Income Taxes

12 Months Ended

Dec. 31, 2019

The Company provides for income taxes under ASC 740. Under ASC 740, the Company provides deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the Company’s financial statement carrying amounts and the tax bases of assets and liabilities using enacted tax rates expected to be in effect in the years in which the differences are expected to reverse.

For the years ended December 31, 2019, 2018 and 2017, the Company did not record a current or deferred income tax expense or benefit. The following table reconciles the federal statutory income rate to the Company's effective income tax rate:



	Year Ended December 31,
	2019		2018		2017
Statutory U.S. federal rate	21.0	%	21.0	%	34.0	%
State income taxes - net of federal benefit	6.3	%	7.0	%	5.8	%
Permanent items	(2.1	)%	(0.5	)%	(0.1	)%
Research tax credits/other	1.1	%	1.6	%	0.5	%
Change in enacted rates	—	%	—	%	(35.8	)%
Valuation allowance, net	(26.3	)%	(29.1	)%	(6.7	)%
Other	—	%	—	%	2.3	%
Effective income tax rate	—	%	—	%	—	%

The tax effects of temporary differences that give rise to the Company's net deferred tax assets are as follows (in thousands):



	Year Ended December 31,
	2019			2018
Deferred Tax Assets
Net operating loss carryforwards	$	71,270		$	59,126
Research and development credits	6,586			5,780
Stock-based compensations expense	2,516			1,946
Deferred rent and other expenses	812			458
Deferred revenue	4,468			4,037
Operating lease liability	102			—
Patent costs/amortization	5,111			4,881
Gross deferred tax assets	90,865			76,228

Deferred Tax Liabilities
Depreciation	$	(57	)	$	(66	)
Operating lease right-of-use asset	(82		)	—
Gross deferred tax liabilities	(139		)	(66		)
Net deferred tax assets before valuation allowance	90,726			76,162
Valuation allowance	(90,726		)	(76,162		)
Net deferred tax assets	$	—		$	—

The Company has provided a full valuation allowance against its net deferred tax assets, as the Company believes that it is more likely than not that the deferred tax assets will not be realized.

Realization of future tax benefits is dependent on many factors, including the Company’s ability to generate taxable income within the net operating loss carryforward period. The Company has evaluated the positive and negative evidence bearing upon the realizability of its deferred tax assets and concluded that it is more likely than not that the Company will not realize the benefit of its deferred tax assets. The valuation allowance increased by $14.6 million and $18.5 million for the years ended December 31, 2019 and 2018, respectively, primarily as a result of an increase in net operating loss. In 2014, the Company's Russian subsidiary was granted a 10 year tax holiday in Russia. The Company's foreign operations continue to benefit from the tax holiday, which is set to expire on December 31, 2023, however the Company is in the process of closing down operations in Russia and does not expect any tax liability.

At December 31, 2019, the Company had federal and state net operating loss carryforwards of $262.2 million and $256.5 million, respectively, which will expire at various times through 2037. Of the federal net operating loss carryforwards, $99.7 million can be carried forward indefinitely. The Company also has federal and state research and development tax credit carryforwards of $4.2 million and $3.0 million, respectively, available to reduce future tax liabilities, which will expire at various times through 2039.

Utilization of the net operating loss and research and development credit carryforwards may be subject to a substantial annual limitation under Section 382 and 383 of the Internal Revenue Code due to ownership change limitations that have occurred previously, or that could occur in the future. These ownership changes may limit the amount of net operating loss and research and development credit carryforwards that can be utilized annually to offset future taxable income and tax, respectively. As of December 31, 2019, the Company completed a Section 382 study, noting that an ownership change occurred during 2017. However, the Company has determined that all net operating losses would be available in the future. As a result, the deferred tax assets related to the federal and Massachusetts net operating losses and credit carryforwards are not currently limited.

The Company applies ASC 740, Income Taxes to uncertain tax positions. As of the adoption date on January 1, 2010 and through December 31, 2019, the Company had no unrecognized tax benefits or related interest and penalties accrued.

The Company has not, as of yet, conducted a study of its research and development credit carryforwards. This study may result in an adjustment to the Company’s research and development credit carryforwards; however, until a study is completed and any adjustment is known, no amounts are being presented as an uncertain tax position. A full valuation allowance has been provided against the Company’s research and development credits and, if an adjustment is required, this adjustment would be offset by an adjustment to the valuation allowance. As a result, there would be no impact to the consolidated balance sheets, statements of operations and comprehensive loss, or cash flows if an adjustment was required.

Interest and penalty charges, if any, related to unrecognized tax benefits would be classified as income tax expense in the accompanying statement of operations. As of December 31, 2019, the Company had no accrued interest related to uncertain tax positions.

The statute of limitations for assessment by the Internal Revenue Service and Massachusetts tax authorities is open for tax years since inception. The Company files income tax returns in the United States and Massachusetts. There are currently no federal, state or foreign audits in progress.