impact of deferred tax asset remeasurement due to effective state tax rate changes, partially offset by an increase in the Company's ownership interest in Portillo's OpCo, which increases its share of taxable income (loss) of Portillo's OpCo. The Company’s annual effective tax rate for the year ended December 28, 2025, December 29, 2024 and December 31, 2023 differs from the statutory rate of 21% primarily because the Company is not liable for income taxes on the portion of OpCo’s earnings that are attributable to non-controlling interests, deferred tax adjustments, impacts from equity-based award activity and the change in valuation allowance.

Deferred Tax Assets

The components of deferred tax assets and liabilities are as follows (in thousands):


	December 28, 2025		December 29, 2024
Deferred tax assets:
Investment in partnership	$	41,532	$	63,906
Tax Receivable Agreement	86,600		78,462



Net operating loss carryforwards	74,433		47,005
Interest limitation carryforwards	14,994		14,557
Other assets	682		629
Total gross deferred tax assets	218,241		204,559
Valuation allowance	(6,975)		(7,150)




Net deferred tax assets	$	211,266	$	197,409

As described in Note 11. Stockholders' Equity, we acquired LLC Units in connection with the IPO and Transactions and Secondary Offerings. During the years ended December 28, 2025 and December 29, 2024, we recognized a deferred tax asset in the amount of $41.5 million and $63.9 million, respectively, associated with the basis difference in our investment in Portillo's OpCo from acquiring these LLC Units.

During the years ended December 28, 2025 and December 29, 2024, we also recognized deferred tax assets in the amount of $86.6 million and $78.5 million, respectively, related to additional tax basis increases generated from expected future payments under the TRA and related deductions for imputed interest on such payments.

We evaluate the realizability of our deferred tax assets on a quarterly basis and establish valuation allowances when it is more likely than not that all or a portion of a deferred tax asset may not be realized. During the years ended December 28, 2025 and December 29, 2024, the Company recognized deferred tax assets of $41.5 million and $63.9 million, respectively, associated with the basis difference in its investment in Portillo's OpCo from acquiring these LLC Units. However, a portion of the total basis difference will only reverse upon the eventual sale of its interest in Portillo's OpCo, which we expect would result in a capital loss which we do not expect to be able to utilize. As of December 28, 2025 and December 29, 2024, the Company recorded a valuation allowance in the amount of $7.0 million and $7.2 million, respectively, against the deferred tax asset.

As of December 28, 2025 and December 29, 2024, the Company had federal and state net operating loss carry forwards of $74.4 million and $47.0 million, respectively, available to reduce future taxable income, if any. Federal losses that arose prior to 2018 will begin to expire in 2034. Federal losses generated after 2017 will be carried forward indefinitely. The majority of state losses will begin to expire in 2034 and future periods.

As of December 28, 2025 and December 29, 2024, the Company had interest limitation carry forwards of $15.0 million and $14.6 million, respectively, as a result of the Company's ownership interest in Portillo's OpCo.

Unrecognized Tax Benefits

The Company recorded no unrecognized tax benefits as of December 28, 2025 and December 29, 2024. Portillo's Inc. was formed in June 2021 and did not engage in any operations prior to the IPO and Transactions. Portillo's has filed all income tax returns for tax years through

2024. These returns are subject to examination by taxing authorities for U.S. federal and state income tax purposes. Additionally, although Portillo's OpCo is treated as a partnership for U.S. federal and state income taxes purposes, it is still required to file an annual U.S. Return of Partnership Income, which is subject to examination by the Internal Revenue Service ("IRS"). As of December 28, 2025, there are no ongoing U.S. federal, state or local income tax return examinations.

Tax Receivable Agreement

Pursuant to the Company's election under section 754 of the Internal Revenue Code (the "Code"), the Company expects to obtain an increase in its share of the tax basis in the net assets of Portillo's OpCo when LLC Units are exchanged by other members. The Company intends to treat any exchanges of LLC Units as direct purchases of LLC Units for U.S. federal income tax purposes. These increases in tax basis may reduce the amounts that would otherwise be paid in the future to the U.S. federal, state and local authorities. These increases may also decrease gains (or increase losses) on future dispositions of certain assets to the extent tax basis is allocated to those assets.

In the second quarter of 2025, in connection with the pre-IPO LLC Members unit redemption previously discussed in Note 11. Stockholders' Equity, 7,290,465 LLC Units were redeemed for newly-issued shares of Class A common stock. As a result, an increase in the tax basis of net assets of Portillo's OpCo subject to the provisions of the TRA was recorded. The Company recorded a deferred tax asset of $16.8 million and an additional TRA liability of $38.5 million.

In 2024, in connection with the pre-IPO LLC Members unit redemption previously discussed in Note 11. Stockholders' Equity, 840,992 LLC Units were redeemed for newly-issued shares of Class A common stock. As a result, an increase in the tax basis of net assets of Portillo's OpCo subject to the provisions of the TRA was recorded. The Company recorded a deferred tax asset of $1.7 million and an additional TRA liability of $4.3 million.

In 2024, in connection with the Q1 2024 Secondary Offering previously discussed in Note 11. Stockholders' Equity, 5,832,371 LLC Units were redeemed by the pre-IPO LLC Members for newly-issued shares of Class A common stock. As a result, an increase in the tax basis of net assets of Portillo's OpCo subject to the provisions of the TRA was recorded. The Company recorded a deferred tax asset of $17.8 million and an additional TRA liability of $33.7 million.

As of December 28, 2025, we estimate that our obligation for future payments under the TRA totaled $352.4 million. The Company made payments of $7.7 million under the TRA during the year ended December 28, 2025 relating to tax year 2023 and we expect a payment of $7.9 million relating to tax year 2024 to be made within the next 12 months. Refer to Note 2. Summary Of Significant Accounting Policies for additional information on the TRA.

One Big Beautiful Bill Act

On July 4, 2025, the One Big Beautiful Bill Act (the "Act") was signed into law. The Act includes significant provisions, such as the permanent extension of certain expiring provision of the Tax Cuts and Jobs Act, modifications to the international tax framework and the restoration of favorable tax treatment for certain business provisions. The legislation has multiple effective dates, with certain provisions effective in 2025 and other implemented through 2027. We have evaluated the potential effects of the relevant provisions of the Act and do not expect a significant financial statement impact as a result of the Act.

- Definition

The entire disclosure for income tax.

+ References

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+ Details

Portillo's Inc. 10-K