v3.23.2
Income Taxes
 12 Months Ended
Dec. 31, 2022
Income Tax Disclosure [Abstract]  
Income Taxes Income Taxes
The Company’s income tax provision was computed based on the federal statutory rate and the state statutory rates, net of the related federal benefit. There was no current or deferred income tax expense or benefit for the years ended December 31, 2022 and 2021 due to the Company’s net losses and increases in its valuation allowance against its deferred tax assets.
 
Our effective income tax rate differs from the statutory federal income tax rate as follows for the years ended December 31, 2022, 2021 and 2020:
 Year ended December 31,
 202220212020
Federal tax at statutory rate21.0 %21.0 %21.0 %
State and local tax at statutory rate2.5 3.0 3.1 
Research and development tax credits— — 0.1 
Change in valuation allowance(19.3)(22.7)(21.5)
Other permanent differences(1.0)(1.0)(0.4)
Stock option cancellations(2.5)— — 
Stock option shortfalls(1.6)— — 
Effect of rate changes0.6 0.3 0.7 
Provision to return adjustment0.3 0.3 (1.5)
Prior period adjustment to State NOL DTA— — (1.5)
Other— (0.9)— 
Effective tax rate— %— %— %
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. When realization of the deferred tax asset is more likely than not to occur, the benefit related to the deductible temporary differences attributable to operations is recognized as a reduction of income tax expense. A valuation allowance is recorded against deferred tax assets if it is more likely than not that some or all of the deferred tax assets will not be realized. The Company cannot be certain that future taxable income will be sufficient to realize its deferred tax assets. Accordingly, the Company has recorded a valuation allowance against the Company’s otherwise recognizable net deferred tax assets. The Company continues to maintain the underlying tax benefits to offset future taxable income and to monitor the need for a valuation allowance based on the profitability of its future operations. The valuation allowance increased by approximately $18.2 million and $64.2 million during the years ended December 31, 2022 and 2021, respectively. Significant components of the Company’s deferred tax assets and liabilities are as follows (in thousands):
 December 31,
 20222021
Deferred tax assets:  
Accrued expenses and other current liabilities$2,924 $3,306 
Deferred revenue1,250 9,725 
Sale of royalty13,291 12,037 
Stock-based compensation 8,317 9,194 
Research and development credits4,827 5,034 
Capitalized research and development costs13,825 — 
Other non-current liabilities2,754 20,424 
Net operating loss carryforward288,842 287,194 
ASC 842 lease liability8,032 9,096 
Inventories reserve17,411 10,281 
Refund liability9,478 — 
Other13,159 10,483 
Total deferred tax assets384,110 376,774 
Less: valuation allowance(360,621)(342,408)
Total deferred tax assets, net of valuation allowance23,489 34,366 
Deferred tax liabilities:
Intangible asset(15,981)(25,598)
ASC 842 ROU asset(7,426)(8,486)
Other(82)(282)
Total deferred tax liabilities(23,489)(34,366)
Net deferred tax liability$— $— 
 
At December 31, 2022 and 2021, the Company had approximately $0.1 million (after amortization of $1.8 million) and $0.3 million (after amortization of $1.7 million), respectively, of start-up expenses capitalized for income tax purposes with amortization available to offset future federal, state and local income tax.
As of December 31, 2022 and 2021, the Company had approximately $1,230.7 million and $1,224.5 million, respectively, of federal NOL carry-forwards which expire through 2037. Included in the $1,230.7 million of federal NOLs are losses of $648.7 million that will carry forward indefinitely as a result of the Tax Cuts and Jobs Act. Additionally, at December 31, 2022 and 2021, the Company had approximately $1,808.5 million and $1,794.2 million, respectively, of state NOL carry-forwards, which expire through 2042. The Company also has approximately $2.5 million of federal research and development tax credit carryforwards which expire through 2040 and $2.9 million of state research and development tax credit carryforwards which expire through 2036.
Under the provisions of the Internal Revenue Code ("IRC"), the net operating losses and tax credit carry-forwards are subject to review and possible adjustment by the Internal Revenue Service and state tax authorities. Net operating losses and tax credit carryforwards may become subject to an annual limitation under Internal Revenue Code 382 and 383 if there is more than a 50% change in ownership of the stockholders that own 5% or more of the Company’s outstanding stock over a three-year period. The Company completed an evaluation of its ownership changes and concluded that an ownership change did occur on December 12, 2018 for both Akebia and Keryx in connection with the Merger. As a consequence of this ownership change, the Company’s NOLs and tax credit carryforwards allocable to the tax periods preceding the ownership change became subject to limitation under Section 382 of the IRC. The Company reduced its associated deferred tax assets by $44.9 million as a result of the limitation.
The Company files income tax returns in the U.S. federal and various state and local jurisdictions. For federal and state income tax purposes, the 2021, 2020 and 2019 tax years remain open for examination under the normal three-year statute of limitations. The statute of limitations for income tax audits in the United States will commence upon utilization of net operating losses and will expire three years from the filing of the tax return the loss was utilized on.

A reconciliation of the beginning and ending amounts of unrecognized tax benefits for the years ending December 31, 2022 and 2021 are as follows (in thousands):

Balance at December 31, 2020$2,352 
Additions based on tax positions of current years161 
Balance at December 31, 2021$2,513 
Additions based on tax positions of current years184 
Balance at December 31, 2022$2,697 
The Company does not believe there will be a material change in its unrecognized tax positions over the next twelve months. All of the unrecognized tax benefits, if recognized, would be offset by the valuation allowance.