Income Taxes

12 Months Ended

Dec. 31, 2022

Income Tax Disclosure [Abstract]

Income Taxes

10. Income Taxes

The reconciliations of the U.S. statutory federal income tax rates to the Company's effective tax rates were as follows:

	Year Ended December 31,
	2022			2021
U.S. federal statutory income tax rate		21.0	%		21.0	%
Adjustments for the tax effects of:
State income taxes, net of federal tax		1.1			1.0
Other permanent differences		0.4			(0.4	)
Research and development tax credits		3.4			3.1
Research and development credit permanent adjustment		—			(0.6	)
Stock-based compensation		(2.2	)		(1.6	)
Uncertain tax positions		(0.9	)		(0.8	)
Change in valuation allowance		(22.8	)		(21.7	)
Effective income tax rate		—	%		—	%

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The significant components of our deferred tax assets and liabilities are as follows (in thousands):

	As of December 31,
	2022			2021
Deferred tax assets
Net operating loss carryforwards	$	17,304		$	12,623
Capitalized research and development		11,731			—
Research and development credits		4,599			2,349
Deferred revenue		—			126
Operating lease liabilities		1,951			—
Stock-based compensation		2,203			5,192
Other		712			533
Total deferred tax assets		38,500			20,823
Deferred tax liabilities
Property and equipment		(1,135	)		—
Right-of-use assets – operating leases		(720	)		—
Other		(269	)		(280	)
Total deferred tax liabilities		(2,124	)		(280	)
Less: valuation allowance		(36,376	)		(20,543	)
Net deferred tax assets	$	—		$	—

The Tax Cuts and Jobs Act enacted in December 2017 contained a provision that requires the capitalization of Section 174 costs incurred in years beginning on or after January 1, 2022. Section 174 costs are expenditures which represent research and development costs that are incident to the development or improvement of a product, process, formula, invention, computer software, or technique. This provision changes the treatment of Section 174 costs such that the expenditures are no longer allowed as an immediate deduction but rather must be capitalized and amortized. The Company has included the impact of this provision, which results in a deferred tax asset of approximately $11.7 million as of December 31, 2022.

Due to the uncertainty surrounding the realization of deductible tax attributes in future tax returns, the Company has recorded a valuation allowance against its net deferred tax assets as of December 31, 2022 and 2021. Utilization of the net operating loss carryforwards is dependent on future taxable income. As such, realization is not assured, and a valuation allowance has been established.

The valuation allowance for deferred tax assets was approximately $36.4 million as of December 31, 2022, an increase of $15.8 million during the year ended December 31, 2022. The Company has total net operating loss carryforwards for U.S. federal income tax and state purposes of approximately $76.2 million and $30.8 million,

respectively, as of December 31, 2022 which begin to expire in 2037 and 2035, respectively. Federal net operating losses generated after January 1, 2018 will be carried forward indefinitely. The Company has federal research and development tax credit carryforwards of approximately $5.9 million as of December 31, 2022, which begin to expire in 2037. Additionally, the Company has state research and development credit carryforwards of approximately $0.3 million as of December 31, 2022, which begin to expire in 2032. The operating loss carryforwards and research and development tax credits may be limited due to a change in control in the Company’s ownership as defined by the Internal Revenue Code Sections 382 and 383.

The Company files federal and state income tax returns. The Company is not currently under examination but is open to audit by the I.R.S. and state tax authorities for tax years beginning in 2017. The resolutions of any examinations are not expected to be material to these financial statements. As of December 31, 2022, there are no penalties or accrued interest recorded in the financial statements.

A reconciliation of the beginning and ending amount of unrecognized tax benefits for uncertain tax positions were as follows (in thousands):

	Year Ended December 31,
	2022		2021
Unrecognized tax benefits, beginning of year	$	758	$	263
Additions based on tax positions relating to current year		775		495
Additions based on tax positions relating to prior year		14		—
Unrecognized tax benefits, end of year	$	1,547	$	758

The Company does not believe it is reasonably possible that its unrecognized tax benefits will change materially in the next twelve months.