Provision for Income Taxes

12 Months Ended

Dec. 31, 2021

Income Tax Disclosure [Abstract]

Provision for Income Taxes

Note 12: Provision for Income Taxes

The Company's loss before provision for income taxes includes the following components (in thousands):

	Year Ended December 31,
	2021		2020			2019
Domestic	$	53,898	$	(123,318	)	$	(85,141	)
Foreign		747		460			431
Income (loss) before income tax	$	54,645	$	(122,858	)	$	(84,710	)

The components of the provision for income taxes are as follows (in thousands):

	Year Ended December 31,
	2021		2020		2019
Current
Federal	$	1,252	$	-	$	-
State		563		-		-
Total income tax expense	$	1,815	$	-	$	-

The effective tax rate of the Company's provision for income taxes differs from the federal statutory rate as follows:

	Year Ended December 31,
	2021			2020			2019
Federal statutory income tax rate		21.00	%		21.00	%		21.00	%
State taxes, net of federal benefit		0.81	%		0.00	%		0.00	%
Equity investment		-4.07	%		4.15	%		0.00	%
Research and development credits		-11.91	%		3.10	%		0.00	%
Change in valuation allowance		-2.55	%		-27.35	%		-19.65	%
Stock based compensation		-0.75	%		-0.18	%		-1.28	%
Non-deductible expenses and other		0.79	%		-0.72	%		-0.07	%
Provision for income taxes		3.32	%		0.00	%		0.00	%

Deferred income taxes reflect the net tax effects of loss and credit carryforwards and 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 for federal and state income taxes are as follows as of December 31 (in thousands):

	Year Ended December 31,
	2021			2020
Deferred tax assets:
Federal and state net operating loss carryforwards	$	24,183		$	54,526
Research and development credits carryforwards		13,288			11,209
Stock-based compensation		9,857			3,828
Depreciation		6,140			9,068
Deferred Revenue		23,557			2,407
Lease liability		25,389			3,831
Other		3,478			2,062
Total deferred tax assets		105,892			86,931
Deferred tax liabilities:
Right-of-use assets		(22,800	)		(2,704	)
Total deferred tax liabilities		(22,800	)		(2,704	)
Less valuation allowance		(83,092	)		(84,227	)
Net deferred tax assets	$	-		$	-

Deferred income taxes reflect the net tax effects of (a) temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, and (b) operating losses and tax credit carryforwards.

The Company’s accounting for deferred taxes involves the evaluation of a number of factors concerning the realizability of its net deferred tax assets. The Company considered factors such as its history of operating losses, the nature of the Company’s deferred tax assets, and the timing, likelihood and amount, if any, of future taxable income during the periods in which those temporary differences and carryforwards become deductible, including amounts that may arise under the collaboration agreement with Gilead entered into in 2020 and the 2021 program opt-ins. As a result of the Company's evaluation of these factors, including the uncertainty that exists with respect to the option fees and milestone payments, the Company does not believe that it is more likely than not that the deferred tax assets will be realized. Accordingly, a full valuation allowance has been established and no deferred tax asset is shown in the accompanying consolidated balance sheets. The valuation allowance decreased by approximately $1.1 million for the year ended December 31, 2021. The valuation allowance increased by approximately $33.8 million and $19.7 million, respectively, for the years ended December 31, 2020 and 2019.

At December 31, 2021, the Company has total net operating loss carryforwards (NOLs) of $110.5 million that have no expiration date and federal research tax credits of approximately $11.7 million that begin to expire in 2035. The Company also has state NOLs of approximately $13.0 million that begin to expire in 2035, and state research tax credits of approximately $8.3 million that have no expiration date. Use of the NOLs and credit carryforwards may be subject to a substantial annual limitation due to the ownership change provisions of U.S. tax law, as defined in Section 382 and 383 of the Internal Revenue Code of 1986, as amended, and similar state provisions. The annual limitation may result in the expiration of NOLs and credits before use. The Company determined that an ownership change, as defined under IRC Section 382, occurred in the current and previous years. While the Company does not expect these ownership changes to result in the expiration of net operating loss and credit carryforwards prior to

utilization, the Company is subject to an annual limitation on the use of its tax attributes. The limitation on the Company's use of net operating loss and credit carryforwards could reduce the Company's ability to use a portion of the tax attributes to offset future taxable income.

The Company has not been audited by the Internal Revenue Service, any state or foreign tax authority. The Company is subject to taxation in the United States and also beginning in 2017, in Australia. Because of the net operating loss and research credit carryforwards, all of the Company’s tax years, from 2015 to 2020, remain open to U.S. federal and California state tax examinations. In addition, the Company’s tax years from 2017 to 2020 are open to examination in Australia. There were no interest or penalties accrued at December 31, 2021 or 2020.

Uncertain Tax Positions

The Company follows the provisions of FASB Accounting Standards Codification (ASC 740-10), Accounting for Uncertainty in Income Taxes. ASC 740-10 prescribes a comprehensive model for the recognition, measurement, presentation and disclosure in financial statements of uncertain tax positions that have been taken or expected to be taken on a tax return. No liability related to uncertain tax positions is recorded in the consolidated financial statements. The Company’s reserve for unrecognized tax benefits was approximately $5.4 million and $3.2 million at December 31, 2021, 2020, respectively.

Due to the full valuation allowance at December 31, 2021 and 2020, current adjustments to the unrecognized tax benefit will have no impact on the Company’s effective income tax rate; any adjustments made after the valuation allowance is released will have an impact on the tax rate.

The following table summarizes the activity related to the Company's unrecognized tax benefits (in thousands):

	Year Ended December 31,
	2021			2020
Beginning balance	$	3,153		$	2,165
Additions (decreases) for tax positions taken in a prior year		(50	)		(258	)
Additions for tax positions taken in current year		2,325			1,246
Ending balance	$	5,428		$	3,153

As of December 31, 2021, the total amount of gross unrecognized tax benefits was $5.4 million, of which, if recognized, none would impact the Company's effective tax rate. The Company does not anticipate material changes to its uncertain tax positions through the next 12 months.