INCOME TAXES

12 Months Ended

Dec. 31, 2022

INCOME TAXES

INCOME TAXES

6. 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, 2022, the Company had U.S. federal and Massachusetts net operating loss carryforwards of $164.4 million and $153.9 million, respectively, of which $117.3 million of federal carryforwards will expire in varying amounts beginning in 2026 and $47.0 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 $1.6 million and $0.2 million respectively, at December 31, 2022, which will begin to expire in 2026 and 2031, respectively, unless previously utilized.

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

	December 31,
(In thousands)	2022		2021
Net operating loss carryforward	$	44,249	$	42,696
Research and development credit carryforward		1,718		1,663
Stock-based compensation		359		431
Depreciation and amortization		4		17
Capitalized research expenses		1,226		—
Lease liability		252		344
Right of use asset		(224)		(323)
Other deferred tax liabilities		(225)		—
Accruals and other temporary differences		189		—
Subtotal		47,548		44,828
Valuation allowance		(47,548)		(44,828)
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, 2022 and 2021, the valuation allowance increased by $2.7 million and $2.6 million, respectively.

The Company has no uncertain tax positions at December 31, 2022 and 2021 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,
	2022		2021
Statutory rate	(21.0)	%	(21.0)	%
State taxes, net of benefit	(5.1)	%	(4.7)	%
Permanent differences	0.1	%	0.4	%
Research and development tax credit	(0.7)	%	(0.9)	%
Stock-based compensation	0.9	%	0.2	%
Increase in valuation reserve	25.9	%	26.0	%
Other	(0.1)		—	%
Effective tax rate	(0.0)	%	0.0	%

The Company is subject to U.S. Federal and Massachusetts state income taxes. The statute of limitations for assessment by the Internal Revenue Service or state tax authority is generally open for the tax years ending December 31, 2019 through December 31, 2022, however federal and state tax attributes that were generated prior to the tax year

ending December 31, 2018 may still be adjusted upon examination by the Internal Revenue Service or stat tax authority if the attributes either have been, or will be, used in a future period.

Beginning in 2022, the Tax Cuts and Jobs Act of 2017 (“Tax Act”) eliminates the option to deduct research and development expenditures currently and requires taxpayers to amortize them, over five years for domestically incurred expenditures and over fifteen years for foreign incurred expenditures, pursuant to Internal Revenue Code (“IRC”) Section 174. As of December 31, 2022, the Company has recorded a deferred tax asset of $1.2 million related to the Capitalized IRC Section 174 expenditures.