Income Taxes

12 Months Ended

Dec. 31, 2021

Income Taxes

Income Taxes

10.    Income Taxes

For the years ended December 31, 2021 and 2020, the Company did not record a provision for federal or state income taxes as it has incurred cumulative net operating losses since inception.

A reconciliation of the U.S. statutory income tax rate to the Company’s effective tax rate is as follows for the years ended December 31, 2021 and 2020:

	Year Ended December 31,
	2021		2020
Federal income tax (benefit) at statutory rate	21.00	%	21.00	%
Permanent differences	(0.25)		(0.41)
Federal research and development credits and adjustments	0.44		2.78
Nondeductible research costs	(17.75)		—
State income tax, net of federal benefit	0.82		6.03
Other	0.01		0.37
Change in valuation allowance	(4.27)		(29.77)
Effective income tax rate	—	%	—	%

The Company’s deferred tax assets consisted of the following (in thousands):

	Year Ended December 31,
	2021		2020
Deferred tax assets
Net operating loss carryforwards	$	75,849	$	65,373
Tax credit carryforwards		10,063		9,273
Capitalized research and development		139		482
Capitalized legal expenses		1,048		1,070
Lease liability		99		284
Other differences		1,977		1,648
Total deferred tax assets		89,175		78,130
Deferred tax liabilities
ROU asset		(107)		(262)
Valuation allowance		(89,068)		(77,868)
Net deferred tax assets	$	—	$	—

The Company recorded an increase to the valuation allowance of $11.2 million during the year ended December 31, 2021 due primarily to the federal and state net operating losses and tax credits generated. The Company recorded an increase to the valuation allowance of $11.1 million during the year ended December 31, 2020 which was also primarily due to the federal and state net operating losses and tax credits generated.

In assessing the realizability of deferred tax assets, the Company 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 the temporary differences representing net future deductible amounts become deductible. Due to the Company’s history of losses and expectation of future losses, the deferred tax assets were fully offset by a valuation allowance at December 31, 2021 and 2020.

As of December 31, 2021, the Company had approximately $279.4 million of federal and $271.8 million of state net operating loss respectively, which may be available to offset future taxable income. Federal net operating loss carryforwards of $150.6 million and state net operating loss carryforwards of $271.8 million will expire at various dates from 2028 through 2041. Federal net operating loss carryforwards of $128.8 million can be carried forward indefinitely. The Company had approximately $8.1 million of federal and $2.4 million of state tax credit carryforwards available to reduce future tax liabilities as of December 31, 2021, which will expire at varying times through the year 2041.

The Internal Revenue Code of 1986, as amended (the “Code”), provides for a limitation of the annual use of net operating losses and other tax attributes (such as research and development tax credit carryforwards) following certain ownership changes (as defined by the Code) that could limit the Company’s ability to utilize these carryforwards. At this time, the Company has not completed a study to assess whether an ownership change under Section 382 of the Code has occurred, or whether there have been multiple ownership changes since the Company’s formation, due to the costs and complexities associated with such a study. The Company may have experienced various ownership changes, as defined by the Code, as a result of past financing transactions. Accordingly, the Company’s ability to utilize the aforementioned carryforwards may be limited. Additionally, U.S. tax laws limit the time during which these carryforwards may be applied against future taxes. Therefore, the Company may not be able to take full advantage of these carryforwards for federal or state income tax purposes.

As of December 31, 2021 and 2020, the Company did not have any significant unrecognized tax benefits. The Company had not accrued interest or penalties related to uncertain tax positions.

The federal and state income tax returns are generally subject to tax examinations for the tax years ended December 31, 2018 through December 31, 2021. To the extent the Company has tax attribute carryforwards, the tax years in which the attribute was generated may still be adjusted upon examination by the Internal Revenue Service or state taxing authorities to the extent utilized in a future period.