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Income Taxes
 12 Months Ended
Mar. 31, 2023
Income Tax Disclosure [Abstract]  
Income Taxes Income Taxes
For the year ended March 31, 2023, the Company reported a worldwide consolidated pre-tax loss of $30.6 million, which consisted of a pre-tax loss from U.S. operations of approximately $27.5 million and pre-tax loss from Japan operations of approximately $3.1 million. The pre-tax loss from Japan operations consists of $1.2 million from Transphorm Japan, Inc., $3 thousand pre-tax loss from Transphorm Aizu, Inc. and $1.9 million pre-tax loss from Transphorm Japan Epi, Inc.
For the year ended March 31, 2022, the Company reported a worldwide consolidated pre-tax loss of $10.2 million, which consisted of a pre-tax loss from U.S. operations of approximately $8.8 million and pre-tax loss from Japan operations of approximately $1.4 million. The pre-tax loss from Japan operations consists of $1.2 million from Transphorm Japan, Inc., $0.6 million pre-tax loss from Transphorm Aizu, Inc. and $0.3 million pre-tax income from Transphorm Japan Epi, Inc.
There is no U.S. federal or foreign provision for income taxes because the Company has incurred operating losses since inception and is in a full valuation allowance position. For the year ended March 31, 2023, the Company did not record a state income tax provision. For the year ended March 31, 2022, the Company recorded a state income tax provision of $1 thousand which represents minimum taxes. Deferred income taxes reflect the net tax effects of the net operating losses and the 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 the Company’s deferred tax assets and deferred tax liabilities as of the dates presented as follows (in thousands):
March 31,
20232022
Deferred tax assets:
Net operating loss carryforwards$53,496 $49,715 
Tax credits6,898 6,171 
California capitalized research and development1 40 
Research and development1,708 — 
Others, net679 564 
Total deferred tax assets62,782 56,490 
Valuation allowance(62,933)(56,550)
Deferred tax asset, net of valuation allowance(151)(60)
Deferred tax liabilities:
Fixed assets151 60 
Total deferred tax liabilities151 60 
Net deferred tax assets$— $— 
As of March 31, 2023 and 2022, the Company had no assurance that future taxable income would be sufficient to fully utilize the net operating loss carryforwards and other deferred tax assets in the future. Consequently, the Company determined that a valuation allowance of approximately $62.9 million and $56.6 million as of March 31, 2023 and 2022, respectively, was needed to offset the deferred tax assets resulting mainly from the net operating loss carryforwards.
The Company files income tax returns in the U.S. federal, Arizona, California, Colorado, Illinois, New Jersey, and Oregon jurisdictions and is subject to U.S. federal, state, and local income tax examinations by tax authorities. Generally, the statute of limitations is 3 years for U.S. federal income tax and 4 years for state and local taxes. The statute of limitations may be extended for tax years where a corporation has a net operating loss carryforward or by agreement with the jurisdictional taxing authority. Accordingly, all of the Company's U.S. federal, state and local income tax years since inception remain open to examination by tax authorities. The Company is not currently under audit by any taxing authority.

The Company follows the provisions of uncertain tax positions as addressed in ASC 740-10. The Company recognized no increase or decrease in the liability for unrecognized tax benefits for any period presented. The Company recognizes interest accrued related to unrecognized tax benefits in interest expense and penalties in operating expenses. No such interest or penalties were recognized during the period presented. The Company had no accruals for interest and penalties at March 31, 2023 and 2022.
The utilization of the Company’s net operating loss and tax credit carryforwards is dependent on the future profitability of the Company. Further, the Internal Revenue Code imposes substantial restrictions on the utilization of such carryforwards in the event of an ownership change of more than 50%, as defined, during any three-year period (Section 382 and 383 limitations). The Company has determined that several ownership changes have occurred, which have resulted in substantial limitations on the Company’s ability to utilize its pre-ownership change net operating loss and tax credit carryforwards. These substantial limitations are expected to result in both a permanent loss of certain tax benefits related to net operating loss carryforwards and federal research and development credits, as well as an annual utilization limitation. The Company performs an annual study to determine if any additional tax benefits need to be adjusted due to Section 382 and Section 383 limitations. As of March 31, 2023, the Company performed the analysis and management did not believe any adjustments to current tax benefits would be necessary. However, it is important to note that the Company continues to raise capital and such transaction could have an effect of such limitations. See Note 19 - Subsequent Events.

The federal net operating loss generated for the years ended March 31, 2023 and 2022 of $17.4 million and $9.8 million, respectively, can be carried forward indefinitely. However, the federal deduction for net operating losses incurred in tax years beginning after January 1, 2021 is limited to 80% annual taxable income. Under the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), the suspension of net operating losses generated in years 2018, 2019, 2020 and 2021 are not subject to the 80% limitation. The state net operating loss generated for the years ended March 31, 2023 and 2022 of $0.1 million and $2.6 million, respectively, can be carried forward 20 years.
As of March 31, 2023, the Company has federal net operating loss carryforwards of $276.1 million, of which $207.5 million will begin to expire in 2027 unless previously utilized, and the Company has state net operating loss carryforwards of $151.6 million which will begin to expire in 2028 unless previously utilized. The Company also has foreign net operating loss carryforwards of approximately $7.7 million which will begin to expire in 2024. As of March 31, 2023, the Company has federal research and development credit carryforwards of $5.4 million, which will begin to expire in 2032 unless previously utilized, and the Company has California research and development credit carryforwards of $4.7 million, which do not expire.

Deferred tax assets have not been established for net operating and tax credit carryforwards that are deemed to have no value due to the Section 382 and 383 limitations discussed above and, therefore, are not reflected in the table of deferred tax assets presented above. Future ownership changes, if any, may further limit the Company’s ability to utilize its remaining net operating losses and tax credit carryforwards. The Company performed an analysis as of March 31, 2023 and it was determined that no further limitations on tax attributes were required.
Reconciliation between federal statutory tax rate and the effective tax rate is shown in the following table for the periods presented:
Year Ended March 31,
20232022
Federal statutory income tax rate21.00 %21.00 %
Research and development credit2.38 %7.10 %
Nondeductible expense(0.70)%1.80 %
Loss in joint venture— %(1.87)%
Foreign income tax rate difference0.99 %1.39 %
Others, net(0.90)%(0.40)%
Valuation allowance(22.77)%(29.02)%
Effective tax rate— %— %

On March 27, 2020, the CARES Act was signed into law. The CARES Act repealed the 80% taxable income limitation for the 2018–2020 taxable years and reinstated NOL carrybacks for the 2018–2020 taxable years. In
addition, the CARES Act temporarily increased the business interest deduction limitations from 30% to 50% of adjusted taxable income for the 2019 and 2020 taxable year. Lastly, a TCJA technical correction classified qualified improvement property to have a 15-year recovery period, allowing the bonus depreciation deduction to be claimed for such property retroactively as if it was included in the TCJA at the time of enactment.
On December 21, 2020, the Consolidated Appropriations Act (“CAA”) was signed into law. We do not expect any of the enactments of the CAA to have a material impact on the Company as of March 31, 2023.
Under the Tax Cuts and Jobs Act of 2017, research and development costs are no longer fully deductible and are required to be capitalized and amortized for U.S. tax purposes effective January 1, 2022. The mandatory capitalization requirement increases our deferred tax assets.