Note 11. Income Taxes

As of December 31, 2019, the Company has U.S. federal net operating loss (“NOL”) carryforwards of approximately $154 million. NOLs amounting to $60 million generated before the 2018 tax year will start expiring beginning 2033, and the NOL of approximately $94 million generated in 2018 and later have an indefinite carryforward period. The NOL carryforwards are subject to review and possible adjustment by the Internal Revenue Service and state tax authorities. NOL carryforwards may become subject to an annual limitation in the event of certain cumulative changes in the ownership interest of significant stockholders, as defined under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended, as well as similar state tax provisions. This could limit the amount of NOLs that the Company can utilize annually to offset future taxable income or tax liabilities.

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


	December 31, 2019		December 31, 2018
Deferred tax assets:
Net federal operating loss carryforward	$	32,299,085	$	18,911,435
Net foreign operating loss carryforward		59,557		40,927
Net state operating loss carryforward		20,000,317		11,842,460
Non-cash compensation		3,485,519		1,625,560
Research and development credits		10,366,683		7,651,781
Deferred finance costs		—		38,578
Interest Expense		985,431		400,946
Charitable Contribution		5,408		5,408
Fixed Assets		11,401		8,595
Accrued expenses		1,200,754		732,958
Deferred tax asset, excluding valuation allowance		68,414,155		41,258,648

Deferred tax liabilities:
Deferred finance costs		(121,875)		—
Deferred tax liability, excluding valuation allowance		(121,875)		—

Less valuation allowance		(68,292,280)		(41,258,648)
Net deferred tax assets	$	—	$	—

A valuation allowance is provided for deferred tax assets where the recoverability of the assets is uncertain. The determination to provide a valuation allowance is dependent upon the assessment of whether it is more likely than not that sufficient future taxable income will be generated to utilize the deferred tax assets. Based on the weight of the available evidence, which includes the Company’s historical operating losses and forecast of future losses, the Company provided a full valuation allowance against the deferred tax assets resulting from the tax loss and credits carried forward. Valuation allowance increased $27.0 million, $12.5 million, and $6.7 million, in 2019, 2018, and 2017, respectively, as a result of the increase of the deferred tax assets.

There was no income tax expense (benefit) recorded by the Company due to its net loss tax position and full valuation allowance during the years ended December 31, 2019, 2018, and 2017. A reconciliation of income tax expense (benefit) at the statutory federal income tax rate and income taxes as reflected in the consolidated financial statements is as follows:


	December 31, 2019		December 31, 2018		December 31, 2017
U.S. federal statutory income tax rate	21.0	%	21.0	%	34.0	%
State taxes, net of federal benefit	13.5		13.1		10.0
Stock based compensation - Excess tax benefit	1.2		1.1		(1.0)
Other permanent differences	(0.1)		(1.3)		(1.9)
Tax credit	4.2		6.3		7.7
US Federal tax rate change - tax reform	—		—		(25.4)
Change in valuation allowance	(39.8)		(40.2)		(23.4)
Effective tax rate	—	%	—	%	—	%

The Company is not currently under examination at the federal or state levels and as of the date of the consolidated financial statements, and there were no known assessments. The Company’s U.S. federal and state net operating losses have occurred since its inception in 2012 and as such, tax years subject to potential tax examination could apply from that date because the utilization of net operating losses from prior years opens the relevant year to audit by the IRS and/or state taxing authorities.