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Income Taxes
 12 Months Ended
Dec. 31, 2021
Income Tax Disclosure [Abstract]  
Income Taxes Income Taxes
For the years ended December 31, 2021 and 2020, the Company recorded an income tax benefit of $0.6 million and $14.0 million, respectively. The income tax benefit is as follows (in thousands):
Year Ended December 31,
2021
2020
Current tax benefit - U. S. federal$— $4,473 
Current tax benefit - state and local 636 
Deferred tax benefit - U. S. federal— 7,980 
Deferred tax benefit - state and local— 1,520 
Total income tax benefit$636 $13,973 
On March 25, 2020, in response to the COVID-19 pandemic, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was signed into law to provide emergency assistance to affected individuals, families, and businesses. The CARES Act provides numerous tax provisions and other stimulus measures, including temporary changes regarding the prior and future utilization of net operating losses. The CARES Act amends the net operating losses (“NOLs”) provisions of the Tax Cut and Jobs Act of 2017 (the “Tax Act”), providing for a five-year carryback for NOLs generated in tax years beginning after December 31, 2017 and before January 1, 2021. A tax benefit of $4.5 million related to pre-tax NOLs was carried back to each of the five taxable years to fully offset taxable income. The Company received the full refund in July 2020.
The income tax benefit for the year ended December 31, 2021 differs from the amount that would be expected after applying the statutory U.S. federal income tax rate primarily due to an increase in the valuation allowance, partially offset by a benefit recorded upon release of a reserve for an uncertain tax position due to the statute of limitations expiring. The income tax benefit for the year ended December 31, 2020 differs from the amount that would be expected after applying the statutory U.S. federal income tax rate primarily due to the change in the valuation allowance offset by the capital loss in a foreign subsidiary, $9.5 million recognized for the tax benefit of current year tax losses and certain historical tax attributes realized as of the date of the Merger, both benefited from the deferred tax liability recorded for the step up in book basis over tax basis for the net value of the PRV and its subsequent sale and taxable gain and $4.5 million of current tax benefit related to carry back of NOL under the CARES Act.
The tax effects of temporary differences that give rise to significant portions of deferred tax assets and the deferred tax liability at December 31, 2021 and 2020 are presented below (in thousands):
As of December 31,
2021
2020
Deferred tax assets:
  Net operating loss carryforwards$32,281 $27,441 
  Federal research and development tax credits37,953 34,238 
  Share-based compensation627 624 
  Capital loss carryforwards41,144 41,399 
  Deferred rent2 109 
  Accrued compensation192 361 
  Charitable contributions24 25 
  Leasehold improvements and equipment1,292 1,648 
Gross deferred tax assets113,515 105,845 
  Less: valuation allowance(113,515)(105,272)
Total deferred tax assets— 573 
Deferred tax liability:
  Capital gain on PRV— (573)
Net deferred tax assets$— $— 
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Due to the uncertainty of the Company’s ability to realize the benefit of the deferred tax assets, the net deferred tax assets are fully offset by a valuation allowance at December 31, 2021 and 2020. The valuation allowance increased by $8.2 million and $95.7 million during the years ended December 31, 2021 and 2020, respectively.
Based on Section 382 ownership change analyses through March 18, 2020, as a result of the Merger, both historical NewLink and Private Lumos experienced Section 382 ownership changes on March 18, 2020; accordingly, NOL carryforwards are limited. As of December 31, 2021, the Company had federal operating loss carryforwards of approximately $127.5 million, federal capital loss carryforwards of approximately $164.6 million, and federal research credit carryforwards of approximately $38.0 million. Certain of the carryforwards expire in years 2022 through 2041, and certain of the carryforwards have an indefinite life.
A reconciliation of income taxes at the statutory federal income tax rate to net income tax benefit included in the accompanying consolidated statements of operations is set forth in the following table:
Year Ended December 31,
2021
2020
U.S. federal income tax benefit at the statutory rate(21.00)%(21.00)%
State income taxes, net of federal taxes(1.38)(50.50)
Loss in foreign subsidiary— (177.31)
Carry-back of federal net operating loss— (22.78)
Federal tax credits (8.90)(3.57)
Change in valuation allowance26.53 201.18 
Other2.70 2.82 
Effective income tax rate(2.05)%(71.16)%
The Company accounts for the effect of any uncertain tax positions based on a more likely than not threshold to the recognition of the tax positions being sustained based on the technical merits of the position under scrutiny by the applicable taxing authority. If a tax position or positions are deemed to result in uncertainties of those positions, the unrecognized tax position is estimated based on a cumulative probability assessment that aggregates the estimated tax liability for all uncertain tax positions. Interest and penalties assessed, if any, are accrued and recorded in either interest expense or miscellaneous expense, respectively in the consolidated statement of operations. The Company had a reserve for uncertain tax positions related to state tax matters of $0.7 million as of December 31, 2020 recorded within accrued expenses in the accompanying consolidated balance sheets, which includes the accrual of immaterial amounts for interest and penalties since the Merger. The statute of limitations related to such matters expired in October 2021 and the full reserve of $1.2 million, including accrued interest and penalties, was released from accrued expenses, resulting in a $0.6 million income tax benefit, a $0.3 million increase in other income, and a $0.3 million decrease in miscellaneous expense within general and administrative expense. Tax years 2014, 2015, and 2018 through 2020 remain open to examination by the major taxing jurisdictions in which the Company operates.