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Income Taxes
 12 Months Ended
Dec. 31, 2021
Income Tax Disclosure [Abstract]  
Income Taxes Income Taxes
The income (loss) before provision for income taxes for the Company’s domestic and international operations was as follows (in thousands):
Year Ended December 31,
202120202019
U.S.$15,211 $(36,667)$(24,888)
Foreign690 385 284 
Income (loss) before provision for income taxes$15,901 $(36,282)$(24,604)
The components of income tax expense (benefit) were as follows (in thousands):
Year Ended December 31,
202120202019
Current:
Federal$— $— $— 
State174 75 86 
Foreign161 151 88 
Total current tax expense335 226 174 
Deferred:
Federal— (1,760)(21)
State— (366)(4)
Foreign— — — 
Total deferred income tax benefit— (2,126)(25)
Income tax expense (benefit)$335 $(1,900)$149 
The expense (benefit) for income taxes reconciles to the amount computed by applying the federal statutory rate to loss before taxes as follows (in thousands):
Year Ended December 31,
202120202019
Income tax expense (benefit) at federal statutory rate (1)
$3,339 $(7,619)$(5,167)
State income tax, net of federal benefit(254)(2,792)(1,174)
Warrants revaluation356 3,588 2,326 
Research and development credits(5,703)(5,330)(2,091)
Section 382 limitation(97)1,021 25,043 
Stock-based compensation(7,609)(18,309)(8,974)
Officers' compensation4,024 2,612 3,133 
Other124 479 972 
Change in valuation allowance6,155 24,450 (13,919)
Income tax expense (benefit)$335 $(1,900)$149 
(1)For the years ended December 31, 2021, 2020 and 2019, the federal statutory tax rate was 21%.
Significant components of the Company’s net deferred income tax assets at December 31, 2021 and 2020 are shown below (in thousands). The Company assesses all available positive and negative evidence to estimate whether sufficient future taxable income will be generated to permit use of the existing deferred tax assets. A significant piece of objective negative evidence evaluated was the cumulative book loss incurred over the three-year period ended December 31, 2021. Such objective evidence limits the ability to consider other subjective evidence, such as projections for future growth. On the basis of this analysis, a valuation allowance of $146.4 million and $121.6 million at December 31, 2021 and 2020, respectively, has been recorded to offset the net deferred tax asset as realization of such asset is uncertain. The amount of the deferred tax asset considered realizable, however, could be adjusted if estimates of future taxable income during the carryforward period are increased, or if objective negative evidence in the form of cumulative losses is no longer present and additional weight is given to subjective evidence such as the Company’s projections for future growth.
December 31,
20212020
Deferred tax assets:
Net operating loss (NOL) carryforwards$78,961 $86,898 
Research and development tax credits carryforwards16,761 11,261 
Capitalized research and development expenses5,135 6,840 
Accrued compensation28,970 24,038 
Lease liabilities8,012 6,112 
Other20,608 12,096 
Total deferred tax assets158,447 147,245 
Deferred tax liabilities:
Convertible senior notes— (11,224)
Fixed assets(3,847)(7,675)
Other(8,177)(6,719)
Total deferred tax liabilities(12,024)(25,618)
Less valuation allowance(146,423)(121,627)
Net deferred tax assets$— $— 
As of December 31, 2021, the Company had accumulated federal and state NOL carryforwards of approximately $301.2 million, and $291.0 million, respectively, Of the total federal net operating loss carryforwards, approximately $112.1 million were generated after January 1, 2018, and therefore do not expire. NOL generated after January 1, 2018, is subject to 80% limitation in accordance with the Tax Cuts and Jobs Act of 2017. The remaining federal net operating loss carryforwards of $189.1 million will begin to expire in 2026, and state tax loss carryforwards continue to expire in 2022, unless previously utilized. The remaining California NOL carryforwards of $171.8 million will begin expiring in 2028. The Company has no foreign tax loss carryforwards as of December 31, 2021.
The Company also has federal and California research credit carryforwards of approximately $12.9 million and $15.5 million, respectively, as of December 31, 2021. The federal research credit carryforwards will begin expiring in 2038, unless previously utilized. The California research credit will carry forward indefinitely.
Utilization of the Company's net operating loss and research credit carryforwards may be subject to a substantial annual limitation due to ownership change limitations provided by Section 382 of the Internal Revenue Code of 1986, as amended, and similar state provisions. The annual limitations may result in the expiration of net operating loss carryforwards before utilization. The Company has completed analyses through December 31, 2020 to determine whether its net operating losses and credits are likely to be limited by Section 382. Based on the 2018 study completed in 2019, the Company determined that an ownership change, as defined under Section 382, occurred in 2018 and the resulting limitation significantly reduced the Company’s ability to utilize its net operating loss and credit carryovers before they expire. As a result, in 2019 the Company reduced its deferred tax assets for the net operating loss and research credit carryforwards that were projected to expire unused with a corresponding offset to the valuation allowance recorded against such assets. Additionally, future ownership changes under Section 382 may also limit the Company's ability to fully utilize any remaining tax benefits.
The evaluation of uncertainty in a tax position is a two-step process. The first step involves recognition. The Company determines whether it is more likely than not that a tax position will be sustained upon tax examination, including resolution of any related appeals or litigation, based on only the technical merits of the position. The technical merits of a tax position are derived from both statutory and judicial authority (legislation and statutes, legislative intent, regulations, rulings, and case law) and their applicability to the facts and circumstances of the tax position. If a tax position does not meet the more-likely-than-not recognition threshold, the benefit of that position is not recognized in the financial statements. The second step is measurement. A tax position that meets the more-likely-than-not recognition threshold is measured to determine the amount of benefit to recognize in the financial statements. The tax position is measured as the largest amount of benefit that is greater than 50% likely of being realized upon ultimate resolution with a taxing authority.
The following table summarizes the activity related to the Company’s gross unrecognized tax benefits at the beginning and end of the years ended December 31, 2021, 2020 and 2019 (in thousands):
Year Ended December 31,
202120202019
Gross unrecognized tax benefits at the beginning of the year10,107 $6,580 $8,824 
Increases related to current year positions3,482 2,234 1,076 
Increases (decreases) related to prior year positions— 1,293 (3,320)
Gross unrecognized tax benefits at the end of the year$13,589 $10,107 $6,580 
As of December 31, 2021, the Company had $11.8 million of unrecognized tax benefits that, if recognized and realized would impact the effective tax rate, subject to the valuation allowance.
The Company’s practice is to recognize interest and penalties related to income tax matters in income tax expense. The Company had no accrual for interest and penalties on the Company’s consolidated balance sheets and has not recognized interest and penalties in the consolidated statements of operations for the years ended December 31, 2021 and 2020. The Company does not expect any significant increases or decreases, other than the potential reduction as a result of the Section 382 limitation, to its unrecognized tax benefits within the next 12 months.
The Company is subject to taxation in the United States and various other state jurisdictions and, starting with 2018, Canada. Prior to 2018, the losses were all domestic. The Company’s tax years from 2006 (inception) are subject to examination by the United States and state authorities due to the carry forward of unutilized NOLs and research and development credits.