|12 Months Ended|
Dec. 31, 2020
15. Income Taxes
The components of the provision for income taxes consisted of the following (in thousands):
The reconciliation of taxes at the statutory rate to our provision for income taxes was as follows (in thousands):
In years prior to 2020, the Company was domiciled in the Cayman Islands, which does not impose income taxes. Therefore, the statutory rate in those years is shown to be 0% in the reconciliation above.
Deferred tax assets and liabilities consisted of the following (in thousands):
The Company recorded a full valuation allowance against its deferred income tax assets at December 31, 2020 and 2019. Based upon management’s assessment of all available evidence, the Company has concluded that it is more likely than not that the net deferred income tax assets will not be realized. The increase in the valuation allowance for the years ended December 31, 2020 and 2019 was $86.4 million and $30.6 million, respectively. The following table summarizes the activity recorded in the valuation allowance on the deferred income tax assets (in thousands):
At December 31, 2020, we had federal net operating loss carryforwards of approximately $228.8 million and state net operating loss carryforwards of $316.8 million that may be carried forward indefinitely for federal income tax purposes and can offset 80% of taxable income in any given year except as amended by the CARES Act. NOL's can be carried forward to offset future taxable income for a period of twenty years for California state income tax purposes.
The Company has research and development tax credits at December 31, 2020 and 2019 of approximately $10.1 million and $7.9 million, respectively, for both federal and state income tax purposes. If not utilized, the federal research and development tax credits will expire in various amounts beginning in 2039. State research and development credits can be carried forward indefinitely.
Future utilization of the net operating loss carryforwards and tax-credit carryforwards may be subject to an annual limitation based on changes in ownership, as defined by Section 382 of the Internal Revenue Code.
The aggregate changes in the balance of gross unrecognized tax benefits during the years ended December 31, 2020 and 2019 were as follows (in thousands):
As of December 31, 2020, the Company has total uncertain tax positions of $11.2 million primarily related to research and development costs which are recorded as a reduction of the deferred tax asset related carryforwards. The Company's policy is to recognize interest and penalties, if any, related to uncertain tax positions as a component of income tax expense. For the years ended December 31, 2020 and 2019, the Company did not recognize any interest or penalties for uncertain tax positions. The Company is currently not under examination by the United States Internal Revenue Service or any other state, city, or local jurisdiction. The Company is subject to the standard statutes of limitations by the relevant tax authorities for federal and state purposes and all tax years since inception are open for examination.
The Company does not anticipate any significant increases or decreases in its unrecognized tax benefits within the next twelve months.
In response to the COVID-19 pandemic, Congress passed the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) on March 27, 2020. the CARES Act provides numerous tax provisions and other stimulus measures, including refundable payroll tax credits, deferral of employer side social security payments, modifications to the net interest deduction limitations, expansions to the use and carryback of net operating losses, and a technical correction to the depreciation method applicable to qualified improvement property under the 2017 Tax Cuts and Jobs Act.
The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.
Reference 1: http://www.xbrl.org/2003/role/disclosureRef