Income Taxes

At December 31, 2019, Trovagene had federal net operating loss carryforwards (“NOLs”) of approximately $129.0 million, if not used, will begin to expire in 2020, and federal net operating loss carryforwards of approximately $30.3 million, which do not expire. Trovagene also has California NOLs of approximately $70.1 million, if not used, will begin to expire in 2029. Trovagene also has research and development tax credits available for federal and California purposes of approximately $2.4 million and $1.7 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,
	2019			2018
Current:
State	$	1		$	1
Total current provision	1			1
Deferred:
Federal	(2,634		)	(1,307		)
State	(148		)	(2,428		)
Total deferred (benefit) expense	(2,782		)	(3,735		)
Valuation allowance	2,781			3,734
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,
	2019					2018
Tax computed at the federal statutory rate	$	(3,447	)	21	%	$	(3,457	)	21	%
State tax, net of federal tax benefit	(177		)	1	%	(184		)	1	%
Permanent Items	353			(2	)%	481			(3	)%
Stock options true-up	875			(5	)%	—			—	%
Tax credits	(384		)	2	%	(574		)	3	%
Valuation allowance increase (decrease)	2,780			(17	)%	3,734			(22	)%
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,
	2019			2018
Deferred tax assets:
Tax loss carryforwards	$	38,494		$	35,019
Research and development credits and other tax credits	3,710			3,595
Stock-based compensation	531			1,301
Other	1,252			1,126
Total deferred tax assets	43,987			41,041
Deferred tax liabilities:
Operating lease right-of-use assets	(154		)	—
Other	(12		)	—
Total deferred tax liabilities	(166		)	—
Net deferred tax assets before valuation allowance	43,821			41,041
Valuation allowance	(43,821		)	(41,041		)
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 assets.

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.