Income Taxes

12 Months Ended

Dec. 31, 2023

Income Tax Disclosure [Abstract]

Income Taxes

16. Income Taxes

The Company’s provision for income taxes consists of the following (in thousands):

	Year Ended December 31,
	2023			2022
Current income tax provision (expense) benefit:
U.S. federal	$	(427	)	$	—
State		(273	)		—
Total	$	(700	)	$	—

A reconciliation of the statutory U.S. federal rate and effective rate is as follows:

	Year Ended December 31,
	2023			2022
U.S. federal tax		21.0	%		21.0	%
State tax, net of federal benefit		0.6			6.6
Change in valuation allowance		(2.8	)		(26.9	)
Nondeductible compensation		(15.2	)		(0.2	)
Research and development tax credits		16.3			0.0
Stock based compensation		10.2			0.4
Change in state deferred income tax rate		(27.2	)		0.0
Changes in unrecognized tax benefits		(4.8	)		0.0
Change in tax rates and other		0.9			(0.9	)
Income tax expense		(1.0	)%		0.0	%

The significant components of the Company’s deferred income tax assets (liabilities) were as follows (in thousands):

	December 31,
	2023			2022
Deferred income tax assets:
U.S. federal net operating loss carryforward	$	29,929		$	33,398
State net operating loss carryforward		1,110			10,465
Research and development expenditures		44,047			35,339
Research and development credits		9,829			1,935
Lease liabilities - operating		12,710			9,876
Stock based compensation		4,600			6,802
Accruals and others		1,323			92
Gross deferred income tax assets		103,548			97,907
Less: Valuation allowance		(91,841	)		(89,871	)
Total deferred income tax assets		11,707			8,036
Deferred income tax liabilities:
Depreciation		(4,930	)		(139	)
Right-of-use asset - operating		(5,903	)		(7,897	)
Section 481(a) adjustment		(874	)		—
Total deferred income tax liabilities		(11,707	)		(8,036	)
Net deferred income tax assets (liabilities)	$	—		$	—

For tax years beginning on or after January 1, 2022, the Tax Cuts and Jobs Act of 2017 eliminates the option to currently deduct research and development expenses and requires taxpayers to capitalize and amortize them over five years for research activities performed in the United States and 15 years for research activities performed outside the United States pursuant to Internal Revenue Code Section 174.

The Company recognizes valuation allowances to reduce deferred tax assets to the amount that is not more likely than not to be realized. In assessing the likelihood of realization, management considers (i) future reversals of existing taxable temporary differences; (ii) future taxable income exclusive of reversing temporary difference and carryforwards; (iii) taxable income in prior carryback years if carryback is permitted under applicable tax law; and (iv) tax planning strategies. The Company’s net deferred income tax assets are not more likely than not to be utilized due to the lack of sufficient sources of future taxable income and cumulative book losses which have resulted over the years. The net increase in the valuation allowance for the year ended December 31, 2023 of approximately $2.0 million was primarily due to research and development credits and pre-tax losses offset by a decrease in the state deferred income tax rate. The change in the valuation allowance for the year ended December 31, 2022 of approximately $51.1 million was primarily due to research and development expenditures capitalized pursuant to IRC Section 174 and net operating losses.

The Company had federal and State net operating loss (NOL) carryforwards of approximately $143.6 million and $130.3 million, respectively, as of December 31, 2023. The Company also had federal and State research and development tax credit carryforwards of approximately $12.0 million and $1.5 million, respectively, available to potentially offset future income taxes, as of December 31, 2023. The federal NOL will be carried forward indefinitely, if not utilized, but is limited to eighty percent of taxable income. The State NOL will begin expiring in 2038, if not utilized, while a portion is carried forward indefinitely. The federal research and development tax credit carryforwards, if not utilized, will expire beginning in 2038. The State research and development tax carryforward indefinitely while a portion begins to expire in 2024.

Under Section 382/383 of the Internal Revenue Code of 1986, as amended, and corresponding provisions of state law, if a corporation undergoes an “ownership change,” which generally occurs if the percentage of the corporation’s stock owned by 5% stockholders increases by more than 50% over a three-year period, the corporation’s ability to use its pre-change NOL carryforwards and other pre-change tax attributes to offset its post-change income may be limited. The annual limitation may result in the expiration of net operating losses and credits before utilization. The Company performed a Section 382/383 analysis through December 31, 2023. The Company has experienced an ownership change in the past. Some of the Company’s federal research and development tax credit carryforwards will be permanently limited as a result of the ownership change, which have been excluded from the Company’s deferred income tax assets. Subsequent ownership changes may affect the limitation in future years.

Related to unrecognized tax benefits noted below, interest and penalties related to unrecognized tax benefits are recognized in the provision of income taxes. No penalties or interest were recorded during the years ended December 31, 2023 and December 31, 2022. The Company does not expect its unrecognized tax benefit balance to change materially over the next 12 months. The Company had $3.5 million and no unrecognized tax benefits as of December 31, 2023 and December 31, 2022, respectively. Of the unrecognized tax benefits as of December 31, 2023 and 2022, none would affect the Company’s effective tax rate if recognized due to the Company's full valuation allowance position.

January 1, 2023	$	—
Additions based on tax positions related to 2023		809
Additions for tax positions of prior years		2,641
Reductions for tax positions of prior years		—
Lapse of the applicable statute of limitations		—
Settlements		—
December 31, 2023	$	3,450

The Company’s federal and State tax returns for all years, 2015 through 2022, remain subject to examination by taxing authorities due to the tax attribute carryforwards. The Company is not currently under examination by income tax authorities in federal or State jurisdictions.