v3.25.1
Income Taxes
 12 Months Ended
Dec. 31, 2024
Income Tax Disclosure [Abstract]  
Income Taxes

9. Income Taxes

The components of net loss before income taxes consisted of the following (in thousands):

 

 

Year Ended December 31,

 

 

2024

 

 

2023

 

United States

$

(30,905

)

 

$

(31,476

)

International

 

(4,573

)

 

 

-

 

Net loss before taxes

$

(35,478

)

 

$

(31,476

)

 

For the years ended December 31, 2024 and 2023, the Company did not record a current or deferred income tax expense or benefit due to a valuation allowance position.

The benefit for income taxes differs from the amount of income tax determined by applying the applicable U.S. statutory federal income tax rate to pretax income as a result of the following differences (in thousands):

 

 

 

Year Ended December 31,

 

 

 

2024

 

 

2023

 

Income tax expense (benefit) at federal statutory rate

 

$

(7,450

)

 

21.0

%

 

$

(6,610

)

 

21.0

%

Increase/(decrease) in tax resulting from:

 

 

 

 

 

 

 

 

 

 

State income taxes

 

 

—

 

 

0.0

%

 

 

—

 

 

0.0

%

Change in valuation allowance

 

 

6,441

 

 

-18.2

%

 

 

6,541

 

 

-20.8

%

Nondeductible R&D Expenses

 

 

921

 

 

-2.6

%

 

 

—

 

 

0.0

%

Stock-based compensation expense

 

 

90

 

 

-0.2

%

 

 

60

 

 

-0.2

%

Other

 

 

(2

)

 

0.0

%

 

 

9

 

 

0.0

%

Total

 

$

—

 

 

0.0

%

 

$

—

 

 

0.0

%

 

The primary components of temporary differences which give rise to the Company’s net deferred tax assets and liabilities as of December 31, 2024 and 2023 are as follows (in thousands):

 

 

Year Ended December 31,

 

 

2024

 

 

2023

 

Deferred tax assets:

 

 

 

 

 

Accrual to cash adjustment

$

499

 

 

$

433

 

Start-up costs

 

7,190

 

 

 

4,508

 

Patent costs

 

40

 

 

 

40

 

Stock-based compensation expense

 

1,432

 

 

 

1,627

 

Net operating loss

 

7,638

 

 

 

6,515

 

Capitalized R&D

 

6,813

 

 

 

4,940

 

Other deferred taxes

 

21

 

 

 

11

 

R&D credits

 

868

 

 

 

528

 

Total noncurrent deferred tax assets

 

24,501

 

 

 

18,602

 

Valuation Allowance

 

(24,501

)

 

 

(18,602

)

Net deferred tax assets after valuation allowance

$

—

 

 

$

—

 

 

Beginning January 1, 2022, the Tax Cuts and Jobs Act (the "Tax Act”) eliminated the option to deduct research and development expenditures in the current year and requires taxpayers to capitalize such expenses pursuant to Internal Revenue Code (“IRC”) Section 174. The capitalized expenses are amortized over a 5-year period for domestic expenses and a 15-year period for foreign expenses. As a result of this provision of the Tax Act, deferred tax assets related to capitalized research expenses increased by $1.9 million during the year ended December 31, 2024.

 

The Company has evaluated the positive and negative evidence bearing upon the realizability of its deferred tax assets. Based upon the Company’s history of operating losses, the Company has concluded that it is more likely than not that the benefit of its deferred tax assets will not be realized. Accordingly, the Company has provided a full valuation allowance for deferred tax assets as of

December 31, 2024 and 2023. During 2024 and 2023, the valuation allowance increased by $5.9 million and $6.4 million, respectively.

 

As of December 31, 2024, the Company has federal and California research and development tax credit carryforwards of $752 thousand and $617 thousand, respectively. The federal research and development tax credits begin to expire in 2041 unless previously utilized. The California credits do not expire.

 

Net operating losses and tax credit carryforwards as of December 31, 2024 are as follows (in thousands):

 

 

 

Amount

 

 

Expiration Years

Net operating losses, federal (Post December 31, 2017)

 

$

32,229

 

 

Do Not Expire

Net operating losses, federal (Pre January 1, 2018)

 

$

11

 

 

2037

Net operating losses, state

 

$

11,602

 

 

2037

Net operating losses, foreign

 

$

192

 

 

Indefinite

Tax credits, federal

 

$

752

 

 

2041

Tax credits, state

 

$

617

 

 

Indefinite

 

The Company is subject to taxation in the U.S. and California. As of December 31, 2024, Tocagen’s tax years beginning 2007 to date are subject to examination by federal and California taxing authorities due to the carry forward of unutilized net operating losses and research and development tax credits. To the extent the Company has tax attribute carryforwards, the tax years in which the attribute was generated may still be adjusted upon examination by the Internal Revenue Service or state tax authorities to the extent utilized in a future period.

 

Pursuant to Internal Revenue Code (IRC) Sections 382 and 383, annual use of a company’s net operating loss and tax credit carryforwards may be limited if there is a cumulative change in ownership of greater than 50% (by value) within a three-year period. The amount of the annual limitation is determined based on the value of the Company immediately prior to the ownership change. Subsequent ownership changes may further affect the limitation in future years. The Company has completed several equity offerings since its inception which may have resulted in a change in control as defined by Sections 382 and 383 of the IRC, or could result in a change in control in the future. The Company has not completed an IRC Section 382 and 383 analysis regarding the limitation of net operating loss and research and development credit carryforwards. Upon completion of such an analysis, there may be either increases or decreases to the reported amount of the deferred tax assets for net operating losses and federal and California research and development credits. Any change in the amount of the deferred tax assets would have a corresponding change in the valuation allowance, and therefore is not expected to impact the Company’s effective tax rate.

 

The Company recognizes a tax benefit from an uncertain tax position when it is more likely than not that the position will be sustained upon examination, including resolutions of any appeals or litigation processes. Income tax positions must meet a more likely than not recognition at the effective date to be recognized.

 

A reconciliation of the beginning and ending amount of unrecognized tax benefits for 2024 and 2023 is as following (in thousands):

 

 

Year Ended December 31,

 

 

2024

 

 

2023

 

Beginning Balance

$

251

 

 

$

157

 

Additions based on tax positions related to the current year

$

160

 

 

$

94

 

Ending Balance

$

411

 

 

$

251

 

 

The Company’s policy is to record interest and penalties relating to uncertain tax positions as a component of income tax expense should the Company believe there is an uncertain tax position liability. As of December 31, 2024, and 2023, there was no accrued interest or penalties for uncertain positions. Due to the existence of the valuation allowance, future changes in the Company’s unrecognized tax benefits will not impact the Company’s effective tax rate.