10. Income taxes

During the years ended December 31, 2019 and 2018, the Company recorded no income tax benefits for the net operating losses incurred or for the research and development tax credits generated in each period due to its uncertainty of realizing a benefit from those items. All of the Company’s operating losses since inception have been generated in the United States.

A summary of the Company’s current and deferred tax provision is as follows:


	Year ended December 31,
	2019		2018
Current income tax provision:
Federal	$	—	$	—
State		24		—
Total current income tax provision		24		—
Deferred income tax benefit:
Federal		(9,400)		(4,199)
State		688		(1,239)
Total deferred income tax benefit		(8,712)		(5,438)
Change in deferred tax asset valuation allowance		(8,712)		(5,438)
Total provision for income taxes	$	24	$	—

The $24 provision for income taxes for the year ended December 31, 2019 is classified within general and administrative expense on the Consolidated Statements of Operations and Comprehensive Loss.

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


	Year Ended December 31,
	2019		2018
Federal statutory income tax rate	21.0	%	21.0	%
State income taxes, net of federal benefit	(1.6)		1.5
Research and development tax credits	1.9		0.1
Change in preferred stock tranche obligation	-		(16.0)
Change in deferred tax asset valuation allowance	(19.9)		(6.6)
Effect of Section 382 limitation	(1.5)		-
Effective income tax rate	(0.1)	%	0.0	%

Net deferred tax assets as of December 31, 2019 and 2018 consisted of the following:


	December 31,
	2019		2018
Deferred tax assets
Net operating loss carry forwards	$	11,380	$	2,899
Research and development tax credit carry forwards		969		231
License fees		3,232		3,669
Stock based compensation		196		—
Accruals, reserves and other		44		1
Total deferred tax assets		15,821		6,800
Deferred tax liabilities
Prepaid expenses		(309)		—
Total deferred tax liabilities		(309)		—
Net deferred tax assets		15,512		6,800
Valuation allowance		(15,512)		(6,800)
Total net deferred tax assets	$	—	$	—

As of December 31, 2019, the Company had U.S. federal and state net operating loss carryforwards of $51,094 and $10,222, respectively, which may be available to offset future taxable income and begin to expire in 2037. The federal net operating loss carryforwards include $48,757, which may be carried forward indefinitely. As of December 31, 2019, the Company also had U.S. federal and state research and development tax credit carryforwards of $1,058 and $187, respectively, which may be available to offset future tax liabilities and begin to expire in 2032. During the year ended December 31, 2019, gross deferred tax assets, before valuation allowance, increased by $8,712, due primarily to the operating loss incurred by the Company during that period.

Utilization of the U.S. federal and state net operating loss carryforwards and research and development tax credit carryforwards may be subject to a substantial annual limitation under Sections 382 and 383 of the Internal Revenue Code of 1986, and corresponding provisions of state law, due to ownership changes that have occurred previously or that could occur in the future. These ownership changes may limit the amount of carryforwards that can be utilized annually to offset future taxable income or tax liabilities. In general, an ownership change, as defined by Section 382, results from transactions increasing the ownership of certain stockholders or public groups in the stock of a corporation by more than 50% over a three‑year period. The annual limitation is determined by multiplying the value of the Company's stock at the time of such ownership change by the applicable long-term tax-exempt rate. Such limitations may result in expiration of a portion of the NOL carryforwards before utilization. As of December 31, 2019, the Company determined that ownership changes occurred on March 24, 2017 and June 7, 2018. As a result of the ownership changes, approximately $2.2 million and $3.7 million of the NOLs will expire unutilized for federal and state purposes, respectively. The ability of the Company to use its remaining NOL carryforwards may be further limited if the Company experiences a Section 382 ownership change as a result of future changes in its stock ownership.

The Company has evaluated the positive and negative evidence bearing upon its ability to realize its deferred tax assets at each reporting period. In doing so, the Company has considered its history of cumulative net losses incurred and its lack of commercialization of any products or generation of any revenue from product sales and has concluded that it is more likely than not that the Company will not realize the benefits of the deferred tax assets. Accordingly, a full valuation allowance has been recorded against the net deferred tax assets as of December 31, 2019 and 2018.

Changes in the valuation allowance for deferred tax assets during the years ended December 31, 2019 and 2018 related primarily to increases in net operating loss carryforwards and research and development tax credit carryforwards, as follows:


	2019		2018
Valuation allowance as of January 1,	$	(6,800)	$	(1,362)
Increases recorded to income tax provision		—		—
Decreases recorded as a benefit to income tax provision		(8,712)		(5,438)
Valuation allowance as of December 31,	$	(15,512)	$	(6,800)

As of December 31, 2019, the Company had gross unrecognized tax benefits of $237 which were derived during the preceding twelve months, none of which if recognized, would reduce the effective tax rate in a future period, due to the Company's full valuation allowance on U.S. net deferred tax assets. The Company’s policy is to record interest and penalties related to income taxes as part of its income tax provision. As of December 31, 2019, the Company had not accrued interest or penalties related to uncertain tax positions and no amounts had been recognized in the Company’s consolidated statements of operations and comprehensive loss. For the year ended December 31, 2019, the Company will file income tax returns in the U.S., California, Connecticut, Massachusetts, Maryland, New York, and Pennsylvania, as prescribed by the tax laws of the jurisdictions in which it operates. The Company is subject to examination by federal and state jurisdictions, where applicable. There are currently no pending tax examinations. The Company is open to future tax examination under statute from 2017 to the present.

A reconciliation of the beginning and ending unrecognized tax benefits for the year ended December 31, 2019 is as follows


	2019
Balance as of December 31, 2018	$	—
Increases related to prior year tax positions		—
Decreases related to prior year tax positions		—
Increases related to current year tax positions		237
Settlements		—
Lapse of statute of limitations		—
Balance as of December 31, 2019	$	237