Note 6 - Income Taxes
|9 Months Ended|
Sep. 30, 2020
|Notes to Financial Statements|
|Income Tax Disclosure [Text Block]||
6. Income Taxes
Deferred income tax assets and liabilities are determined based upon differences between the financial reporting and tax basis of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company does not expect to pay any significant federal, state, or foreign income taxes in 2020 as a result of the losses recorded during the three and nine months ended September 30, 2020 and the additional losses expected for the remainder of 2020 and cumulative net operating loss carryforwards. Accounting standards require the consideration of a valuation allowance for deferred tax assets if it is “more likely than not” that some component or all of the benefits of deferred tax assets will not be realized. As a result, as of September 30, 2020, the Company maintained a full valuation allowance for all deferred tax assets.
The Company recorded an income tax provision of zero and $229,000 for the three and nine months ended September 30, 2020 and 2019, respectively. The effective tax rate for the three months ended September 30, 2020 and 2019 is 0% and 5.2%, respectively. The effective tax rate for the nine months ended September 30, 2020 and 2019 is 0% and 1.4%, respectively. The total income tax benefit for the nine months ended September 30, 2019 was comprised of research and development tax credits recoverable, associated with Moleculin Australia Pty. Ltd, (MAPL), a wholly-owned subsidiary formed in June 2018, related to preclinical development in Australia. There were no research and development tax credits for the nine months ended September 30, 2020. The income tax rates vary from the federal and state statutory rates primarily due to the change in fair value of the stock warrants and valuation allowances on the Company’s deferred tax assets. The Company estimates its annual effective tax rate at the end of each quarterly period. Jurisdictions with a projected loss for the year where no tax benefit can be recognized due to the valuation allowance could result in a higher or lower effective tax rate during a particular quarter depending on the mix and timing of actual earnings versus annual projections.
On March 27, 2020, Congress enacted the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) to provide certain relief as a result of the COVID-19 pandemic. The CARES Act, among other things, includes provisions relating to net operating loss carry back periods, alternative minimum tax credit refunds, and modification to the net interest deduction limitations. The CARES Act did not have a material impact on the Company's condensed consolidated financial statements for the nine months ended September 30, 2020. The Company continues to monitor any effects that may result from the CARES Act.
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://www.xbrl.org/2003/role/disclosureRef