Income Taxes

12 Months Ended

Dec. 31, 2020

Income Taxes

Income Taxes

Note 14.  Income Taxes

As of December 31, 2020, the Company had cumulative federal and state net operating loss carryforwards (“NOLs”) of approximately $328.7 million and $323.2 million available to reduce federal and state taxable income, respectively. As a result of the Tax Cuts and Jobs Act of 2017, federal net operating losses incurred for taxable years beginning after January 1, 2018 have an unlimited carryforward period, but can only be utilized to offset 80% of taxable income in future taxable periods. Of the $328.7 million of federal NOLs, $131.3 million have an unlimited carryforward and the remaining NOLs are still subject to expiration through 2037. State NOLs are still subject to expiration according to the laws of each respective jurisdiction. The Company files state tax returns in Massachusetts and Pennsylvania whereby both jurisdictions impose a 20-year carryforward period. All $323.2 million of state NOLs expire through 2040, with the first year of expiration being 2032 for $23.4 million of Massachusetts NOLs. In addition, at December 31, 2020, the Company had cumulative federal and state tax credit carryforwards of $25.0 million and $1.9 million, respectively, available to reduce federal and state income taxes, respectively, which expire through 2040 and 2033, respectively, for federal and state purposes, other than those that have an unlimited carryforward period.

Sections 382 and 383 of the Internal Revenue Code prescribe limitations on the amount of NOLs and tax credit carryforwards that may be utilized in any one year. The Company has completed several financings since the effective date of the Tax Reform Act of 1986, which as of December 31, 2020, have resulted in ownership changes that will significantly limit the Company’s ability to utilize its net operating loss and tax credit carryforwards. In December 2017, the Company completed a study which determined that ownership changes had occurred. The federal and state net operating loss and tax credit carryforwards and related deferred tax assets shown in the table below have been adjusted to reflect the limitations that resulted from this study. As no study has been completed subsequent to 2017, additional ownership change limitations may result from ownership changes that have occurred, or may occur in the future. The Company continues to monitor equity activity and potential ownership changes.

Note 14.  Income Taxes (Continued)

As of December 31, 2020 and 2019, the components of the deferred tax assets are approximately as follows:

(in thousands)	2020		2019
Operating loss carryforwards	$	90,895	$	81,403
Tax credit carryforwards		26,550		23,072
Stock-based compensation		6,820		7,818
Lease liabilities		276		308
Other		162		176
Total deferred tax assets		124,703		112,777
Right-of-use asset		(270)		(306)
Valuation allowance		(124,433)		(112,471)
Net deferred tax assets	$	—	$	—

The Company has provided a full valuation allowance for its deferred tax asset due to the uncertainty surrounding the ability to realize these assets.

The difference between the U.S. federal corporate tax rate and the Company’s effective tax rate for the years ended December 31, 2020, 2019 and 2018 is as follows:

	2020		2019		2018
Expected federal income tax rate	(21.0)	%	(21.0)	%	(21.0)	%
Expiring credits and NOLs	—		—		1.0
Change in valuation allowance	10.6		26.2		37.9
Federal and state credits	(3.1)		(8.1)		(7.4)
State income taxes, net of federal benefit	(1.9)		(4.7)		(9.7)
Warrant and future tranche right revaluation loss	14.2		4.3		—
Stock-based compensation	0.2		0.5		0.5
Other	1.0		2.8		(1.3)
Effective tax rate	0.0	%	0.0	%	0.0	%

The Company applies ASC 740-10, Accounting for Uncertainty in Income Taxes, an interpretation of ASC 740. ASC 740-10 clarifies the accounting for uncertainty in income taxes recognized in financial statements and requires the impact of a tax position to be recognized in the financial statements if that position is more likely than not of being sustained by the taxing authority. The Company had no unrecognized tax benefits resulting from uncertain tax positions at December 31, 2020 and 2019.

The Company has not conducted a study of its research and development tax credit carryforwards. Such a study might result in an adjustment to the Company’s research and development credit carryforwards, however, until a study is completed and any adjustment is known, no amounts are being presented as an uncertain tax position under ASC 740-10. A full valuation allowance has been provided against the Company’s research and development credits and, if an adjustment is required, this adjustment would be offset by an adjustment to the valuation allowance. Thus, there would be no impact to the statements of operations if an adjustment was required.

The Company files income tax returns in the U.S. federal, Massachusetts and Pennsylvania jurisdictions. The Company is no longer subject to tax examinations for years before 2017, except to the extent that it utilizes tax attributes that originated before 2017. The Company does not believe there will be any material changes in its unrecognized tax positions over the next 12 months. The Company has not incurred any interest or penalties. In the event that the Company is assessed interest or penalties at some point in the future, they will be classified in the statements of operations as general and administrative expense.