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Income Taxes | 12 Months Ended
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Dec. 31, 2018
Income Tax Disclosure [Abstract] |
Income Taxes | NOTE 10 – INCOME TAXES The domestic and foreign components of loss before income taxes were as follows (in thousands):
|  | December 31, |
|  | 2018 |  |  | 2017 |  |  | 2016 |
Domestic |  | $ | (65,695 | ) |  | $ | (54,568 | ) |  | $ | (71,672 | )
Foreign |  |  | (3,194 | ) |  |  | — |  |  |  | — |
Loss before income taxes |  | $ | (68,889 | ) |  | $ | (54,568 | ) |  | $ | (71,672 | )
The benefit for income taxes consisted of the following (in thousands):
|  | Year Ended December 31, |
|  | 2018 |  |  | 2017 |  |  | 2016 |
Benefit for income taxes: |  |  |  |  |  |  |  |  |  |  |  |
Current: |  |  |  |  |  |  |  |  |  |  |  |
Federal |  | $ | — |  |  | $ | — |  |  | $ | — |
State |  |  | — |  |  |  | — |  |  |  | — |
Foreign |  |  | — |  |  |  | — |  |  |  | — |
Subtotal |  |  | — |  |  |  | — |  |  |  | — |
Deferred: |  |  |  |  |  |  |  |  |  |  |  |
Federal |  |  | — |  |  |  | — |  |  |  | (12 | )
State |  |  | — |  |  |  | — |  |  |  | (2 | )
Foreign |  |  | — |  |  |  | — |  |  |  | — |
Subtotal |  |  | — |  |  |  | — |  |  |  | (14 | )
Income tax benefit |  | $ | — |  |  | $ | — |  |  | $ | (14 | )
The difference between the benefit for income taxes and the amount computed by applying the federal statutory income tax rate (21%) to loss before taxes is explained as follows (in thousands):
|  | Year Ended December 31, |
|  | 2018 |  |  | 2017 |  |  | 2016 |
Tax at federal statutory rate |  | $ | (14,467 | ) |  | $ | (18,553 | ) |  | $ | (24,369 | )
State taxes, net |  |  | (2,849 | ) |  |  | 795 |  |  |  | (747 | )
Federal rate change |  |  | — |  |  |  | 53,045 |  |  |  | — |
Foreign rate differential |  |  | (177 | ) |  |  | — |  |  |  | — |
Non-deductible stock-based compensation |  |  | (2,729 | ) |  |  | 2,120 |  |  |  | 2,781 |
Research credits |  |  | (1,005 | ) |  |  | (869 | ) |  |  | (1,424 | )
Change in valuation allowance |  |  | 20,271 |  |  |  | (36,575 | ) |  |  | 23,773 |
Other |  |  | 956 |  |  |  | 37 |  |  |  | (28 | )
Income tax benefit |  | $ | — |  |  | $ | — |  |  | $ | (14 | )
Note:
| (1) | For the years ended December 31, 2016 and 2017 the statutory tax rate was 34%. For the year ended December 31, 2018, as a result of Tax Reform, the statutory tax rate was decreased to 21%.
Deferred income taxes reflect the net tax effects of 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 the Company’s deferred tax assets are as follows (in thousands):
|  | December 31 , |
|  | 2018 |  |  | 2017 |
Assets: |  |  |  |  |  |  |  |
Deferred tax assets: |  |  |  |  |  |  |  |
Net operating loss carryforwards |  | $ | 138,896 |  |  | $ | 91,308 |
Research and development tax credit carryforwards |  |  | 16,829 |  |  |  | 15,147 |
Stock-based compensation |  |  | 3,801 |  |  |  | 3,168 |
Deferred revenue |  |  | 3,191 |  |  |  | 934 |
Build to suit lease liability |  |  | 6,400 |  |  |  | 5,232 |
Other |  |  | 604 |  |  |  | 366 |
Total deferred tax asset |  |  | 169,721 |  |  |  | 116,155 |
Valuation allowance |  |  | 158,150 |  |  |  | 112,833 |
Net deferred tax assets |  | $ | 11,571 |  |  | $ | 3,322 |
Liabilities: |  |  |  |  |  |  |  |
Intangible assets |  |  | (14,100 | ) |  |  | — |
Fixed Assets |  |  | (4,176 | ) |  |  | (3,322 | )
Net deferred tax liability |  |  | (18,276 | ) |  |  | (3,322 | )
Total deferred tax liability |  | $ | (6,705 | ) |  | $ | — |
In October 2018, the Company acquired TxCell incorporated in France. The Company recorded goodwill and intangible assets as part of accounting for the acquisition of TxCell. There is no corresponding tax basis for the goodwill or intangible assets. A portion of the intangible assets acquired were for the use in a particular research and development project IPR&D and are considered indefinite-lived assets with no tax basis. The changes in the fair value of the unrealized gain/loss on securities investment are recorded as a component of accumulated other comprehensive income, net of a provision for income taxes. A valuation allowance is recorded when it is more likely than not that all or some portion of the deferred income tax assets will not be realized. The Company regularly assesses the need for a valuation allowance against its deferred income tax assets by considering both positive and negative evidence related to whether it is more likely than not that the Company’s deferred income tax assets will be realized. In evaluating the Company’s ability to recover its deferred income tax assets within the jurisdiction from which they arise, the Company considers all available positive and negative evidence, including scheduled reversals of deferred income tax liabilities, projected future taxable income, tax-planning strategies, and results of recent operations. Accordingly, based upon the Company’s analysis of these factors the net deferred tax assets have been substantially offset by a valuation allowance. The valuation allowance increase (decreased) by $45.3 million, $(28.9) million and $23.8 million for the years ended December 31, 2018, 2017 and 2016, respectively. As of December 31, 2018, Sangamo had net operating loss carryforwards for federal and state income tax purposes of approximately $535.0 million and $161.0 million, respectively. If not utilized, the net federal and state operating loss carryforwards will expire in 2018 and 2017, respectively. The Company’s French NOL is $130.0 million which carries over indefinitely. The Company also has federal and state research tax credit carryforwards of $12.2 million and $13.0 million, respectively. The federal research credits began to expire in 2018 while the state research credits have no expiration date. Utilization of the Company’s net operating loss carryforwards and research tax credit carryforwards may be subject to substantial annual limitations due to the ownership change limitations provided by the Internal Revenue Code and similar state provisions. The annual limitation could result in the expiration of the net operating loss carryforwards and research tax credit carryforwards before utilization. On December 22, 2017, President Trump signed the Tax Cuts and Jobs Act ("Tax Reform") into legislation. The Tax Reform makes significant changes to the U.S. corporate income tax law including, but not limited to, (1) reducing the U.S. federal corporate tax rate to 21% from 35% and (2) requiring a one-time mandatory transition tax on previously deferred foreign earnings of U.S. subsidiaries. Under ASC Topic 740, the effects of changes in tax rates and laws are recognized in the period in which the new legislation is enacted. In the case of U.S. federal income taxes, the enactment date is the date the bill becomes law. In the current year the Company has accounted for additional provisions that impact the Company including but not limited to “global intangible low-taxed income (“GILTI”). The Company has completed an analysis for FDII and GILTI and due to the results of the Company, there is currently no impact for these provisions. In addition, the Company’s GILTI policy election is to treat GILTI as a period cost if and when incurred and does not plan on calculating the deferred impact on GILTI. On December 22, 2017, the SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118”) which provides guidance on accounting for the tax effects of the Tax Reform. SAB 118 provides a measurement period that should not extend beyond one year from the Tax Reform enactment date for companies to complete the accounting under ASC Topic 740 for the year ended December 31, 2017. In accordance with SAB 118, a company must reflect the income tax effects of those aspects of the Tax Reform for which the accounting under ASC Topic 740 is complete. The Company has finished their analysis as of the measurement period closing of December 22, 2018 after application of law changes were reviewed by the Company. There were no subsequent adjustments as the conclusions have remained the same. The Company intends to reinvest the earnings of its non-U.S. subsidiaries in those operations. The Company does not provide for U.S. income taxes on the earnings of foreign subsidiaries because the Company intends to reinvest such earnings offshore indefinitely. However, if these funds were repatriated, the Company would be required to accrue and pay applicable United States taxes (if any) and withholding taxes payable. It is not practicable to estimate the amount of the deferred tax liability associated with the repatriation of cash due to the complexity of its hypothetical calculation. The Company files federal and state income tax returns with varying statutes of limitations. The tax years from 2002 forward remain open to examination due to the carryover of net operating losses or tax credits. The Company also files UK and French income tax returns, and the tax years from 2008 and thereafter remain open in the UK and 2015 and thereafter in France are still subject to examination. The Company’s practice is to recognize interest and/or penalties related to income tax matters in income tax expense. As of December 31, 2018, the Company had no accrued interest and/or penalties. The unrecognized tax benefits may change during the next year for items that arise in the ordinary course of business. In the event that any unrecognized tax benefits are recognized, the effective tax rate will not be affected. The following table summarizes the activity related to the Company’s unrecognized tax benefits (in thousands):
|  | December 31, |
|  | 2018 |  |  | 2017 |  |  | 2016 |
Beginning balance |  | $ | 5,659 |  |  | $ | 5,045 |  |  | $ | 8,330 |
Additions based on tax positions related to the current year |  |  | 636 |  |  |  | 622 |  |  |  | 1,023 |
Additions for tax positions of prior years |  |  | (7 | ) |  |  | (8 | ) |  |  | 27 |
Reductions for tax positions of prior years |  |  | — |  |  |  | — |  |  |  | (4,335 | )
Ending balance |  | $ | 6,288 |  |  | $ | 5,659 |  |  | $ | 5,045 |

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- 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. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 + Details
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