Income Taxes

12 Months Ended

Dec. 31, 2021

Income Tax Disclosure [Abstract]

Income Taxes

Note 10. Income Taxes

No provision for or benefit from income taxes was recorded during the years ended December 31, 2021 and 2020. The Company has established a full valuation allowance against its net deferred tax assets due to the uncertainty regarding the realization of such assets. All losses to date have been incurred in the United States. Deferred income taxes reflect the net tax effects of (a) temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, and (b) operating losses and tax credit carryforwards.

Effective Tax Rate Reconciliation

The effective tax rate of the Company’s provision for income taxes differs from the federal statutory rate and the effective tax rate reconciliation is as follows:

	December 31,
	2021			2020
U.S. federal taxes at statutory rate		21.0	%		21.0	%
State taxes (net of federal benefit)		0.6			8.1
Credits		3.1			3.6
Stock-based compensation		(0.3	)		(0.3	)
Section 382 limitation on tax attribute carryforwards		—			(9.0	)
Change in valuation allowance		(23.3	)		(23.1	)
Other		(1.1	)		(0.3	)
Total	—%			—%

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:

	December 31,
	2021			2020
	(In thousands)
Balance at beginning of year	$	571		$	744
Additions based on tax positions related to current year		901			293
Additions based on tax positions related to prior years		—			—
Reductions for tax positions related to prior years		(2	)		(466	)
Balance at end of year	$	1,470		$	571

The Company does not expect that its uncertain tax positions will materially change in the next twelve months. The reversal of the uncertain tax benefits would not impact the Company’s effective tax rate as the Company continues to maintain a full valuation allowance against its deferred tax assets.

The Company files tax returns in U.S. federal and state jurisdictions with varying statutes of limitations. Due to net operating loss and credit carryforwards, all of the tax years since inception through the 2021 tax year remain subject to examination by the U.S. federal and state authorities. The Company is currently not subject to any income tax audits by federal or state taxing authorities.

Deferred Income Taxes

The tax effects of significant items comprising the Company’s deferred income taxes are as follows:

	December 31,
	2021			2020
	(In thousands)
Deferred tax assets:
Net operating losses	$	34,746		$	20,917
Tax credits		4,443			1,346
Lease liability		3,362			—
Accrued expenses and other		727			1,825
Stock-based compensation		309			79
Property and equipment		152			120
Total deferred tax assets		43,739			24,287
Valuation allowance		(41,281	)		(24,287	)
Deferred tax assets, net of valuation allowance		2,458			—
Deferred tax liabilities:
Right-of-use asset		(2,458	)		—
Net deferred tax assets	$	—		$	—

The tax benefit of net operating losses, temporary differences and credit carryforwards are recorded as an asset to the extent that the Company assesses that realization is more likely than not. Realization of the future tax benefits is dependent on the Company’s ability to generate sufficient taxable income within the carryforward period. As a result of the Company’s recent history of operating losses, the Company believes that recognition of deferred tax assets arising from the above-mentioned future tax benefits is currently not likely to be realized and, accordingly,

has provided a full valuation allowance. The valuation allowance increased by $17.0 million and $8.9 million during the years ended December 31, 2021 and 2020. The increase in valuation allowances during the year ended December 31, 2021, was primarily due to the increase in deferred tax assets from 2021 federal net operating losses. The valuation allowances would have been larger for the year ended December 31, 2020, if not for the reduction in net operating loss and tax credit carryforwards limited under Section 382. The impact of the Section 382 limitation resulted in the reduction of deferred tax assets for federal research credits and state net operating loss carryforwards, with an offsetting reduction of the valuation allowance.

Net Operating Loss and Tax Credit Carryforwards

As of December 31, 2021, the Company’s net operating loss and tax carryforwards are summarized as follows:

	Amount		Expiration in years
Net operating losses, federal (post-December 31, 2017)	$	140,666	Do Not Expire
Net operating losses, federal (pre-January 1, 2018)	$	3,093	Begins to Expire 2036
Net operating losses, state	$	62,817	Begins to Expire 2036
Tax credits, federal	$	3,433	Begins to Expire 2036
Tax credits, state	$	3,258	Do Not Expire

Under Section 382 of the Internal Revenue Code of 1986, as amended, the ability to utilize net operating loss carryforwards or other tax attributes, such as research tax credits, in any taxable year may be limited if the Company has experienced an “ownership change”. This annual limitation may result in the expiration of net operating losses and credits before utilization. As of December 31, 2021, a study was updated and we concluded that there were no ownership changes during 2021. As previously disclosed, the Company experienced an ownership change in 2020. As a result, in 2020, the Company removed $3.1 million of deferred tax assets related to net operating loss carryforwards and research tax credit carryforwards due to Section 382 limitations. The Company’s ability to use its remaining net operating loss carryforwards may be further limited if the Company experiences a Section 382 ownership change as a result of future changes in its stock ownership.

The Company recognizes interest and penalties related to taxes and uncertain tax positions as a component of income tax expense. During the years ended December 31, 2021 and 2020, no interest and penalties were accrued by the Company.