Income Taxes

6 Months Ended

Jun. 30, 2023

Income Taxes

Income Taxes

H. Income Taxes

The liability method is used in the Company’s accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that are expected to be in effect when the differences are expected to reverse. The Company provides a valuation allowance when it is more likely than not that deferred tax assets will not be realized.

The realization of deferred income tax assets is dependent on the generation of sufficient taxable income during future periods in which temporary differences are expected to reverse. Where the realization of such assets does not meet the more likely than not criterion, the Company applies a valuation allowance against the deferred income tax asset under consideration. The valuation allowance is reviewed periodically and if the assessment of the more likely than not criterion changes, the valuation allowance is adjusted accordingly. As of June 30, 2023, the Company has a full valuation allowance applied against its deferred tax assets.

As part of the Tax Cuts and Jobs Act of 2017 (2017 Tax Act), beginning with the 2022 tax year, the Company is required to capitalize research and development expenses, as defined under Internal Revenue Code Section 174. For expenses that are incurred for research and development in the U.S., the amounts will be amortized over five years, and expenses that are incurred for research and experimentation outside the U.S. will be amortized over 15 years. 

As of June 30, 2023, although the Company expects to be in a taxable loss position for the calendar year ended December 31, 2023, the Company determined a provision for income tax was required due largely to the impact of research and development expense capitalization pursuant to Section 174 of the 2017 Tax Act, and as such, recorded income tax expense of $0.8 million during the three and six months ended June 30, 2023.