Income Taxes

A reconciliation of the expected income tax benefit (expense) computed using the federal statutory income tax rate to the Company’s effective income tax rate was as follows:



	Year Ended December 31,
	2015		2014		2013
Income tax benefit computed at federal statutory tax rate	34.00%		34.00%		34.00%
State taxes, net of federal benefit	5.59		5.05		4.67
General business credits and other credits	1.77		1.33		4.28
Permanent differences	2.38		(1.29	)	(3.52	)
Change in valuation allowance	(43.74	)	(39.09	)	(39.43	)
Total	—	%	—	%	—	%

The Company has incurred net operating losses, or NOLs, from inception. At December 31, 2015, the Company has federal and state NOL carryforwards of $120.0 million and $118.2 million, respectively, available to reduce future taxable income, that expire beginning in 2029 through 2035. The Company also had federal and state research and development tax credit carryforwards of $1.7 million and $1.2 million, respectively, available to reduce future tax liabilities that expire beginning in 2025 through 2035. Included in the federal and state net operating losses are deductions attributable to excess tax benefits from the exercise of stock options of $0.7 million. The tax benefits attributable to these deductions are credited directly to additional paid-in capital when realized.

Under the provisions of the Internal Revenue Code, certain substantial changes in the Company’s ownership may result in a limitation on the amount of NOL carryforwards and research and development credit carryforwards that may be utilized annually to reduce future taxable income and taxes payable. The Company has not determined if a limitation has occurred.

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



	December 31,
	2015			2014
Deferred tax assets:
Net operating loss carryforwards	$	46,749		$	33,267
Research and development credit carryforwards	2,462			1,979
Accruals and other	1,385			948
Capitalized license and organization costs	66			73
Capitalized start-up costs	278			309
Depreciation	21			—
Total gross deferred tax asset	50,961			36,576
Deferred tax liability	—			(18		)
Valuation allowance	(50,961		)	(36,558		)
Net deferred tax asset	$	—		$	—

As required by ASC 740, Income Taxes (“ASC 740”), management of the Company has evaluated the positive and negative evidence bearing upon the realizability of its deferred tax assets, which are composed principally of NOL carryforwards and research and development credit carryforwards. Management has determined that it is more likely than not that the Company will not recognize the benefits of its federal and state deferred tax assets, and, as a result, a valuation allowance of $51.0 million and $36.6 million has been established at December 31, 2015 and 2014, respectively. The change in the valuation allowance was $14.4 million for the year ended December 31, 2015. At December 31, 2015 and for prior periods, the Company had no unrecognized tax benefits. The Company has not, as yet, conducted a study of its research and development credit carryforwards. Such a study may result in an adjustment to the Company’s research and development credit carryforwards; however, until a study is completed and any adjustment is known, no amount is being presented as an uncertain tax position. A full valuation allowance has been provided against the Company’s research and development credits, and, if an adjustment is required, this adjustment would be offset by an adjustment to the valuation allowance. Thus, there would be no impact to the balance sheets or statements of operations and comprehensive loss if an adjustment were required.

The Company applies the accounting guidance in ASC 740 related to accounting for uncertainty in income taxes. The Company’s reserves related to taxes are based on a determination of whether, and how much of, a tax benefit taken by the Company in its tax filings or positions is more likely than not to be realized following resolution of any potential contingencies present related to the tax benefit. As of December 31, 2015 and 2014, the Company had no unrecognized tax benefits. The Company recognizes interest and penalties related to uncertain tax positions in income tax expense.

The Company files income tax returns in the U.S. federal tax jurisdiction and the Massachusetts state jurisdiction. Since the Company is in a loss carryforward position, the Company is generally subject to examination by the U.S. federal, state and local income tax authorities for all tax years in which a loss carryforward is available. The Company does not have any international operations as of December 31, 2015. There are currently no federal or state audits in process.