|12 Months Ended|
Dec. 31, 2020
12. INCOME TAXES
For the years ended December 31, 2020, 2019 and 2018, our loss before income taxes was from domestic operations and we did not record provision for income taxes other than minimum state taxes due to our net loss.
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 our deferred tax assets are as follows (in thousands):
The reconciliation of the statutory federal income tax rate to the effective tax rate was as follows:
In general, under Section 382 of the Internal Revenue Code (Section 382), a corporation that undergoes an ownership change is subject to limitations on its ability to utilize its pre-change net operating loss carryovers and tax credits to offset future taxable income. Our existing net operating loss carryforwards and tax credits are subject to limitations arising from ownership changes which occurred in previous periods. We finalized our analysis of potential ownership changes and concluded our Section 382 owner shift analysis during the year ended December 31, 2012. We have updated our net operating loss carryforwards to reflect the results of the Section 382 owner shift analysis as of December 31, 2020. We did not experience any significant changes in ownership in 2020, 2019, and 2018. Future changes in our stock ownership, some of which are outside of our control, could result in an ownership change under Section 382 and result in additional limitations.
As of December 31, 2020, we had net operating loss carryforwards for federal income tax purposes of approximately $1.0 billion. Of the federal net operating loss carryforward, $891.8 million, which expire beginning in the year 2021 and the remaining net operating loss carryforwards can be carried forward indefinitely, subject to annual
limitation of 80% of taxable income. We also had state net operating loss carryforwards of approximately $385.9 million, which expire beginning in the year 2028.
We have general business credits of approximately $48.0 million, which will expire beginning in 2023, if not utilized, and is comprised of research and development credits and orphan drug credits. We also have state research and development tax credits of approximately $30.7 million, which have no expiration date.
Realization of deferred tax assets is dependent upon future earnings, if any, the timing and amount of which are uncertain. Accordingly, the net deferred tax assets have been fully offset by a valuation allowance. The valuation allowance increased by approximately $4.1 million and $21.6 million for the years ended December 31, 2020 and 2019, respectively.
The following table summarizes the activity related to our gross unrecognized tax benefits (in thousands):
During the years ended December 2020 and December 31, 2019, the amount of unrecognized tax benefits increased $543,000 and $509,000, respectively, due to additional research and development and orphan drug credits generated during those years. As of December 31, 2020 and 2019, the total amount of unrecognized tax benefit was $8.0 million and $7.2 million, respectively. The reversal of the uncertain tax benefits would not affect the Company’s effective tax rate to the extent that we continue to maintain a full valuation allowance against our deferred tax assets.
We are subject to federal income tax and various state taxes. Because of net operating loss and research credit carryovers, substantially all of our tax years remain open to examination.
Our policy is to recognize interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense. We currently havetax positions that would be subject to interest or penalties.
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://fasb.org/us-gaap/role/ref/legacyRef