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Income Taxes
 12 Months Ended
Dec. 31, 2023
Income Tax Disclosure [Abstract]  
Income Taxes Income Taxes
We are subject to U.S. federal income tax, as well as income tax in Italy, South Korea, California, and other states. From inception through December 31, 2023, we have not been required to pay U.S. federal and state income taxes because of current and accumulated NOLs. Our federal returns for tax years 2020 through 2022 remain open to examination, and our state returns remain subject to examination for tax years 2019 through 2022. The Italian and South Korean returns for tax years 2018 through 2022 remain open to examination. Carryforward attributes that were generated in years where the statute of limitations is closed may still be adjusted upon examination by the IRS or other respective tax authorities. No income tax returns are currently under examination by taxing authorities. There are no cumulative earnings in our Italian and South Korean subsidiaries as of December 31, 2023 that would be subject to U.S. income tax or foreign withholding tax. We plan to indefinitely reinvest any future earnings of our foreign subsidiaries.
On March 9, 2021, the company completed the Merger with NantCell. The Merger is accounted for as a transaction between entities under common control, and is considered a nontaxable transaction for U.S. income tax purposes, as it is intended to qualify as a “reorganization” (within the meaning of Section 368(a) of the Code).
Our loss before income taxes is as follows (in thousands):
Year Ended December 31,
202320222021
U.S. loss before income taxes$(581,136)$(413,653)$(347,226)
Foreign loss before income taxes(2,756)(3,633)(2,613)
Loss before income taxes$(583,892)$(417,286)$(349,839)
Income tax benefit (expense) consists of the following (in thousands):
Year Ended December 31,
202320222021
Current:
Federal$— $— $— 
State26 (38)(9)
Foreign— — — 
Total current26 (38)(9)
Deferred:
Federal5 2 — 
State9 2 — 
Foreign— — — 
Total deferred14 4 — 
Total income tax benefit (expense)$40 $(34)$(9)
The components that comprise our net deferred tax liabilities consist of the following (in thousands):
As of December 31,
20232022
Deferred tax assets:
Net operating loss carryforwards$420,782 $362,360 
Section 174 R&E capitalization87,721 50,571 
Research and development credits56,610 40,954 
Interest expense39,859 19,974 
Stock-based compensation22,554 20,927 
Capital loss16,192 — 
Operating lease liabilities11,605 12,986 
Valuation discount9,095 — 
Investments7,544 5,886 
Amortization3,715 3,969 
Accrued compensation3,262 3,398 
Other accrued liabilities2,944 1,640 
Other839 698 
Total deferred tax assets682,722 523,363 
Deferred tax liabilities:
Debt discount(23,365)(16,527)
Operating lease right-of-use assets(9,380)(11,747)
Depreciation (1,533)(3,300)
Indefinite-lived intangible assets(148)(192)
Total deferred tax liabilities(34,426)(31,766)
Net deferred tax assets648,296 491,597 
Valuation allowance(648,444)(491,755)
Net deferred tax liabilities$(148)$(158)
As of December 31, 2023, we have federal NOLs of $1.6 billion, state NOLs of $2.0 billion, and foreign NOLs of $14.3 million. Of the $1.6 billion in federal NOLs, $1.2 billion do not expire and will be able to be used to offset 80% of taxable income in future years. Of the $2.0 billion in state NOLs, $50.7 million do not expire and will be able to be used to offset 80% of taxable income in future years. The remaining federal NOL carryforwards expire beginning in 2024, the remaining state NOL carryforwards expire beginning in 2024, the South Korean NOL carryforwards expire beginning in 2024, and the Italian NOLs do not expire.
In assessing the realization of deferred tax assets, management considers whether it is more likely than not that some or all of our deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. Based on the level of historical operating results and the uncertainty of economic conditions, we recorded a valuation allowance of $648.4 million and $491.8 million as of December 31, 2023 and 2022, respectively. During the years ended December 31, 2023 and 2022, the valuation allowance increased by $156.6 million and $116.6 million, respectively, which was mainly driven by losses from which we cannot benefit. The portion of the valuation allowance for deferred tax assets for which subsequently recognized tax benefits will be credited directly to contributed capital is $0.2 million.
A reconciliation of the federal statutory income tax rate to our effective income tax rate is as follows:
Year Ended December 31,
202320222021
Federal statutory tax rate21.0 %21.0 %21.0 %
State income taxes, net of federal tax benefit6.8 %9.5 %7.0 %
Change in fair value of warrants(1.8)%0.5 %— %
Change in fair value of convertible notes
(1.3)%— %— %
Investment loss2.1 %— %— %
Other permanent items— %(0.1)%(0.1)%
Tax rate adjustment1.4 %(0.4)%1.5 %
Research and development credits3.1 %3.6 %3.7 %
Stock-based compensation(1.0)%(0.5)%0.5 %
Section 162(m) limitation(0.4)%(2.1)%— %
Other 0.3 %1.5 %(0.9)%
Valuation allowance(30.2)%(33.0)%(32.7)%
Effective income tax rate— %— %— %
Pursuant to Sections 382 and 383 of the Code, annual use of our net operating loss and research and development credit carryforwards may be limited in the event a cumulative change in ownership of more than 50% occurs within a three-year period. We have not recognized the deferred tax assets for federal and state NOLs and credits of $274.1 million from our deferred tax asset schedules as of December 31, 2023 due to Section 382/383 limitations. There is no impact to tax expense for the derecognition of net operating losses, and federal and state research and development credits due to the valuation allowance recorded against our deferred tax assets.
As of December 31, 2023, we also had federal research tax credit carryforwards of $47.7 million and state research tax credits of $29.6 million. The federal research tax credit carryforwards expire beginning in 2032 and certain state research tax credit carryforwards expire beginning in 2030. Our California research tax credits can be carried forward indefinitely. As of December 31, 2023, we also had federal other tax credits carryforwards of $1.3 million and the tax credit carryforwards expire beginning in 2036
Net operating losses and tax credits also are limited when there is a SRLY. These rules generally limit the use of the acquired or departing members’ net operating loss and tax credit carryovers to the amount of taxable income such entity contributes to consolidated taxable income. The 80% limitation also applies to SRLY NOL carryovers and tax credits. Therefore, any SRLY NOLs and tax credits will be subject to this limitation, as well as Section 382 and 383 limitations.
As of December 31, 2023 and 2022, we have $164.6 million and $77.6 million of interest, respectively, that is temporarily disallowed pursuant to Section 163(j) of the Code. This interest can be carried forward indefinitely and will be deductible when the company generates sufficient adjusted taxable income.
A summary of changes to the amount of unrecognized tax benefits is as follows (in thousands):
Year Ended December 31,
202320222021
Unrecognized tax benefits, beginning of year$16,252 $13,504 $20,413 
Additions based on tax positions related to the current year18,976 1,710 536 
Additions based on tax positions related to prior years242 1,038 — 
Reductions for tax positions of prior years— — (7,445)
Unrecognized tax benefits, end of year$35,470 $16,252 $13,504 
Included in the balance of unrecognized tax benefits as of December 31, 2023 is $15.1 million that, if recognized, would not impact our income tax benefit or effective tax rate as long as the deferred tax asset remains subject to a full valuation allowance. We do not expect that the unrecognized tax benefits will change within 12 months of December 31, 2023. Due to the existence of the valuation allowance, future changes in our unrecognized tax benefits will not impact our effective tax rate. We have not incurred any material interest or penalties as of the current reporting date with respect to income tax matters.
Inflation Reduction Act of 2022
The Inflation Reduction Act 2022, which incorporates a corporate alternative minimum tax, was signed on August 16, 2022. The changes are effective for the tax years beginning after December 31, 2022. The new tax will require companies to compute two separate calculations for federal income tax purposes and pay the greater of the new minimum tax or their regular tax liability. The company will be monitoring the impact of the act to determine if it will have an impact on the company for years beginning after December 31, 2022. We currently do not expect this act will have a material effect on our consolidated financial statements.