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Income Taxes

12 Months Ended

Dec. 31, 2020

10. Income Taxes

The Company has not recorded a current or deferred tax provision for the years ended December 31, 2020 and 2019.

The effective income tax rate differed from the amount computed by applying the federal statutory rate to the Company’s loss before income taxes as follows:


	For Year Ended
	December 31,
	2020		2019
Tax effected at statutory rate	21.0	%	21.0	%
State taxes	6.8		7.2
Stock compensation	1.6		(1.7)
Non deductible expenses	(2.4)		(0.4)
Federal research and development credits	7.9		7.8
Other	(0.5)		—
Change in valuation allowance	(34.4)		(33.9)
	—	%	—	%

Deferred tax assets (liabilities) consist of the following at December 31, 2020 and 2019 (in thousands):


	As of
	December 31,
	2020		2019
Deferred tax assets:
Reserve and accruals	$	2,635	$	1,704
Net operating loss carryforwards		46,112		26,932
Operating lease liability		9,196		1,448
Deferred revenue		14,194		13,173
Tax credits		17,423		9,569
Stock based compensation		1,892		1,049
Total gross deferred tax assets		91,452		53,875
Valuation allowance		(81,980)		(52,260)
Total deferred tax assets		9,472		1,615
Total deferred tax liabilities:
Operating lease right-of-use asset		(8,805)		(1,214)
Fixed and intangible assets		(667)		(401)
Total deferred tax liabilities		(9,472)		(1,615)
Total net deferred tax assets	$	—	$	—

Total Net Deferred Tax Assets

Deferred tax assets are reduced by a valuation allowance if, based on the weight of available positive and negative evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Accordingly, a full valuation allowance has been established against the net deferred tax assets as of December 31, 2020 and 2019. The valuation allowance for deferred tax assets increased by $29.7 million and $17.3 million in 2020 and 2019, respectively. This increase mainly relates to the establishment of a valuation allowance against the Company’s net domestic deferred tax assets in connection with net operating losses generated in each year and the additional tax credit carryforwards generated. As of December 31, 2020, the Company had approximately $168.4 million and $170.1 million of Federal and State operating loss carryforwards respectively, which begin to expire in 2032, except for the $117.9 million of the Company’s federal net operating loss carryforwards that do not expire. These loss carryforwards are available to reduce future taxable income, if any. These loss carryforwards are subject to review and possible adjustment by the appropriate taxing authorities. As of December 31, 2020, the Company also had federal and state credit carryovers of $15.4 million and $2.6 million, respectively. The amount of loss and credit carryforwards that may be utilized in any future period may be limited based upon changes in the ownership of the Company’s ultimate parent. Additionally, the deductibility of federal net operating losses generated after December 31, 2017 is limited to 80% of the Company’s taxable income in any future taxable year.

The Company follows the provisions of ASC 740-10, “Accounting for Uncertainty in Income Taxes,” which specifies how tax benefits for uncertain tax positions are to be recognized, measured, and recorded in financial statements; requires certain disclosures of uncertain tax matters; specifies how reserves for uncertain tax positions should be classified on the balance sheet; and provides transition and interim period guidance, among other provisions. As of December 31, 2020 and 2019, the Company has not recorded any amounts for uncertain tax positions. The Company’s policy is to recognize interest and penalties accrued on any uncertain tax positions as a component of income tax expense, if any, in its statements of income.

- Definition

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.

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