Annual report pursuant to Section 13 and 15(d)

Income Taxes

v3.6.0.2
Income Taxes
12 Months Ended
Dec. 31, 2016
Income Tax Disclosure [Abstract]  
Income Taxes

NOTE 10 – INCOME TAXES

The benefit for income taxes consisted of the following (in thousands):  

 

 

 

2016

 

 

2015

 

 

2014

 

Benefit for income taxes:

 

 

 

 

 

 

 

 

 

 

 

 

Current:

 

 

 

 

 

 

 

 

 

 

 

 

Federal

 

$

 

 

$

 

 

$

 

State

 

 

 

 

 

 

 

 

 

Subtotal

 

 

 

 

 

 

 

 

 

Deferred:

 

 

 

 

 

 

 

 

 

 

 

 

Federal

 

$

(12

)

 

$

(5,563

)

 

$

 

State

 

 

(2

)

 

 

(159

)

 

 

 

Subtotal

 

 

(14

)

 

 

(5,722

)

 

 

 

Income tax benefit

 

$

(14

)

 

$

(5,722

)

 

$

 

 

The difference between the benefit for income taxes and the amount computed by applying the federal statutory income tax rate (34%) to loss before taxes is explained as follows (in thousands):

 

 

 

Year ended December 31,

 

 

 

2016

 

 

2015

 

 

2014

 

Tax at federal statutory rate

 

$

(24,369

)

 

$

(15,785

)

 

$

(8,982

)

State taxes, net

 

 

(747

)

 

 

4,840

 

 

 

(822

)

Non-deductible stock compensation

 

 

2,781

 

 

 

1,085

 

 

 

(148

)

Research credits

 

 

(1,424

)

 

 

(814

)

 

 

(320

)

Change in valuation allowance

 

 

23,773

 

 

 

5,043

 

 

 

9,778

 

Other

 

 

(28

)

 

 

(91

)

 

 

494

 

Income tax benefit

 

$

(14

)

 

$

(5,722

)

 

$

 

 

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,

 

 

 

2016

 

 

2015

 

Assets:

 

 

 

 

 

 

 

 

Deferred tax assets:

 

 

 

 

 

 

 

 

Net operating loss carryforwards

 

$

114,222

 

 

$

93,824

 

Research and development tax credit carryforwards

 

 

12,518

 

 

 

9,979

 

Stock-based compensation

 

 

8,565

 

 

 

6,853

 

Deferred revenue

 

 

2,918

 

 

 

4,479

 

Other

 

 

3,492

 

 

 

2,807

 

Total deferred tax asset

 

 

141,715

 

 

 

117,942

 

Valuation allowance

 

 

141,715

 

 

 

117,942

 

Net deferred tax assets

 

$

 

 

$

 

Liabilities:

 

 

 

 

 

 

 

 

Net deferred tax liability related to intangible assets

 

 

 

 

 

 

Total deferred tax liability

 

$

 

 

$

 

 

In October 2013, we acquired Ceregene.  The Company recorded goodwill and intangible assets as part of accounting for the acquisition of Ceregene. 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. In 2015, the Company impaired these intangible assets and reversed the corresponding deferred tax liability.

 

In 2015 the Company received a $14.5 million Section 16(b) disgorgement settlement that was recognized as additional paid-in capital. The disgorgement settlement was recognized net of taxes of $9.5 million, which resulted in an income tax benefit of $5.0 million being recognized in the accompanying consolidated statements of operations for the year ended December 31, 2015.

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. We regularly assess the need for a valuation allowance against our deferred income tax assets by considering both positive and negative evidence related to whether it is more likely than not that our deferred income tax assets will be realized. In evaluating our ability to recover our deferred income tax assets within the jurisdiction from which they arise, we consider 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 fully offset by a valuation allowance. The valuation allowance increased by $23.8 million, $5.0 million and $9.8 million for the years ended December 31, 2016, 2015 and 2014, respectively. As of December 31, 2016, Sangamo had net operating loss carryforwards for federal and state income tax purposes of approximately $412 million and $177 million, respectively. If not utilized, the net federal and state operating loss carryforwards will start to expire in 2018 and 2016, respectively. The Company also has federal and state research tax credit carryforwards of $9.7 million and $10.5 million, respectively. The federal research credits will begin 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.

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 a UK income tax return, and the tax years from 2008 and thereafter remain open 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, 2016, 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,

 

 

 

2016

 

 

2015

 

 

2014

 

Beginning balance

 

$

8,330

 

 

$

3,438

 

 

$

3,182

 

Additions based on tax positions related to the current year

 

 

1,023

 

 

 

557

 

 

 

228

 

Additions for tax positions of prior years

 

 

27

 

 

 

4,335

 

 

 

28

 

Reductions for tax positions of prior years

 

 

(4,335

)

 

 

 

 

 

 

Ending balance

 

$

5,045

 

 

$

8,330

 

 

$

3,438