Income Taxes

12 Months Ended

Dec. 31, 2022

Income Taxes

Income Taxes

15. Income Taxes

The Company’s benefit from income taxes is as follows:

	December 31,
	2022		2021		2020
Current:
Federal	$	—	$	—	$	—
State		—		—		(691)
		—		—		(691)
Deferred:
Federal		—		—		—
State		—		—		—
		—		—		—
Benefit from income taxes	$	—	$	—	$	(691)

Historically, the Company’s benefit from income taxes related to state R&D tax credits exchanged for cash. The State of Connecticut provides companies with the opportunity to exchange certain R&D credit carryforwards for cash in exchange for foregoing the carryforward of the R&D credit. The program provides for such exchange of the R&D credits at a rate of 65% of the annual R&D credit, as defined. During the year ended December 31, 2020, the Company recorded a benefit from income taxes of $691. Because the Company’s revenue in 2020 exceeded $70,000, it was not eligible to exchange its 2021 R&D tax credit for cash, therefore there was no benefit from income taxes for the year ended December 31, 2021. As of December 31, 2022, the Company does not expect to receive a refund of its 2022 credit.

A reconciliation of income taxes computed using the U.S. federal statutory rate to that reflected in operations is as follows:

	December 31,
	2022		2021		2020
Income taxes using U.S. federal statutory rate	21.00	%	21.00	%	21.00	%
State income taxes, net of federal benefit	(1.00)	%	7.84	%	(58.68)	%
Tax Cuts and Jobs Act	0.00	%	0.00	%	0.00	%
Impact of R&D tax credit on effective tax rate	4.91	%	2.87	%	(52.06)	%
Stock option shortfalls and cancellations	(3.33)	%	(4.74)	%	0.35	%
Permanent items and other	(1.86)	%	(1.29)	%	(5.08)	%
Change in valuation allowance	(19.88)	%	(25.69)	%	84.61	%
Provision to return	0.16	%	0.01	%	0.92	%
Non-taxable revenue	0.00	%	0.00	%	0.00	%
	0.00	%	0.00	%	(8.94)	%

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

	December 31,
	2022		2021
Valuation allowance	$	(160,814)	$	(143,388)
Net operating loss carryforwards		113,058		113,636
Federal and state tax credits		26,358		24,428
Stock-based compensation expense		3,434		5,023
Intangible asset amortization		17,265		—
Other		1,167		1,268
Deferred tax assets		161,282		144,355
Other		(468)		(967)
Deferred tax liabilities:		(468)		(967)
Net deferred tax asset:	$	—	$	—

A 100% valuation allowance has been recorded on the deferred tax asset as of December 31, 2022 and 2021 because management believes it is more likely than not that the asset will not be realized. The change in the valuation allowance during 2022 and 2021 was an increase of $17,426 and $22,722, respectively.

The financial statements reflect expected future tax consequences of such positions presuming the taxing authorities possess full knowledge of the position and all relevant facts. As of December 31, 2022 and 2021, the Company had no unrecognized tax benefits or related interest and penalties accrued. In the event the Company determines that accrual of interest or penalties are necessary in the future, the amount will be presented as a component of income tax expense.

At December 31, 2022, the Company had federal and state net operating loss, or NOL, carryforwards of $440,195 and $347,975, respectively. The federal and state tax loss carryforwards will begin to expire in 2026 and 2027, respectively, unless previously utilized. The federal NOLs arising in 2018 and forward have an unlimited carryforward period and losses from 2018-2020 may be carried back five years due to the Coronavirus Aid, Relief, and Economic Security Act of 2020, or the CARES Act. The Company conducted a 382 analysis in the first quarter of 2021. This analysis showed a limited change of ownership had occurred, and thus the full amount of the Company’s NOL carryforwards and R&D tax credits could be utilized annually in the future to offset taxable income or tax, respectively. The Company also had federal and state R&D tax credit carryforwards of $23,892 and $2,861, respectively. The federal credits will begin expiring in 2025 unless previously utilized. The Connecticut credit carryforwards have no expiration period. Because of the NOL and research credit carryforwards, tax years 2006 through 2022 remain open to U.S. federal and state tax examinations.

Further, beginning in the Company’s tax year ending December 31, 2022, as a result of the Tax Cuts and Jobs Act of 2017, current R&D expenditures incurred in the United States must be capitalized for tax purposes, and amortized over a period of five years (fifteen years in the case of R&D performed outside the United States).

In March 2020, former President Trump signed into law the CARES Act (H.R. 748), which was further expanded with the signing of the Consolidation Appropriations Act of 2021 (H.R. 133) on December 27, 2020. The CARES Act (and December expansion) includes a variety of economic and tax relief measures intended to stimulate the economy, including loans for small businesses, payroll tax credits/deferrals, and corporate income tax relief. Due to the Company’s history of tax loss carryforwards and full valuation allowance, the CARES Act did not have a significant effect to the income tax provision, as the corporate income tax relief was directed towards cash taxpayers.