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Income Taxes
 6 Months Ended 12 Months Ended
Jun. 30, 2022
Dec. 31, 2021
Income Tax Disclosure [Abstract]    
Income Tax
Note 3: Income Taxes
The Company’s subsidiary,
ProKidney-US,
is treated as a C corporation, and therefore a provision for federal and state taxes has been recorded. The Company’s effective tax rate for the three months ended June 30, 2022 and 2021, was (5.8)% and (0.1)%, respectively. The Company’s effective tax rate for the six months ended June 30, 2022 and 2021, was (2.6)% and (0.1)%, respectively. The difference between the Company’s effective tax rates and the U.S. statutory rate of 21% is primarily attributable to the Company and
ProKidney-KY
being treated as partnerships for income tax purposes.
For tax years beginning after December 31, 2021, the Tax Cut and Jobs Act of 2017 (the “TCJA”) requires specified research and development expenses to be capitalized and amortized ratably over a five-year period. The adoption of this provision of the TCJA is the primary driver of income tax expense recognized during the three and six months ended June 30, 2022.
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion of the deferred tax assets will 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, available taxes in the carryback periods, projected future taxable income and tax planning strategies in making this assessment.
There were no net unrecognized tax benefits as of June 30, 2022 which, if recognized, would affect our effective tax rate. We expect none of the gross unrecognized tax benefits will decrease within the next year.
There were no significant changes in the Company’s uncertain tax positions during the six months ended June 30, 2022 from the amount that was reflected at December 31, 2022.
Note 3: Income Taxes
The Company’s subsidiary,
ProKidney-US,
is treated as a C corporation, and therefore a provision for federal and state taxes has been recorded.
The provision for income tax expense consisted of the following for the year ended December 31, 2021 and 2020 (in thousands):
 
    
December 31,
2021
     
December 31,
2020
  
Current:
                  
Federal
    $ 72      $ (242 ) 
State
      (34 )       10  
    
 
 
     
 
 
  
Total current income tax expense (benefit)
      38        (232 ) 
Deferred:
                  
Federal
      —          —    
State
      —          —    
    
 
 
     
 
 
  
Total deferred income tax expense
      —          —    
    
 
 
     
 
 
  
Income tax expense (benefit)
    $ 38      $ (232 ) 
    
 
 
     
 
 
  
The difference between the statutory rate for federal income tax and the effective income tax rate was as follows:
 
    
December 31,
2021
    
December 31,
2020
  
Current:
                 
Income taxes at statutory rate
      21.0 %      21.0 % 
State taxes, net of federal benefit
      —         —    
LLC flow-through structure
      (21.4 )      (21.5 ) 
Federal Credits
      1.8       2.3  
Provision to return adjustment
      —         0.2  
Change in valuation allowance
      (1.3 )      (1.1 ) 
Other
      (0.2 )      —    
    
 
 
    
 
 
  
Effective income tax rate
      (0.1 )%      0.9 % 
    
 
 
    
 
 
  
Components of the Company’s deferred tax assets and liabilities included in the consolidated balance sheet consisted of the following (in thousands):
 
    
December 31,
2021
     
December 31,
2020
  
Deferred tax assets:
                  
Accrued bonus
    $ 376      $ 243  
Fixed assets
      —          108  
Federal credit carryforwards
      939        331  
Leases
      28        —    
Start-up
costs
      39        48  
    
 
 
     
 
 
  
Deferred tax assets before valuation allowance
      1,382        730  
Valuation allowance
      1,237        560  
    
 
 
     
 
 
  
Total deferred tax assets
      145        170  
    
 
 
     
 
 
  
Deferred tax liabilities:
                  
Intangible assets
      90        148  
Fixed assets
      47        —    
Prepaid expenses
      8        22  
    
 
 
     
 
 
  
Total deferred tax liabilities
      145        170  
    
 
 
     
 
 
  
Net deferred tax asset
    $ —        $ —    
    
 
 
     
 
 
  
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion of the deferred tax assets will 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, available taxes in the carryback periods, projected future taxable income and tax planning strategies in making this assessment. Accordingly, the Company has provided a valuation allowance of $1,237,000 and $560,000 respectively for December 31, 2021 and 2020, to offset the net deferred tax assets.
The Company has $1,118,000 in Research Credit Carryforwards that begin to expire in 2040.
A reconciliation of the beginning and ending amount of total unrecognized tax benefits for the years ended December 31, 2021 and 2020 consisted of the following (in thousands):
 
    
December 31,
2021
     
December 31,
2020
  
Unrecognized tax benefits (gross):
                  
Benefits at the beginning of the year
    $ —        $ —    
Increase related to prior year tax positions
      94        —    
Decrease related to prior year tax positions
      —          —    
Increase related to current year tax positions
      86        —    
    
 
 
     
 
 
  
Benefits at the end of the year
    $ 180      $ —    
    
 
 
     
 
 
  
There are no net unrecognized tax benefits as of December 31, 2021 which, if recognized, would affect our effective tax rate. We expect none of the gross unrecognized tax benefits will decrease within the next year.
In March 2020, the World Health Organization declared coronavirus
(COVID-19)
a global pandemic. This contagious disease outbreak, which continued to spread, and the related adverse public health developments, have adversely affected work forces, economies and financial markets globally. As a result, governments around the world have enacted legislation to provide aid and stimulate economies. In the U.S., The Coronavirus, Aid, Relief and Economics Security Act (“CARES Act”), was enacted on March 27, 2020, The Consolidated Appropriations Act, 2021 was enacted on December 27, 2020, and the American Rescue Plan Act of 2021 was enacted on March 11, 2021. All of these acts included both income tax and
non-income
tax provisions to assist companies. No provisions in these acts had a material impact on the income tax provision or any other area of the Company’s financial statements.
Tax years 2018 through 2021 remain subject to examination by federal and state authorities.