|12 Months Ended|
Dec. 31, 2020
|Income Tax Disclosure [Abstract]|
11. Income Taxes
The components of the provision for income taxes for the years ended December 31, 2020 and 2019 are as follows:
At December 31, 2020 and 2019, the Company had temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and their respective income tax bases, as measured by enacted state and federal tax rates, as follows:
The following is a reconciliation of tax computed at the statutory federal rate to the income tax benefit in the statements of operations for the years ended December 31, 2020 and 2019:
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not 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, projected future taxable income, and tax planning strategies in making this assessment. Based upon the levels of historical taxable income and projections of future taxable income over which the deferred tax assets are deductible, the Company believes that it is more likely than not that it will not be able to realize the benefits of some of these deductible differences.
Accordingly, a valuation allowance of $36,580,962 and $30,098,339 has been provided in the accompanying consolidated financial statements as of December 31, 2020 and 2019, respectively. The 2020 net change in valuation allowance related to deferred tax assets was an increase of $6,482,623 primarily relating to net operating loss carryforwards. The 2019 net change in valuation allowance related to deferred tax assets was an increase of $3,796,048 primarily relating to net operating loss carryforwards and a change in the effective tax rate.
At December 31, 2020, the Company has federal and state tax net operating loss carryforwards of approximately $142,893,000. Federal and state of Florida tax net operating loss carryforwards generated prior to December 31, 2017 will expire through 2037. Federal and state of Florida tax net operating loss carryforwards generated subsequent to December 31, 2017, do not expire and are no longer subject to taxable income limitation pursuant to the Coronavirus Aid, Relief, and Economic Security Act, passed on March 27, 2020. State of Pennsylvania tax net operating loss carryforwards will expire through 2036. The Company also has federal research and development tax credit carryforwards of approximately $4,043,000. The federal tax credit carryforward will expire beginning in 2021 and continuing through 2040, unless previously utilized.
Utilization of net operating loss carryforwards and research and development credit carryforwards may be subject to a substantial annual limitation due to ownership change limitations that may have occurred or, could occur in the future in accordance with Section 382 of the Internal Revenue Code of 1986 (“IRC Section 382”) and with Section 383 of the Internal Revenue Code of 1986, as well as similar state provisions. These ownership changes may limit the amount of net operating loss carryforwards and research and development credit carryforwards that can be utilized annually to offset future taxable income and taxes, respectively. In general, an ownership change, as defined by IRC Section 382, results from transactions increasing the ownership of certain stockholders or public groups in the stock of a corporation by more than 50 percentage points over a three-year period. The Company has completed several financings since its inception which may result in a change in ownership as defined by IRC Section 382, or could result in a change in control in the future.
For the years ended December 31, 2020 and 2019, the Company incurred $1,129,848 and $503,944, respectively, of additional unrecognized tax benefits that related to research and development credits. The entire amount of this unrecognized tax benefit, if recognized, would result in an increase to the deferred tax asset valuation allowance, and would not have an impact on the effective tax rate.
The Company files its income tax returns in the U.S. federal jurisdiction and in Florida and Pennsylvania. With few exceptions, the Company is no longer subject to federal or state income tax examinations by tax authorities for years before 2014.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
Included in the balance at December 31, 2020 and 2019, are $4,042,705 and $2,804,721, respectively, of tax positions for which there is uncertainty about the validity of certain credits. The disallowance of the credits would impact the amount of gross deferred tax assets reflected in the accompanying footnotes.
During the years 2020 and 2019 the Company did not recognize any interest and penalties. Due to the potential offset of the Company’s operating loss carryforward for any future activity, the amount attributed to interest and penalties would be immaterial.
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.
Reference 1: http://www.xbrl.org/2003/role/disclosureRef