REGENXBIO Inc. Income Taxes Disclosure

13. Income Taxes

Beginning in 2022, the Tax Cuts and Jobs Act of 2017 (the TCJA) eliminated the option to deduct research and development expenses currently and requires taxpayers to amortize such costs over a period of five years for expenses incurred in the United States and a period of 15 years for expenses incurred outside the United States. This provision of the TCJA resulted in deferred tax assets of $122.1 million and $107.3 million as of December 31, 2024 and 2023, respectively, related to capitalized research and development expenses, net of amounts amortized to date. There was no material impact to the Company's current or deferred tax provision or operating cash flows during the years ended December 31, 2024, 2023 and 2022 as a result of this provision of the TCJA given the Company incurred net operating losses (NOLs) during the periods and has recorded a full valuation allowance against its deferred tax assets.

The Inflation Reduction Act (the IRA) was enacted in August 2022 and contains revenue-raising provisions to include a book-income alternative minimum tax and an excise tax on stock buybacks, among other provisions. Based on the thresholds established by the IRA and a review of the Company’s transactions, the enactments of the IRA did not have an impact on the Company’s income tax provision for the years ended December 31, 2024, 2023 and 2022.

The Organization for Economic Co-operation and Development (OECD) has introduced BEPS Pillar 2 rules that impose a global minimum tax rate of 15%. Numerous countries have enacted corresponding legislation that is effective beginning January 1, 2024. These rules generally apply to multinational companies with consolidated revenue of at least €750.0 million in at least two of the four preceding fiscal years. Based on the revenue thresholds established in the BEPS Pillar 2 rules, these changes do not have an impact on the Company’s income tax provision for the year ended December 31, 2024.

The Company evaluated the positive and negative evidence bearing upon the realizability of its deferred tax assets as of December 31, 2024 and 2023. Based on the Company’s history of operating losses, and other relevant facts and circumstances, the Company concluded that it was more likely than not that the benefit of its deferred tax assets will not be realized. Accordingly, the Company provided a full valuation allowance for its net deferred tax assets as of December 31, 2024 and 2023. The valuation allowance increased by $57.9 million and $69.3 million during the years ended December 31, 2024 and 2023, respectively. The increases in the valuation allowance during the years ended December 31, 2024 and 2023 were due primarily to research and development expenses incurred during the periods which were capitalized for tax purposes, and federal and state NOLs and research and development tax credits generated during the periods.

As of December 31, 2024, the Company had U.S. federal and state research and development tax credit carryforwards of approximately $87.2 million, net of unrecognized tax benefits of $0.1 million, which may be available to reduce future income tax liabilities. The calculation of these credits requires assumptions to be made by the Company to estimate qualified research expenses.

The Company conducts formal studies to document the qualified activities and expenses used to calculate these credits, however a portion of these credits may be subject to future examinations which have not yet occurred, the results of which may result in an adjustment to the Company’s credit carryforwards. The Company accounts for uncertain tax positions in accordance with the requirements of ASC 740, and recognizes the tax benefit of tax positions to the extent that the benefit will more likely than not be realized. As of December 31, 2024 and 2023, the Company had total unrecognized tax benefits of $0.1 million and $0.1 million, respectively, which were reserved against its research and development tax credit carryforwards as uncertain tax positions. Further, a full valuation allowance has been provided against the net credit carryforwards and, if an adjustment is required upon the completion of the study, this adjustment would be offset by an adjustment to the deferred tax asset established for the research and development credit carryforwards and the valuation allowance. If these unrecognized tax benefits were to be recognized, the impact would be offset by an adjustment to the valuation allowance, resulting in no impact on the Company’s effective tax rate. The Company expects that all of its unrecognized tax benefits as of December 31, 2024 will reverse in the next 12 months due to the expiration of the associated statute of limitations.

Under the provisions of the Internal Revenue Code, the Company’s NOL and tax credit carryforwards are subject to review and possible adjustment by the Internal Revenue Service and state tax authorities. NOL and tax credit carryforwards may be subject to an annual limitation in the event of certain cumulative changes in the ownership interest of significant stockholders over a three-year period in excess of 50%, as defined under Sections 382 and 383 of the Internal Revenue Code, respectively, as well as similar state provisions. This could limit the amount of tax attributes that can be utilized annually to offset future taxable income or tax liabilities. The amount of the annual limitation is determined based on the value of the Company immediately prior to the ownership change. Subsequent ownership changes may further affect the limitation in future years. The Company has completed several financings since its inception which may have resulted in a change in control as defined by Sections 382 and 383 of the Internal Revenue Code, or could result in a change in control in the future.

The Company and its subsidiaries file income tax returns in the United States, at the federal level and in various states, and in foreign jurisdictions. The U.S. federal and state income tax returns are generally subject to tax examinations for the tax years ended December 31, 2020 onward. To the extent the Company has tax attribute carryforwards, the tax years in which the attribute was generated may still be adjusted upon examination by the Internal Revenue Service or state tax authorities to the extent utilized in a future period.