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Income Taxes
 12 Months Ended
Dec. 31, 2023
Income Tax Disclosure [Abstract]  
Income Taxes

9. Income Taxes

The federal and state income tax provision for the year ended December 31, 2023, 2022 and 2021 are summarized as follows (in thousands):

 

 

 

Year Ended December 31,

 

 

 

2023

 

 

2022

 

 

2021

 

Current:

 

 

 

 

 

 

 

 

 

Federal

 

$

4,178

 

 

$

2,209

 

 

$

—

 

State

 

 

1,034

 

 

 

1,045

 

 

 

—

 

     Income tax provision

 

$

5,212

 

 

$

3,254

 

 

$

—

 

 

A reconciliation of the federal statutory rate to the Company’s effective tax rate is as follows for the years ended December 31, 2023, 2022, and 2021 (in thousands):

 

 

 

Year Ended December 31,

 

 

 

2023

 

 

2022

 

 

2021

 

Tax benefit at federal statutory rate

 

$

(26,188

)

 

$

(27,205

)

 

$

(7,627

)

State income taxes

 

 

(431

)

 

 

(344

)

 

 

398

 

Tax credits, net of uncertain tax positions

 

 

(14,460

)

 

 

(15,138

)

 

 

(7,042

)

Uncertain tax positions

 

 

612

 

 

 

2,687

 

 

 

—

 

Stock-based compensation

 

 

4,842

 

 

 

4,919

 

 

 

(2,368

)

Change in valuation allowance

 

 

40,661

 

 

 

38,421

 

 

 

16,800

 

Other

 

 

176

 

 

 

(86

)

 

 

(161

)

Income tax provision

 

$

5,212

 

 

$

3,254

 

 

$

—

 

 

The tax effects of temporary differences that give rise to significant components of the Company’s deferred tax assets and liabilities consist of (in thousands):

 

 

December 31,

 

 

 

2023

 

 

2022

 

Deferred tax assets:

 

 

 

 

 

 

Net operating loss

 

$

12,448

 

 

$

20,963

 

Accrued bonus

 

 

931

 

 

 

806

 

Tax credits

 

 

26,682

 

 

 

26,319

 

Stock-based compensation

 

 

15,311

 

 

 

13,351

 

Deferred revenue

 

 

63,004

 

 

 

67,673

 

Lease liability

 

 

9,030

 

 

 

10,055

 

Section 174 R&D capitalization

 

 

62,305

 

 

 

35,150

 

Refund liability

 

 

24,707

 

 

 

—

 

Other

 

 

521

 

 

 

1,608

 

Gross deferred tax assets

 

 

214,939

 

 

 

175,925

 

Less valuation allowance

 

 

(204,550

)

 

 

(164,316

)

Total deferred tax assets

 

$

10,389

 

 

$

11,609

 

Deferred tax liabilities:

 

 

 

 

 

 

Depreciation and amortization

 

$

(4,544

)

 

$

(5,155

)

Right-of-use assets

 

 

(5,845

)

 

 

(6,454

)

Gross deferred tax liabilities

 

 

(10,389

)

 

 

(11,609

)

Deferred tax assets, net

 

$

—

 

 

$

—

 

 

In assessing the realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred assets will be realized. The ultimate realization of the deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Evaluating the need for a valuation allowance for deferred tax assets often requires judgment and analysis of all the positive and negative evidence available, including cumulative losses in recent years and projected future taxable income, to determine whether all or some portion of the deferred tax assets will not be realized. As of December 31, 2023, the Company has utilized a full valuation allowance to offset the net deferred tax assets as the Company believes it is not more likely than not that the net deferred tax assets will be fully realizable. The valuation allowance for deferred tax assets increased by $40.2 million during the year ended December 31, 2023.

As of December 31, 2023, the Company had federal and state net operating loss (NOL) carryforwards of approximately zero and $202.2 million, respectively. Federal NOL carryforwards have an indefinite life and deductions cannot exceed 80% of taxable income. State NOL carryforwards will begin to expire as early as

2030, if not utilized, or have an indefinite life. As of December 31, 2023, the Company also had federal and California tax credit carryforward of approximately $27.1 million and $19.3 million, respectively. The federal tax credits will begin to expire in 2041 while the California tax credits have no expiration date.

Generally, utilization of the NOL carryforwards and credits may be subject to an annual limitation due to the ownership change limitations provided by Section 382, which provides for limitations on NOL carryforwards and certain built-in losses following ownership changes, and Section 383, which provides for special limitations on certain excess credits, etc., of the Code, and similar state provisions. Accordingly, the Company’s ability to utilize NOL carryforwards may be limited as the result of such an “ownership change.” The carryforwards could be subject to an annual limitation, resulting in a reduction in the gross deferred tax assets before considering the valuation allowance. Further, a portion of the carryforwards may expire before being applied to reduce future earnings. The Company is not aware of any changes in ownership that would result in material limitations under Section 382 at this time.

The following table summarizes the activity related to the Company’s unrecognized tax benefits for the years ended December 31, 2023, 2022, and 2021 (in thousands):

 

Balance as of December 31, 2021

 

$

6,939

 

Increases related to tax positions taken during the
   current year

 

 

8,199

 

Balance as of December 31, 2022

 

 

15,138

 

Decreases related to tax positions taken during the
   prior year

 

 

(594

)

Increase related to tax positions taken during the
   prior year

 

 

2,588

 

Increases related to tax positions taken during the
   current year

 

 

3,071

 

Balance as of December 31, 2023

 

$

20,203

 

 

If the unrecognized tax benefits for uncertain tax positions as of December 31, 2023, is recognized, there will be no impact to the effective tax rate as the tax benefit would increase the net deferred tax assets, which is currently offset with a full valuation allowance. The Company’s policy is to include interest and penalties related to unrecognized tax benefits, if any, within the provision for taxes in the consolidated statements of operations. The Company accrued $0.2 million interest and penalties for the year ended December 31, 2023. The Company does not have any tax positions for which it is reasonably possible that the total amount of gross unrecognized tax benefits will significantly change within 12 months of December 31, 2023.

The Company recognizes the tax benefit of an uncertain tax position only if it is more likely than not that the position is sustainable upon examination by the taxing authority, based on the technical merits. During the years ended December 31, 2023 and 2022, the Company recorded an uncertain tax position of $5.1 million and $8.2 million, respectively. The income tax provision for the years ended December 31, 2023, included changes to reserves related to prior year uncertain tax provisions of an increase of $2.6 million and decrease of $0.6 million. The income tax provision for the years ended December 31, 2022, included changes to reserves of zero. The Company’s income tax returns generally remain subject to examination by federal and most state tax authorities. The Company is currently not subject to any income tax audits by federal or state taxing authorities. The statute of limitations for tax liabilities for all years remains open.