Income Taxes

Current income tax expense (benefit) attributable to continuing operations was zero for the years ended December 31, 2017 and 2016.

The Company’s effective income tax rate differs from the statutory federal income tax rate as follows for the years ended December 31, 2017 and 2016.



	Years Ended December 31,
	2017		2016
Federal tax provision (benefit) rate	(34.0	)%	(34.0	)%
State tax provision, net of federal provision	(5.9	)	(4.2	)
Permanent items	(0.1	)	(0.2	)
Federal research and development credits	(0.7	)	(0.9	)
Change in statutory tax rate	150.3		—
Valuation allowance	(109.6	)	39.3
Effective income tax rate	—		—

The Company’s deferred tax assets consist of the following:



	December 31,
	2017			2016
Deferred tax assets:
Net operating loss carryforwards	$	31,902,006		$	45,759,780
Research and development credit carryforwards	2,432,058			2,180,700
Accrued expenses	748,334			752,866
Stock-based compensation	229,676			566,487
Other	19,240			14,321
Total gross deferred tax assets	35,331,314			49,274,154
Valuation allowance	(35,331,314		)	(49,274,154		)
Net deferred tax assets	$	—		$	—

At December 31, 2017, the Company has federal and state net operating loss carryforwards (“NOL”) of $145.2 million and $51.6 million, respectively, as well as federal and state tax credits of $1.5 million and $1.1 million, respectively, which may be available to reduce future taxable income and the related taxes thereon. This amount includes tax benefits of $2.6 million and $71,238 attributable to NOL and tax credit carryforwards, respectively, that result from the exercise of employee stock options. The tax benefit of these items will be recorded as a credit to additional paid-in capital upon realization of the deferred tax asset or reduction in income taxes payable. The federal NOLs begin to expire in 2019 and the state NOLs begin to expire in 2018. The federal and state research and development credits both begin to expire in 2018.

In accordance with the provisions of the Income Taxes topic of the Codification, the Company has evaluated the positive and negative evidence bearing upon the realizability of its deferred tax assets, which are comprised principally of net operating losses. Management has determined that it is more likely than not that the Company will not recognize the benefits of federal and state deferred tax assets and, as a result, a valuation allowance of approximately and $35.3 million and $49.3 million has been established at December 31, 2017 and 2016, respectively. In 2017, the valuation allowance decreased primarily due to the impact of the change in statutory rates on the Company’s net operating losses. Utilization of the NOL and research and development credit carryforwards may be subject to a substantial annual limitation due to ownership change limitations that have occurred previously or that could occur in the future, as provided by Section 382 of the Internal Revenue Code of 1986, as well as similar state provisions. Ownership changes may limit the amount of NOL and tax credit carryforwards that can be utilized to offset future taxable income and tax, respectively. In general, an ownership change, as defined by Section 382, results from transactions increasing the ownership of certain shareholders or public groups in the stock of a corporation by more than 50 percentage points over a three-year period. If the Company has experienced a change of control, utilization of its NOL or tax credits carryforwards would be subject to an annual limitation under Section 382. Any limitation may result in expiration of a portion of the NOL or research and development credit carryforwards before utilization. Subsequent ownership changes could further impact the limitation in future years. Further, until a study is completed and any limitation known, no amounts are being presented as an uncertain tax position. A full valuation allowance has been provided against the Company’s NOL carryforwards and research and development credit carryforwards and, if an adjustment is required, this adjustment would be offset by an adjustment to the valuation allowance. Thus, there would be no impact to the balance sheet or statement of operations if an adjustment were required. The Company has not recorded any amounts for unrecognized tax benefits as of December 31, 2017 or 2016. The Company files tax returns as prescribed by the tax laws of the jurisdictions in which it operates. In the normal course of business, the Company is subject to examination by federal and state jurisdictions, where applicable. There are currently no pending income tax examinations. The Company’s tax years are still open under statute from December 31, 2014 to the present. Earlier years may be examined to the extent that tax credit or net operating loss carryforwards are used in future periods. The Company’s policy is to record interest and penalties related to income taxes as part of its income tax provision.