Income Taxes

At December 31, 2016, Trovagene had federal net operating loss carryforwards (NOLs) of approximately $106.7 million, which, if not used, expire beginning in 2020. Trovagene also has California NOLs of approximately $87.4 million that will begin to expire in 2021. Trovagene’s fully owned foreign subsidiary has an NOL carryover of $0.4 million. Trovagene also has research and development tax credits available for federal and California purposes of approximately $2.0 million and $0.8 million, respectively. The federal research and development tax credits will begin to expire on January 31, 2025. The California research and development tax credits are not set to expire. The utilization of these NOLs and research and development tax credits is subject to limitations based on past and future changes in ownership of Trovagene pursuant to Section 382 (“Section 382”) of the Internal Revenue Code of 1986, as amended (the “Code”). The Company has determined that ownership changes have occurred for purposes of Section 382 and, therefore, the ability of the Company to utilize its NOLs is limited.

The provision for income taxes based on losses from continuing operations consists of the following at December 31 (in thousands):



	Years ended December 31,
	2016			2015			2014
Deferred benefit
Federal	$	(14,035	)	$	(9,602	)	$	(5,651	)
State	(2,443		)	(1,742		)	(449		)
Foreign	(114		)	—			—
Total deferred benefit	(16,592		)	(11,344		)	(6,100		)
Valuation allowance	16,592			11,344			6,100
Total income tax provision	$	—		$	—		$	—

Significant components of the Company’s taxes and the rates as of December 31 are shown below (in thousands, except percentages):



	Years ended December 31,
	2016					2015
Tax computed at the federal statutory rate	$	(13,206	)	34	%	$	(9,340	)	34	%
State tax, net of federal tax benefit	(2,286		)	6	%	(1,559		)	6	%
Foreign Tax	(114		)	—	%	—			—	%
Permanent Items	(114		)	—	%	258			(1	)%
Tax credits	(1,276		)	3	%	(997		)	3	%
Valuation allowance increase	16,996			(43	)%	11,638			(42	)%
Provision for income taxes	$	—		—	%	$	—		—	%

Significant components of the Company’s deferred tax assets and liabilities from federal and state income taxes as of December 31 are shown below (in thousands):



	Years ended December 31,
	2016			2015
Deferred tax assets
Tax loss carryforwards	$	41,502		$	27,962
Research and development credits and other tax credits	2,817			1,698
Stock-based compensation	4,658			3,225
Other	1,283			782
Total deferred tax assets	50,260			33,667
Valuation allowance	(50,260		)	(33,667		)
Net deferred tax asset	$	—		$	—

Trovagene records a valuation allowance against deferred tax assets to the extent that it is more likely than not that some portion, or all of, the deferred tax assets will not be realized. Due to the substantial doubt related to Trovagene’s ability to utilize its deferred tax assets, the Company recorded a valuation allowance against the deferred tax.

FASB ASC Topic 740-10-30-7, Accounting for Income Taxes had no effect on Trovagene’s financial position, cash flows or results of operations upon adoption, as Trovagene does not have any unrecognized tax benefits. Trovagene’s practice is to recognize interest and/or penalties related to income tax matters in income tax expense, and none have been incurred to date.