Income Taxes

9 Months Ended

Sep. 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 September 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. 

Pursuant to additional Section 174 guidance issued by the Internal Revenue Service prior to finalizing the Company’s 2022 tax return but subsequent to the Company preparing its 2022 year-end tax provision, the Company recorded a $1.2 million favorable tax adjustment during the three months ended September 30, 2023. Partially offsetting this benefit, during the nine months ended September 30, 2023, the Company recorded income tax expense of $0.8 million as a provision for calendar 2023.