Income Taxes

12 Months Ended

Dec. 31, 2022

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

Income Tax Expense

The following reconciles the differences between income taxes computed at the federal income tax rate and the provision for income taxes:

	Year Ended December 31,
	2022		2021		2020
Expected income tax benefit at the federal statutory rate	21.0	%	21.0	%	21.0	%
State taxes, net of federal benefit	0.0		0.0		0.0
Change in federal statutory rate	0.0		0.0		0.0
Non-deductible stock compensation	(4.5)		(3.1)		0.2
True-up federal deferred taxes	7.7		0.0		0.0
Non-deductible items and other	0.5		(1.7)		(3.6)
Federal and state credits	1.0		0.7		0.5
Change in valuation allowance	(25.7)		(16.9)		(18.1)
Total	0.0	%	0.0	%	0.0	%

Deferred income taxes reflect the net effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The principal components of the Company’s net deferred tax assets consisted of the following at December 31, 2022 and 2021 (in thousands):

	Year Ended December 31,
	2022		2021
Deferred tax assets
Net operating loss carryforwards	$	155,153	$	140,581
Research and development tax credits	10,406		9,149
Reserves and accruals	7,091		6,004
Operating lease liability	1,868		2,615
Capitalized §174 Costs	4,476		—
Share-based compensation	8,157		1,406
Other	5,277		4,109
Total deferred tax assets	192,428		163,864
Less: Valuation allowance	(191,051)		(161,487)
Net deferred tax assets	1,377		2,377
Deferred tax liabilities
Right-of-use assets	(1,377)		(2,377)
Total deferred tax liabilities	(1,377)		(2,377)
Net deferred tax assets	$	—	$	—

The Company maintains a valuation allowance related to its deferred tax asset position when management believes it is more likely than not that the net deferred tax assets will not be realized in the future. The Company’s valuation allowance increased by $29.6 million and $23.3 million during the year ended December 31, 2022 and 2021, respectively.

At December 31, 2022, the Company had federal net operating loss carryforwards of $670.0 million, which begin to expire in the year ending December 31, 2024, and $274.6 million related to state net operating loss carryforwards, which begin to expire in the year ending December 31, 2022. The Company had federal research and development tax credit carryforwards of $9.0 million, and state carryforwards of $5.3 million at the year ended December 31, 2022. The federal credits begin to expire in the year ending December 31, 2027 and the state credits carryforward indefinitely.

Under the provisions of the Internal Revenue Code, or IRC, net operating loss and credit carryforwards and other tax attributes may be subject to limitation if there has been a significant change in ownership of the Company, as defined by the IRC. The Company performed a Section 382 analysis in February of 2022 and three ownership changes were identified, which had a corresponding limitation of tax attributes. Future owner or equity shifts could result in additional limitations on net operating loss and credit carryforwards.

Because of the net operating loss and credit carryforwards, all of the Company’s federal tax returns and state returns since the year ended December 31, 2004 remain subject to federal and California examination.

The Company accounts for uncertain tax positions using a “more-likely-than-not” threshold. The evaluation of uncertain tax positions is based on factors including, but not limited to, changes in tax law, the measurement of tax positions taken or expected to be taken in tax returns, the effective settlement of matters subject to audit, new audit activity and changes in facts or circumstances related to a tax position. The Company evaluates these tax positions on an annual basis. In addition, the Company also accrues for potential interest and penalties related to unrecognized tax benefits in income tax expense.

At December 31, 2022 and 2021, the Company’s unrecognized tax benefits consist of the following (in thousands):

	Year Ended December 31,
	2022		2021
Unrecognized tax benefit, beginning of period	$	3,357	$	2,681
Gross increases — current year tax positions	908		704
Gross increases — prior year tax positions	—		—
Gross decreases — prior year tax positions	(363)		(28)
Unrecognized tax benefit, end of period	$	3,902	$	3,357

On March 27, 2020, the Coronavirus Aid, Relief and Economic Security ("CARES") Act was signed into law. The CARES Act includes provisions relating to refundable payroll tax credits, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations and technical corrections to the tax deprecation methods for qualified improvement property. The impact of the CARES act is estimated to be immaterial on the Company’s income tax expense.