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Income Taxes
 12 Months Ended
Mar. 31, 2022
Income Tax Disclosure [Abstract]  
Income Taxes Income Taxes
For the year ended March 31, 2022, the Company reported a worldwide consolidated pre-tax loss of $10.2 million, which consisted of a pre-tax loss from U.S. operations of approximately $8.8 million and pre-tax loss from Japan operations of approximately $1.4 million. The pre-tax loss from Japan operations consists of $1.2 million from Transphorm Japan, Inc., $627 thousand pre-tax loss from Transphorm Aizu, Inc. and $344 thousand pre-tax income from Transphorm Japan Epi, Inc.
For the three months ended March 31, 2021, the Company reported a worldwide consolidated pretax loss of $6.6 million, which consisted of a pre-tax loss from U.S. operations of approximately $4.9 million and pre-tax loss from Japan operations of approximately $1.7 million. The pre-tax loss from Japan operations primarily consists of $1.5 million from Transphorm Aizu, Inc. with nominal pre-tax book loss from Transphorm Japan, Inc. and Transphorm Japan Epi, Inc.
For the year ended December 31, 2020, the Company reported a worldwide consolidated pretax loss of $17.9 million, which consisted of a pre-tax loss from U.S. operations of approximately $10.3 million and pre-tax loss from Japan operations of approximately $7.6 million. The pre-tax loss from Japan operations consists of $800 thousand from Transphorm Japan, Inc., $6.8 million pre-tax loss from Transphorm Aizu, Inc. and $25 thousand pre-tax income from Transphorm Japan Epi, Inc.
There is no U.S. federal or foreign provision for income taxes because the Company has incurred operating losses since inception and is in a full valuation allowance position. For the year ended March 31, 2022, the three months ended March 31, 2021, and the year ended December 31, 2020, the Company recorded a state income tax provision of $1 thousand which represents minimum taxes. Deferred income taxes reflect the net tax effects of the net operating losses and the temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.
Significant components of the Company’s deferred tax assets and deferred tax liabilities as of the dates presented as follows (in thousands):
March 31, 2022March 31, 2021
Deferred tax assets:
Net operating loss carryforwards$49,715 $47,424 
Tax credits6,171 5,444 
California capitalized research and development40 72 
Others, net564 581 
Total deferred tax assets56,490 53,521 
Valuation allowance(56,550)(53,481)
Deferred tax asset, net of valuation allowance(60)40 
Deferred tax liabilities:
Fixed assets60 (40)
Total deferred tax liabilities60 (40)
Net deferred tax assets$— $— 
As of March 31, 2022 and March 31, 2021, the Company had no assurance that future taxable income would be sufficient to fully utilize the net operating loss carryforwards and other deferred tax assets in the future. Consequently, the Company determined that a valuation allowance of approximately $56.6 million and $53.5 million as of March 31, 2022 and March 31, 2021, respectively, was needed to offset the deferred tax assets resulting mainly from the net operating loss carryforwards.
The Company files income tax returns in the U.S. federal, California, and Oregon jurisdictions and is subject to U.S. federal, state, and local income tax examinations by tax authorities. Generally, the statute of limitations is 3 years for U.S. federal income tax and 4 years for state and local taxes. The statute of limitations may be extended for tax years where a corporation has a net operating loss carryforward or by agreement with the jurisdictional taxing authority. Accordingly, all of the Company's U.S. federal, state and local income tax years since inception remain open to examination by tax authorities. The Company is not currently under audit by any taxing authority.

The Company follows the provisions of uncertain tax positions as addressed in ASC 740-10. The Company recognized no increase or decrease in the liability for unrecognized tax benefits for any period presented. The Company recognizes interest accrued related to unrecognized tax benefits in interest expense and penalties in operating expenses. No such interest or penalties were recognized during the period presented. The Company had no accruals for interest and penalties at March 31, 2022 and March 31, 2021.

The utilization of the Company’s net operating loss and tax credit carryforwards is dependent on the future profitability of the Company. Further, the Internal Revenue Code imposes substantial restrictions on the utilization of such carryforwards in the event of an ownership change of more than 50%, as defined, during any three-year period (Section 382 and 383 limitations). The Company has determined that several ownership changes have occurred, which have resulted in substantial limitations on the Company’s ability to utilize its pre-ownership change net operating loss and tax credit carryforwards. These substantial limitations are expected to result in both a permanent loss of certain tax benefits related to net operating loss carryforwards and federal research and development credits, as well as an annual utilization limitation. As of March 31, 2022, the Company performed an analysis for amounts that could be subject to Section 382 and 383 limitations and management did not believe such limitations existed. However, it is important to note that the Company continues to raise capital and such transaction could have an effect of such limitations. See Note 17 - Subsequent Events.
The federal net operating loss generated for the year ended March 31, 2022 of $9.8 million, for the three months ended March 31, 2021 of $4.5 million and for the year ended December 31, 2020 of $10.5 million can be carried forward indefinitely. However, the federal deduction for net operating losses incurred in tax years beginning after January 1, 2021 is limited to 80% annual taxable income. Under the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), the suspension of net operating losses generated in years 2018, 2019, 2020 and 2021 are not subject to the 80% limitation. The state net operating loss generated for the year ended March 31, 2022 of $2.6 million, for the three months ended March 31, 2021 of $1.0 million, and for the year ended December 31, 2020 of $2.6 million can be carried forward 20 years.
As of March 31, 2022, the Company has federal net operating loss carryforwards of $258.9 million, of which $207.5 million will begin to expire in 2027 unless previously utilized, and the Company has state net operating loss carryforwards of $154.0 million which will begin to expire in 2028 unless previously utilized. The Company also has foreign net operating loss carryforwards of approximately $6.5 million which will begin to expire in 2024. As of March 31, 2022, the Company has federal research and development credit carryforwards of $5.0 million, which will begin to expire in 2032 unless previously utilized, and the Company had California research and development credit carryforwards of $4.3 million, which do not expire.

Deferred tax assets have not been established for net operating and tax credit carryforwards that are deemed to have no value due to the Section 382 and 383 limitations discussed above and, therefore, are not reflected in the table of deferred tax assets presented above. Future ownership changes, if any, may further limit the Company’s ability to utilize its remaining net operating losses and tax credit carryforwards. The Company performed an analysis as of March 31, 2022 and it was determined that no further limitations on tax attributes were required.
Reconciliation between federal statutory tax rate and the effective tax rate is shown in the following table for the periods presented:
Year Ended March 31, 2022Three Month Transition Period Ended March 31, 2021Year Ended December 31, 2020
Federal statutory income tax rate21.00 %21.00 %21.00 %
Research and development credit7.10 %2.73 %4.06 %
Nondeductible expense1.80 %(2.43)%0.64 %
Loss in joint venture(1.87)%(6.76)%(11.70)%
Foreign income tax rate difference1.39 %2.45 %4.10 %
Others, net(0.40)%0.85 %(2.08)%
Valuation allowance(29.02)%(17.84)%(16.02)%
Effective tax rate— %— %— %

On March 27, 2020, the CARES Act was signed into law. The CARES Act repealed the 80% taxable income limitation for the 2018–2020 taxable years and reinstated NOL carrybacks for the 2018–2020 taxable years. In addition, the CARES Act temporarily increases the business interest deduction limitations from 30% to 50% of adjusted taxable income for the 2019 and 2020 taxable year. Lastly, a TCJA technical correction that classifies qualified improvement property as 15-year recovery period, allowing the bonus depreciation deduction to be claimed for such property retroactive as if it was included in the TCJA at the time of enactment.
On December 21, 2020, the Consolidated Appropriations Act (“CAA”) was signed into law. We do not expect any of the enactments of the CAA to have a material impact on the Company as of March 31, 2022.