
	Year ended December 31,
	2020		2019		2018
Current:
Federal	$	—	$	—	$	—
State	2		7		324
Foreign	684		612		222
Deferred:
Federal	—		(966)		(307)
State	—		(198)		(52)
Foreign	—		—		—
Total income tax expense (benefit)	$	686	$	(545)	$	187


	Year ended December 31,
	2020		2019		2018
Federal income tax expense at statutory rate	21.0	%	21.0	%	21.0	%
State income tax, net of federal benefit	3.1	%	3.7	%	5.1	%
Permanent differences	(0.6)	%	(0.8)	%	(0.7)	%
Stock-based compensation	(2.4)	%	(0.7)	%	1.6	%
Research and development credit	6.0	%	5.4	%	6.5	%
Foreign differential	(4.6)	%	(3.7)	%	(4.4)	%
Federal tax rate change	—	%	—	%	0.1	%
Other	(0.3)	%	0.8	%	(0.1)	%
Change in valuation allowance	(22.3)	%	(25.6)	%	(29.1)	%
Effective income tax rate (expense) benefit	(0.1)	%	0.1	%	—	%

For the years ended December 31, 2020, 2019 and 2018, the Company recognized an income tax expense (benefit) of $0.7 million or (0.1)%, $(0.5) million or 0.1%, and $0.2 million or 0.0%, respectively. The Company did not recognize any significant tax expense for the years ended December 31, 2020, 2019, or 2018 as the Company was subject to a full valuation allowance.

Deferred taxes are recognized for temporary differences between the basis of assets and liabilities for financial statement and income tax purposes. The significant components of the Company’s deferred tax assets and liabilities are composed of the following (in thousands):


	Year ended December 31,
	2020		2019
Deferred tax assets:
U.S. net operating loss carryforwards (federal and state)	$	546,098	$	439,839
Tax credit carryforwards (federal and state)	246,742		213,810
Capitalized license fees and research and development expenses	14,402		16,295
Deferred revenue	15,644		15,119
Stock-based compensation	51,828		46,111
Lease liabilities	48,680		52,631
Accruals and other	14,536		15,432
Total deferred tax assets	937,930		799,237
Intangible assets	(1,499)		(2,518)
Right-of-use assets	(45,976)		(49,480)
Fixed assets	(7,576)		(2,670)
Less valuation allowance	(882,879)		(744,569)
Net deferred taxes	$	—	$	—

A valuation allowance is recorded against deferred tax assets if it is more likely than not that some or all of the deferred tax assets will not be realized. Due to the uncertainty surrounding the realization of the favorable tax attributes in future tax returns, the Company has recorded a full valuation allowance against the Company’s otherwise recognizable net deferred tax assets. The valuation allowance increased on a net basis by approximately $138.3 million during the year ended December 31, 2020 due primarily to net operating losses, tax credit carryforwards, and stock-based compensation. Effective January 1, 2019, the Company adopted ASU 2016-02, which resulted in the de-recognition of the 60 Binney Street lease and related fixed assets and the recognition of lease liabilities and right-of-use assets. The Company adjusted its deferred tax balances as a result of the adoption.

As of December 31, 2020, 2019 and 2018, the Company had U.S. federal net operating loss carryforwards of approximately $2.03 billion, $1.62 billion, and $1.10 billion, respectively, which may be available to offset future income tax liabilities. Of the amount as of December 31, 2020, $1.32 billion will carryforward indefinitely while $711.0 million will expire at various dates through 2037. As of December 31, 2020, 2019 and 2018, the Company also had U.S. state net operating loss carryforwards of approximately $1.89 billion, $1.56 billion, and $1.08 billion, respectively, which may be available to offset future income tax liabilities and expire at various dates through 2039.

As of December 31, 2020, 2019 and 2018, the Company had federal research and development and orphan drug tax credit carryforwards of approximately $235.3 million, $203.1 million, and $156.2 million, respectively, available to reduce future tax liabilities which expire at various dates through 2039. As of December 31, 2020, 2019 and 2018, the Company had state credit carryforwards of approximately $14.5 million, $13.6 million, and $14.3 million, respectively, available to reduce future tax liabilities which expire at various dates through 2034. During the fourth quarter of 2018, the Company completed an analysis of prior year estimates of U.S. research and development and orphan drug tax credits for the years 2013 through 2017. The analysis resulted in an immaterial adjustment to the Company's income tax benefit, which was offset by an adjustment to the valuation allowance. An analysis of the U.S. research and development and orphan drug credits has not yet been completed for 2018, 2019, or 2020.

In March 2020, the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) was enacted. This law temporarily suspends and adjusts certain law changes enacted in the Tax Cuts and Jobs Act in 2017. In December 2020, the Consolidated Appropriations Act was enacted. This law modified the employee retention credit under the CARES Act and created credit extenders for certain credits. The Company has concluded that the provisions in the CARES Act and Consolidated Appropriations Act have an immaterial impact on the Company’s income tax expense due to its cumulative losses and full valuation allowance position.

Under the provisions of the Internal Revenue Code, the net operating loss and tax credit carryforwards are subject to review and possible adjustment by the Internal Revenue Service and state tax authorities. Net operating loss and tax credit carryforwards may become subject to an annual limitation in the event of certain cumulative changes in the ownership interest of significant shareholders over a three-year period in excess of 50 percent, as defined under Sections 382 and 383 of the Internal Revenue Code, respectively, as well as similar state provisions. This could limit the amount of tax attributes that can be

utilized annually to offset future taxable income or tax liabilities. The amount of the annual limitation is determined based on the value of the Company immediately prior to the ownership change. Subsequent ownership changes may further affect the limitation in future years. The Company has completed several financings since its inception and prior to its initial public offering in 2013, which it believes has resulted in a change in control as defined by Sections 382 and 383 of the Internal Revenue Code. The Company completed a study through September 2019 confirming no ownership changes have occurred since the Company's initial public offering in 2013; any ownership shifts occurring after September 2019 could result in an ownership change under Section 382.

The Company files Federal income tax returns in the United States, and various state and foreign jurisdictions. The federal, state and foreign income tax returns are generally subject to tax examinations for the tax years ended December 31, 2017 through December 31, 2019. To the extent the Company has tax attribute carryforwards, the tax years in which the attribute was generated may still be adjusted upon examination by the Internal Revenue Service, or state or foreign tax authorities to the extent utilized in a future period.


	Unrecognized tax benefits
Balance as of December 31, 2018	$	12,095
Increases (decreases) for tax positions related to current period	3,554
Increases (decreases) for tax positions related to prior periods	296
Balance as of December 31, 2019	15,945
Increases (decreases) for tax positions related to current period	3,149
Increases (decreases) for tax positions related to prior periods	(100)
Balance as of December 31, 2020	18,994

The unrecognized tax benefits at December 31, 2020, if recognized, would not affect the Company’s effective tax rate due to its full valuation allowance position. The Company does not anticipate that the amount of existing unrecognized tax benefits will significantly increase or decrease within the next 12 months. The Company has elected to include interest and penalties related to uncertain tax positions as a component of its provision for income taxes. For the years ended December 31, 2020, 2019 and 2018, the Company’s accrued interest and penalties related to uncertain tax positions were not material.