Achieve Life Sciences, Inc. Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

Income Tax (Tables)

Income Tax (Tables)

12 Months Ended

Dec. 31, 2019

Reconciliation of Income Tax Attributable to Operations

Income tax expense consisted of the following (in thousands):

(In thousands)	2019			2018			2017
Income taxes at statutory rates (at a rate of 21% for 2019 and 2018 and 34% for 2017)	$	(3,490	)	$	(2,664	)	$	(4,636	)
Expenses not deducted for tax purposes		116			70			(174	)
Effect of tax rate changes on deferred tax assets and liabilities		(13	)		(1,416	)		3,158
Rate differential on foreign earnings		(296	)		(165	)		314
Reduction in benefit of operating losses		—			—			—
Reduction in the benefit of other tax attributes		—			—			—
Investment tax credits		(84	)		—			—
Change in valuation allowance		(3,246	)		4,182			(1,683	)
Book to tax return adjustments		(75	)		20			—
Unrecognized tax benefits		7,192			—			—
Reversal of previously accrued taxes due to IRS reassessment		(221	)
Other		(104	)		(27	)		(14	)
Income tax expense	$	(221	)		—		$	(3,035	)

Summary of Investment Tax Credits and Non-Capital Losses and Net Operating Losses

The investment tax credits and non-capital losses and net operating losses for income tax purposes expire as follows (in thousands):

			US		Canadian			UK
	Investment		Net Operating		Non-capital			Net Operating
	Tax Credits		Losses		Losses			Losses
2022		1		—		—			—
2023		—		—		—			—
2024		—		—		—			—
2025		244		—		—			—
2026		71		—		7,660			—
2027		—		—		6,082			—
2028		111		—		7,256			—
2029		317		9		1,712			—
2030		346		5		6,770			—
2031		486		17		12,354			36
2032		363		43		17,278			42
2033		193		2		23,240			54
2034		215		3		17,077			46
2035		122		654		3,112			27
2036		79		611		5,361			58
2037		22		8,763		(5,295	)		493
2038		202		7,207		(3,179	)		887
2039		201		7,977		4,785			1,048
	$	2,973	$	25,291	$	104,213		$	2,691

Significant Components of Company's Deferred Tax Assets and Deferred Tax Liabilities

Significant components of our deferred tax assets as of December 31 are shown below (in thousands):

	2019			2018
Deferred tax assets
Tax basis in excess of book value of assets	$	891		$	886
Non-capital loss carryforwards		33,166			37,332
Research and development deductions and credits		6,256			5,707
Stock options		315			171
§59(e) Capitalized R&D expenses		3,501			3,334
Accrued expenses		79			—
Other		181			170
Total deferred tax assets		44,389			47,600
Valuation allowance		(43,875	)		(47,123	)
Net deferred assets		514			477
Deferred tax liabilities
Intangible assets		—			(474	)
Right of use assets		(79	)		—
Other		(435	)		(3	)
Total deferred tax liabilities		(514	)		(477	)

Net deferred tax assets		—			—

Reconciliation of Unrecognized Tax Benefits of Uncertain Tax Positions

A reconciliation of the unrecognized tax benefits of uncertain tax positions for the year ended December 31, 2019 is as follows (in thousands):

	Year ended
	December 31,
	2019		2018			2017
Balance at January 1	$	717	$	715		$	715
Additions based on tax positions related to the current year		7		6			—
Deductions based on tax positions related to prior years		—		(4	)		—
Balance at December 31	$	724	$	717		$	715

Summary of Years Open to Examination Under Different Jurisdiction

We are subject to taxes in Canada, the UK and the U.S. until the applicable statute of limitations expires. Tax audits by their very nature are often complex and can require several years to complete.

Tax		Years open to
Jurisdiction		examination
Canada		2011 to 2019
United Kingdom		2012 to 2019
US		2016 to 2019