Income Taxes

12 Months Ended

Dec. 31, 2023

Income Taxes

Income Taxes

12.    Income Taxes

The Company's effective tax rates for the years ended December 31, 2023, 2022, and 2021 differ from the U.S. federal statutory rate as follows:

	December 31,
	2023				2022				2021
	(in thousands, except percentages)
U.S. federal taxes (benefit) at statutory rate	$	(91,251)	21.00	%	$	(114,832)	21.00	%	$	(98,931)	21.00	%
State tax expense		(13,492)	3.10	%		(21,676)	3.96	%		(29,206)	6.20	%
Research and development credits		(10,837)	2.49	%		(7,024)	1.28	%		(9,193)	1.95	%
Stock-based compensation		(6,422)	1.48	%		3,949	(0.72)	%		(46,128)	9.79	%
Foreign tax		(106)	0.02	%		332	(0.06)	%		167	(0.04)	%
Nondeductible officers' compensation		8,651	(1.99)	%		4,883	(0.89)	%		24,387	(5.18)	%
Acquisition costs		563	(0.13)	%		3,226	(0.59)	%		8,901	(1.89)	%
Other		(3,397)	0.79	%		1,964	(0.36)	%		344	(0.05)	%
Change in valuation allowance		116,562	(26.82)	%		130,156	(23.80)	%		150,277	(31.90)	%
Provision for income taxes	$	271	(0.06)	%	$	978	(0.18)	%	$	618	(0.13)	%

During the years ended December 31, 2023, 2022, and 2021, the Company recorded total income tax expense of $0.3 million, $1.0 million and $0.6 million, respectively.

The total provision for income taxes includes foreign withholding and state income tax expense.

Deferred income taxes reflect the net tax effects of temporary differences between carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes as well as net operating loss and tax credit carryforwards. The components of the net deferred income tax assets are as follows:

	December 31,
	2023		2022
	(in thousands)
Deferred tax assets:
Net operating loss carryforwards	$	399,287	$	358,109
Research and development tax credit carryforwards		67,035		52,319
Capitalized research costs		95,923		59,128
Reserves and accruals		34,898		22,781
Lease Liabilities		19,339		21,000
Stock-based compensation		29,005		23,814
Other		9,449		9,162
Total deferred tax assets before valuation allowance		654,936		546,313
Less: valuation allowance		(639,510)		(526,235)
Total deferred tax assets after valuation allowance		15,426		20,078
Deferred tax liabilities:
Fixed Assets		(1,524)		(1,219)
Right-of-use lease assets		(13,902)		(18,859)
Total deferred tax liabilities		(15,426)		(20,078)
Net deferred tax assets	$	—	$	—

The Company established a full valuation allowance against its net deferred tax assets in 2023 and 2022 due to the uncertainty surrounding realization of these assets. The valuation allowance increased to $639.5 million as of 2023 from $526.2 million as of 2022 due to current year losses and credits claimed.

As of December 31, 2023, the Company had federal, state, and foreign net operating loss (“NOLs”) carryforwards of approximately $1.6 billion, $1.1 billion, and $3.8 million, respectively, which begin to expire in 2027, 2024, and 2027, respectively, if not utilized. Approximately $1.3 billion of federal net operating loss included above can be carried forward indefinitely.

The Company also had federal research and development credit carryforwards of approximately $64.3 million, which begin to expire in 2027, and state research and development credit carryforwards of approximately $36.7 million, which begin to expire in 2031. Realization is dependent on generating sufficient taxable income prior to expiration of the loss and credit carryforwards.

Federal, state and foreign tax laws impose substantial restrictions on the utilization of NOLs and credit carryforwards in the event of an "ownership change" for tax purpose, as defined in Section 382 of the Internal Revenue Code. Accordingly, the Company's ability to utilize these carryforwards may be limited as the result of such ownership change. Such a limitation could result in limitation in the use of the NOLs in future years and possibly a reduction of the NOLs available.

A reconciliation of the beginning and ending amount of gross unrecognized tax benefits is as follows:

	December 31,
	2023		2022		2021
	(in thousands)
Balance at beginning of year	$	23,844	$	17,514	$	11,500
Additions based on tax positions related to the current year		7,034		6,301		6,017
Additions (reductions) for tax positions of prior years		34		29		(3)
Balance at end of year	$	30,912	$	23,844	$	17,514

During the years ended December 31, 2023, 2022, and 2021, the amount of unrecognized tax benefits increased $7.1 million, $6.3 million, and $6.0 million, respectively, due to additional research and development credits generated during the year. As of December 31, 2023, 2022, and 2021, the total amount of unrecognized tax benefits was $30.9 million, $23.8 million, and $17.5 million, respectively. The reversal of the uncertain tax benefits would not affect the Company's effective tax rate to the extent that it continues to maintain a full valuation allowance against its deferred tax assets.

The Company is subject to U.S. federal, state, and foreign income taxes. Tax regulations within each jurisdiction are subject to the interpretation of the related tax laws and regulations, and require significant judgment to apply. The Company is subject to U.S. federal, state and local tax examinations by tax authorities for all prior tax years since incorporation. The Company does not anticipate significant changes to its current uncertain tax positions through December 31, 2023.

The Company recognizes any interest and/or penalties related to income tax matters as a component of income tax expense.  As of December 31, 2023, there were no accrued interest and penalties related to uncertain tax positions.

In 2021, the OECD announced an Inclusive Framework on Base Erosion and Profit Shifting including Pillar Two Model Rules defining the global minimum tax. These rules broadly call for the taxation of large multinational corporations at a minimum rate of 15%. We continue to evaluate the enacted and pending legislation to implement these rules in the non-U.S. tax jurisdictions we operate in but do not currently believe the impact to be material.