INCOME TAXES

12 Months Ended

Dec. 31, 2021

INCOME TAXES

INCOME TAXES

11. INCOME TAXES

Income tax expense consists of the following:

	Year Ended December 31,
(In thousands)	2021		2020		2019
Current
State	$	7	$	11	$	26
Deferred
Federal		70,893		60,408		41,567
State		5,539		12		309
		76,432		60,420		41,876
Total income tax expense, net	$	76,439	$	60,431	$	41,902

The impacts of the differences between the expected U.S. federal statutory income tax to our income tax expense are as follows:

	Year Ended December 31,
(In thousands)	2021			2020			2019
Expected tax at federal statutory rate	$	93,507		$	74,392		$	48,908
State income tax, net of federal benefit		848			(26	)		325
Federal and state research credits		1,260			—			—
Noncontrolling interest		(21,626	)		(14,577	)		(7,078	)
Other		1,129			839			326
Change in valuation allowance		1,321			(197	)		(579	)
Income tax expense (benefit), net	$	76,439		$	60,431		$	41,902

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of our deferred tax assets and deferred tax liabilities are as follows:

	As of December 31,
(In thousands)	2021			2020
Deferred tax assets
Net operating loss carryforwards	$	64,813		$	121,839
Research and development tax credit carryforwards		53,467			55,211
Other		743			1,100
Total deferred tax assets before valuation allowance		119,023			178,150
Valuation allowance		(64,744	)		(63,423	)
Total deferred tax assets		54,279			114,727
Deferred tax liabilities
Debt issuance discount and other		(9,158	)		(10,596	)
Unrealized gain on investment, net		(27,794	)		(10,372	)
Net deferred tax assets	$	17,327		$	93,759

We record deferred tax assets if the realization of such assets is more likely than not to occur. Significant management judgment is required in determining whether a valuation allowance against the deferred tax assets is required. We have considered all available evidence, both positive and negative, such as our historical operating results and predictability of future taxable income, in making such determination. We are also required to exercise significant management’s judgment in forecasting future taxable income. Specifically, we evaluate the following criteria when considering a valuation allowance:

•the history of tax net operating losses in recent years;

•predictability of operating results;

•profitability for a sustained period of time; and

•level of profitability on a quarterly basis.

As of December 31, 2021, we recognized $76.4 million income tax expense and reduced the deferred tax assets by the same amount mainly based on the taxable income generated during the year.

As of December 31, 2021, we had federal net operating loss carryforwards of approximately $92.9 million, which expire from 2033 through 2035. We also had federal research and development tax credit carryforwards of approximately $42.1 million, which will expire beginning 2022. We also had state net operating loss carryforwards of approximately $648.6 million expiring in the beginning of 2029 and state research tax credits of approximately $31.6 million, which do not expire.

Utilization of net operating loss and tax credit carryforwards may be subject to a substantial annual limitation due to ownership change limitations provided by the Internal Revenue Code and similar state provisions. Annual limitations may result in expiration of net operating loss and tax credit carryforwards before some or all of such amounts have been utilized.

We conducted an Internal Revenue Code of 1986, as amended, Section 382 (“Section 382”) analysis through October 31, 2021 to determine whether an ownership change had occurred since inception. The Section 382 study concluded that it is more likely than not that the Company did not experience an ownership change during the testing period. However, notwithstanding the applicable annual limitations, no portion of the net operating loss or credit carryforwards is expected to expire before becoming available to reduce federal and state income tax liabilities as a result of those identified ownership changes. If we undergo another ownership change, the utilization of the pre-ownership change net operating loss carryforwards or pre-ownership change tax attributes, such as research tax credits, to offset the post-ownership change income may be subject to an annual limitation, pursuant to Sections 382 and 383 of the Internal Revenue Code of 1986, as amended. Similar rules may apply under state tax laws.

Our policy is to recognize interest and/or penalties related to income tax matters in income tax expense. As of December 31, 2021 and 2020, we had no accrued interest or penalties.

Uncertain Tax Positions

A reconciliation of the beginning and ending balances of the total amounts of unrecognized tax benefits are as follows:

(In thousands)
Unrecognized tax benefits as of December 31, 2018	$	15,413
Gross decrease in tax portions for 2019		(71	)
Unrecognized tax benefits as of December 31, 2019		15,342
Net decrease in tax portions for 2020		(157	)
Unrecognized tax benefits as of December 31, 2020		15,185
Net decrease in tax portions for 2021		(313	)
Unrecognized tax benefits as of December 31, 2021	$	14,872

Our total unrecognized tax benefits as of December 31, 2021 were $14.9 million. Total unrecognized tax benefits that, if recognized, would affect our effective tax rate, were $8.4 million as of December 31, 2021.

We are subject to taxation in the U.S. and various state jurisdictions. The tax years 2004 through 2013, 2015 and forward remain open to examination by the federal and most state tax authorities due to net operating loss and overall credit carryforward positions.