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Income Taxes

12 Months Ended

Dec. 31, 2020

Note 13—Income Taxes

The components of income tax benefit are as follows:


	December 31,
	2020		2019		2018

	(In thousands)
Current income tax benefit:
Federal	$	—	$	—	$	—
State		—		—		—
Total current income tax benefit		—		—		—
Deferred income tax benefit:
Federal		10,149		—		11,261
State		1,862		—		1,668
Total deferred income tax benefit		12,011		—		12,929
Income tax benefit	$	12,011	$	—	$	12,929

We have a history of losses and therefore have historically not made a provision for income taxes. However, in 2020 and 2018 we recorded an income tax benefit of $12.0 million and $12.9 million related to the issuance of our 2026 and 2023 Notes, respectively. In accordance with intra-period tax allocation rules, the deferred tax liability related to the equity component of convertible debt is a source of income that can be used to recognize the tax benefit of the current year loss through continuing operations. Deferred income taxes reflect the tax effect of net operating loss and tax credit carryforwards and the net temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.

Significant components of deferred income taxes are as follows:


	December 31,
	2020		2019

	(In thousands)
Deferred tax assets:
Net operating loss carryforwards	$	149,993	$	126,794
Research and development tax credits		56,103		40,654
Stock-based compensation		10,586		9,959
Lease liability		8,646		7,908
Disallowed interest expense		11,859		8,122
Other		7,411		6,433
Total deferred tax assets		244,598		199,870
Deferred tax liabilities:
Property and equipment		(113)		—
Equity component of Convertible Notes		(18,302)		(11,082)
Right of use assets		(6,197)		(6,480)
Total deferred tax liabilities		(24,612)		(17,562)
Net deferred tax assets before valuation allowance		219,986		182,308
Less valuation allowance		(219,986)		(182,308)
Net deferred tax assets	$	—	$	—

As of December 31, 2020 and 2019, we had federal net operating loss carryforwards of approximately $658.8 million and $564.3 million, respectively, and state net operating losses of approximately $257.1 million and $170.5 million, respectively.

In certain circumstances, due to ownership changes, our net operating loss and tax credit carryforwards may be subject to limitations under Section 382 of the Internal Revenue Code. To date, we have not completed a Section 382 study. Unless previously utilized, net operating losses of $409.0 million generated prior to 2018 will expire between

2021 and 2037. The net operating loss of $144.5 million generated after 2018 should carryforward indefinitely. Unless previously utilized, research and development tax credit carryforward will expire between 2021 and 2040.

We have established a valuation allowance due to the uncertainty of our ability to generate sufficient taxable income to realize the deferred tax assets. Our valuation allowance increased $37.8 million and $23.9 million in 2020 and 2019, respectively, primarily due to net operating losses incurred during these periods.

Reconciliation of income tax computed at federal statutory rates to the reported provisions for income taxes is as follows:


	Year ended December 31,
	2020		2019		2018
U.S. Federal statutory rate on net loss	(21.0)	%	(21.0)	%	(21.0)	%
State tax, net of federal tax benefit	(3.1)	%	(2.7)	%	(2.5)	%
Change in valuation allowance	25.1	%	28.3	%	18.9	%
Tax credits	(8.0)	%	(5.9)	%	(4.6)	%
Other	(1.0)	%	1.3	%	(0.1)	%
Effective tax rate	(8.0)	%	-	%	(9.3)	%

We file federal and certain state income tax returns, which provides varying statutes of limitations on assessments. However, because of net operating loss carryforwards, substantially all of our tax years remain open to federal and state tax examination.

We recognize interest and penalties related to the underpayment of income taxes as a component of income tax expense. To date, there have been no interest or penalties charged to us in relation to the underpayment of income taxes.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was enacted and signed into law in response to COVID-19. The CARES Act, among other things, includes several significant provisions which impact corporate taxpayers' accounting for income taxes, including a modification to the utilization of net operating losses and interest expense deduction limitations. The provisions of the CARES Act do not impact our tax provision.

- 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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