Income Taxes

The provision for income taxes for the years ended December 31, 2019 and 2018 was comprised as follows (in thousands):



	Year Ended December 31,
	2019		2018
Current taxes:
Federal	$	—	$	—
State	46		46
Total current taxes	46		46
Deferred taxes:
Federal	—		—
State	—		—
Total deferred taxes	—		—
Total provision for income taxes	$	46	$	46

A reconciliation of the federal statutory income tax rate to the Company’s effective tax rate is as follows:



	Year Ended December 31,
	2019		2018
Income tax computed at federal statutory tax rate	21.0	%	21.0	%
State taxes, net of federal benefit	4.8	%	10.3	%
Tax credit carryforwards	(5.4	)%	12.2	%
Change in valuation allowance	(21.4	)%	(42.7	)%
Other	1.1	%	(1.0	)%
Effective tax rate	0.1	%	(0.2	)%

The principal components of the Company’s deferred tax assets and liabilities as of December 31, 2019 and 2018 were comprised as follows (in thousands):



	December 31,
	2019			2018
Deferred tax assets:
Net operating loss carryforwards	$	33,008		$	37,417
Tax credit carryforwards	17,185			12,751
Deferred revenue	—			26,739
Deferred lease incentive	—			103
Deferred rent	—			476
Operating lease liability	5,407			—
Intangibles	519			552
Accrued expenses and other	1,358			1,091
Unrealized loss on available-for-sale securities	17			39
Stock-based compensation	3,376			2,119
Total deferred tax assets	60,870			81,287
Less: valuation allowance	(43,219		)	(55,348		)
Net deferred tax assets	17,651			25,939
Deferred tax liabilities:
Section 481(a) method change	(12,827		)	(25,653		)
Operating lease right-of-use asset	(4,812		)	—
Depreciation	(12		)	(286		)
Total deferred tax liabilities	(17,651		)	(25,939		)
Net deferred taxes	$	—		$	—

As of December 31, 2019, the Company had federal and state net operating loss (“NOL”) carryforwards of $119.8 million and $124.2 million, respectively. Federal NOLs generated through the year ended December 31, 2017 expire at various dates from 2034 through 2037, and federal NOLs generated in years beginning after December 31, 2017 may be carried forward indefinitely. State NOLs expire at various dates from 2034 through 2038. As of December 31, 2019, the Company had federal research and development tax credit carryforwards of $12.7 million which expire at various dates from 2032 through 2039. In addition, as of December 31, 2019, the Company had state research and development and investment tax credit carryforwards of $5.2 million and $0.5 million, respectively. The state research and development tax credit carryforwards expire at various dates from 2029 through 2034 and the state investment tax credit carryforwards expire at various dates from 2020 through 2022.

Management has evaluated the positive and negative evidence bearing upon the realizability of its deferred tax assets, which primarily pertain to NOL carryforwards, tax credit carryforwards, the Company’s operating lease liability and stock-based compensation. Management has determined that it is more likely than not that the Company will not realize the benefits of its deferred tax assets, and as a result, a valuation allowance of $43.2 million has been established at December 31, 2019. The decrease in the valuation allowance of $12.1 million during the year ended December 31, 2019 was primarily due to the reversal of the Company’s deferred revenue deferred tax asset upon the termination of the Celgene Collaboration Agreement and the current year utilization of NOLs.

NOL and tax credit carryforwards are subject to review and possible adjustment by the Internal Revenue Service (“IRS”) and may become subject to an annual limitation in the event of certain cumulative changes in the ownership interest of significant shareholders over a three-year period in excess of 50% as defined under Sections 382 and 383 in the Internal Revenue Code (“IRC”). This could limit the amount of tax attributes that can be utilized annually to offset future taxable income or tax liabilities. The amount of the annual limitation is determined based on the Company’s value immediately prior to the ownership change. An IRC Section 382 study, completed in August 2016, identified three previous ownership changes for purposes of IRC Section 382. As a result of these ownership changes, the Company’s NOL and tax credit carryforwards allocable to the periods preceding each such ownership change are subject to limitations under IRC Section 382. Subsequent ownership changes may further affect the limitation in future years.

The Company had no unrecognized tax benefits as of either December 31, 2019 or 2018. During the year ended December 31, 2017, the Company completed a study of its research and development credit carryforwards generated during the years ended December 31, 2016 and 2015. The Company has not conducted a study of its research and development credit carryforwards generated during any subsequent years. 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 credit carryforwards, and if an adjustment is required, this adjustment would be offset by an adjustment to the valuation allowance. Thus, there would be no impact to the consolidated statements of operations and comprehensive income (loss) if an adjustment were required.

Interest and penalty charges, if any, related to income taxes would be classified as a component of the provision for income taxes in the consolidated statements of operations and comprehensive income (loss). As of December 31, 2019, the Company has not incurred any material interest or penalty charges.

The Company files income tax returns in the United States federal tax jurisdiction and the Massachusetts state tax jurisdiction. Since the Company is in a loss carryforward position, it is generally subject to examination by federal and state tax authorities for all tax years in which a loss carryforward is available.