8. INCOME TAXES

No provision or benefit for federal or state income taxes has been recorded as the Company has incurred a net loss for all of the periods presented and the Company has provided a full valuation allowance against its deferred tax assets.

At December 31, 2019, the Company had U.S. federal and Massachusetts net operating loss carryforwards of $140.0 million and $131.9 million, respectively, of which $117.3 million of federal carryforwards will expire in varying amounts beginning in 2026 and $22.8 million carry forward indefinitely. State net operating losses begin to expire in 2029. Utilization of net operating losses and tax credit carryforwards may be subject to substantial annual limitations due to the “change in ownership” provisions of the Internal Revenue Code, and similar state provisions. The annual limitations may result in the expiration of net operating losses before utilization. The Company has completed several financings since its inception, which may have resulted in a change in ownership, or could result in a change in ownership in the future, but has not yet completed a Section 382 analysis of whether an ownership change limitation exists. The Company will complete an appropriate analysis before its tax attributes are utilized. The Company also had federal and state research and development tax credits of $1.3 million and $258 thousand respectively, at December 31, 2019, which will begin to expire in 2026 and 2029, respectively unless previously utilized.

Significant components of the Company’s net deferred tax assets are as follows:


	December 31,
(In thousands)	2019		2018
Net operating loss carryforward	$	37,744	$	34,846
Research and development credit carryforward		1,544		1,390
Stock-based compensation		2,319		2,300
Depreciation and amortization		17		11
Accrued expenses		19		136
Lease liability		360		—
ROU Asset		(331)		—
Subtotal		41,672		38,683
Valuation allowance		(41,672)		(38,683)
Net deferred taxes	$	—	$	—

The Company has maintained a full valuation allowance against its deferred tax assets in all periods presented. A valuation allowance is required to be recorded when it is more likely than not that some portion or all of the net deferred tax assets will not be realized. Since the Company cannot be assured of generating taxable income and thereby realizing the net deferred tax assets, a full valuation allowance has been provided. In the years ended December 31, 2019 and 2018, the valuation allowance increased by $3.0 million and $2.7 million, respectively.

The Company has no uncertain tax positions at December 31, 2019 and 2018 that would affect its effective tax rate. The Company does not anticipate a significant change in the amount of uncertain tax positions over the next 12 months. Since the Company is in a loss carryforward position, the Company is generally subject to U.S. federal and state income tax examinations by tax authorities for all years for which a loss carryforward is available.

Income tax benefits computed using the federal statutory income tax rate differ from the same benefits computed using the Company’s effective tax rate primarily due to the following:


	December 31,
	2019		2018
Statutory rate	(21.0)	%	(21.0)	%
State taxes, net of benefit	(5.7)	%	(2.9)	%
Permanent differences:
Warrant modification expense	1.2	%	—	%
Derivative losses	—	%	10.9	%
Other	0.4	%	0.4	%
Research and development tax credit	(1.4)	%	(0.8)	%
Other	1.2	%	1.9	%
Increase / (decrease) in valuation reserve	25.3	%	11.5	%
Effective tax rate	0.0	%	0.0	%

In December 2019, the FASB issued ASU No. 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes,” which is intended to simplify various aspects related to accounting for income taxes. The pronouncement is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted. ASU No. 2019-12 is effective for the Company beginning in fiscal 2021. We are currently in the process of evaluating the effects of this pronouncement on the Company’s financial statements.

The Company is subject to U.S. Federal and Massachusetts state income taxes. The Company is currently not subject to examination under the statute of limitations by the Internal Revenue Service and Massachusetts for the tax years of 2015 and prior.