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Income Taxes | 12 Months Ended
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Dec. 31, 2018
Income Taxes [Abstract] |
Income Taxes | 5. Income Taxes Loss before income tax (benefit) expense is comprised of (in thousands):
|  | Year Ended December 31, |
|  | 2018 |  |  | 2017 |  |  | 2016 |
United States |  | $ | (69,576 | ) |  | $ | (5,289 | ) |  | $ | (57,466 | )
Foreign |  |  | (6,580 | ) |  |  | (11,474 | ) |  |  | — |
Loss before income tax (benefit) expense |  | $ | (76,156 | ) |  | $ | (16,763 | ) |  | $ | (57,466 | )
Our income tax (benefit) expense was as follows (in thousands):
|  | Year Ended December 31, |
|  | 2018 |  |  | 2017 |  |  | 2016 |
Current: |  |  |  |  |  |  |  |  |
Federal |  | $ | 438 |  |  | $ | (7,460 | ) |  | $ | 1,067 |
State |  |  | (1,442 | ) |  |  | 1,246 |  |  |  | 1,867 |
Foreign |  |  | 374 |  |  |  | 234 |  |  |  | — |
Total current income tax (benefit) expense |  |  | (630 | ) |  |  | (5,980 | ) |  |  | 2,934 |
Deferred: |  |  |  |  |  |  |  |  |  |  |  |
Federal |  |  | (290,511 | ) |  |  | — |  |  |  | — |
State |  |  | — |  |  |  | — |  |  |  | — |
Total deferred income tax (benefit) expense |  |  | (290,511 | ) |  |  | — |  |  |  | — |
Total income tax (benefit) expense |  | $ | (291,141 | ) |  | $ | (5,980 | ) |  | $ | 2,934 |
The reconciliation between our effective tax rate on loss from continuing operations and the statutory U.S. tax rate is as follows (in thousands):
|  | Year Ended December 31, |
|  | 2018 |  |  | 2017 |  |  | 2016 |
Pre-tax loss |  | $ | (76,156 | ) |  |  |  |  | $ | (16,763 | ) |  |  |  |  | $ | (57,466 | ) |  |  |
Statutory rate |  |  | (15,993 | ) |  |  | 21.0 | % |  |  | (5,867 | ) |  |  | 35.0 | % |  |  | (20,113 | ) |  |  | 35.0 | %
State income tax net of federal benefit |  |  | (2,202 | ) |  |  | 2.9 | % |  |  | 820 |  |  |  | (4.9 | )% |  |  | 95 |  |  |  | (0.2 | )%
Foreign |  |  | 1,735 |  |  |  | (2.3 | )% |  |  | 4,299 |  |  |  | (25.6 | )% |  |  | — |  |  |  | 0.0 | %
Net change in valuation allowance |  |  | (277,924 | ) |  |  | 364.9 | % |  |  | (86,296 | ) |  |  | 514.8 | % |  |  | 46,402 |  |  |  | (80.7 | )%
Net operating loss expiration |  |  | 8,864 |  |  |  | (11.6 | )% |  |  | 3,987 |  |  |  | (23.8 | )% |  |  | — |  |  |  | 0.0 | %
TEGSEDI licensing gain |  |  | 59,583 |  |  |  | (78.2 | )% |  |  | — |  |  |  | 0.0 | % |  |  | — |  |  |  | 0.0 | %
Tax credits |  |  | (73,362 | ) |  |  | 96.3 | % |  |  | (32,769 | ) |  |  | 195.5 | % |  |  | (26,954 | ) |  |  | 46.9 | %
Deferred tax true-up |  |  | 9,947 |  |  |  | (13.1 | )% |  |  | 4,848 |  |  |  | (28.9 | )% |  |  | 2,591 |  |  |  | (4.5 | )%
Tax rate change |  |  | (1,808 | ) |  |  | 2.4 | % |  |  | 114,832 |  |  |  | (685.0 | )% |  |  | — |  |  |  | 0.0 | %
Non-deductible compensation |  |  | 3,154 |  |  |  | (4.1 | )% |  |  | 1,575 |  |  |  | (9.4 | )% |  |  | 825 |  |  |  | (1.4 | )%
Other non-deductible items |  |  | (569 | ) |  |  | 0.7 | % |  |  | 2,548 |  |  |  | (15.2 | )% |  |  | 324 |  |  |  | (0.6 | )%
Akcea deconsolidation adjustment at IPO |  |  | — |  |  |  | 0.0 | % |  |  | 469 |  |  |  | (2.8 | )% |  |  | — |  |  |  | 0.0 | %
Stock-based compensation |  |  | (4,199 | ) |  |  | 5.5 | % |  |  | (14,337 | ) |  |  | 85.5 | % |  |  | — |  |  |  | 0.0 | %
Other |  |  | 1,633 |  |  |  | (2.1 | )% |  |  | (89 | ) |  |  | 0.5 | % |  |  | (236 | ) |  |  | 0.4 | %
Effective rate |  | $ | (291,141 | ) |  |  | 382.3 | % |  | $ | (5,980 | ) |  |  | 35.7 | % |  | $ | 2,934 |  |  |  | (5.1 | )%
Significant components of our deferred tax assets and liabilities as of December 31, 2018 and 2017 are as follows (in thousands):
|  | Year Ended December 31, |
|  | 2018 |  |  | 2017 |
Deferred Tax Assets: |  |  |  |  |  |
Net operating loss carryovers |  | $ | 89,717 |  |  | $ | 153,575 |
R&D credits |  |  | 313,652 |  |  |  | 240,290 |
Deferred revenue |  |  | 27,381 |  |  |  | 54,302 |
Stock-based compensation |  |  | 61,027 |  |  |  | 40,090 |
Intangible and capital assets |  |  | 49,007 |  |  |  | 672 |
Other |  |  | 8,275 |  |  |  | 12,164 |
Total deferred tax assets |  | $ | 549,059 |  |  | $ | 501,093 |
Deferred Tax Liabilities: |  |  |  |  |  |  |  |
Convertible debt |  | $ | (24,018 | ) |  | $ | (32,391 | )
Net deferred tax asset |  | $ | 525,041 |  |  | $ | 468,702 |
Valuation allowance |  |  | (234,245 | ) |  |  | (468,702 | )
Total net deferred tax assets and liabilities |  | $ | 290,796 |  |  | $ | — |
We have adjusted all prior year tax amounts to reflect the tax impact of our adoption of Topic 606. We evaluate our deferred tax assets regularly to determine whether adjustments to the valuation allowance are appropriate due to changes in facts or circumstances, such as changes in expected future pre-tax earnings, tax law, interactions with taxing authorities and developments in case law. In making this evaluation, we rely on our recent history of pre-tax earnings. Our material assumptions are our forecasts of future pre-tax earnings and the nature and timing of future deductions and income represented by the deferred tax assets and liabilities, all of which involve the exercise of significant judgment. Although we believe our estimates are reasonable, we are required to use significant judgment in determining the appropriate amount of valuation allowance recorded against our deferred tax assets. We have historically recorded a valuation allowance against all our net deferred tax assets due to cumulative financial statement losses. However, in the fourth quarter of 2018, we reversed the valuation allowance previously recorded against Ionis’ stand-alone U.S. federal net deferred tax assets, resulting in a one-time non-cash tax benefit of $332.1 million. Given our current stand-alone Ionis pre-tax income, and assuming we maintain this current level of Ionis stand-alone pre-tax income, we expect to generate income before taxes in the U.S. in future periods at a level that would result in us fully utilizing our U.S. federal net operating loss carryforwards and most of our Research and Development and Orphan Drug tax credit carryforwards over the next three years. We continue to maintain a full valuation allowance of $234.2 million against all of Akcea’s net deferred tax assets and the net state deferred tax assets of Ionis at December 31, 2018 due to uncertainties related to our ability to realize the tax benefits associated with these assets. Our valuation allowance decreased by $234.5 million from December 31, 2017 to December 31, 2018. The net decrease relates primarily to the reversal of the valuation allowance previously recorded against Ionis’ stand-alone U.S. federal net deferred tax assets, offset by current year utilization of a portion of our net operating loss carry forwards. At December 31, 2018, we had federal and state, primarily California, tax net operating loss carryforwards of $284.6 million and $808.7 million, respectively. Our federal tax loss carryforwards will begin to expire in 2033, unless we use them before then. Our California loss carryforwards continued to expire in 2018. At December 31, 2018, we also had federal and California research and development tax credit carryforwards of $288.9 million and $68.4 million, respectively. Our Federal research and development tax credit carryforwards began to expire in 2018. Our California research and development tax credit carryforwards are available indefinitely. Utilization of the net operating loss and tax credit carryforwards may be subject to an annual limitation due to the ownership change limitations provided by the Internal Revenue Code of 1986, as amended, and similar state provisions. The annual limitation may result in the expiration of net operating losses and credits before utilization. On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act of 2017, or the Tax Act. The Tax Act made broad and complex changes to the U.S. tax code, including, but not limited to, reducing the U.S. federal corporate income tax rate to 21 percent, imposing a mandatory one-time transition tax on certain unrepatriated earnings of foreign subsidiaries and eliminating the corporate alternative minimum tax, or AMT, and changing how existing AMT credits can be realized. We were required to recognize the tax effect of the tax law changes the year of enactment. In order to calculate these effects, we were required to determine the transition tax amount, remeasure our U.S. deferred tax assets and liabilities, and consider the impact to our AMT tax credit carryforwards. For the year ended December 31, 2017, we recorded provisional amounts in accordance with that guidance where it was possible for us to make reasonable estimates of the effects of the Tax Act. We evaluated the decrease in our corporate tax rate and recorded a provisional, one-time tax expense of $107.3 million at December 31, 2017. We fully offset our tax effect by a decrease in our valuation allowance which resulted in no net tax effect in 2017. During the fourth quarter of 2018, we completed our accounting for all aspects of the Tax Act. We did not identify material changes from our 2017 provisional analysis. We analyze filing positions in all U.S. federal, state and foreign jurisdictions where we file income tax returns, and all open tax years in these jurisdictions to determine if we have any uncertain tax positions on any of our income tax returns. We recognize the impact of an uncertain tax position on an income tax return at the largest amount that the relevant taxing authority is more-likely-than not to sustain upon audit. We do not recognize uncertain income tax positions if they have less than 50 percent likelihood of the applicable tax authority sustaining our position. The following table summarizes our gross unrecognized tax benefits (in thousands):
|  | Years Ended December 31, |
|  | 2018 |  |  | 2017 |  |  | 2016 |
Beginning balance of unrecognized tax benefits |  | $ | 78,014 |  |  | $ | 66,999 |  |  | $ | 51,257 |
Settlement of prior period tax positions |  |  | — |  |  |  | — |  |  |  | (4,033 | )
Decrease for prior period tax positions |  |  | (12,814 | ) |  |  | — |  |  |  | — |
Increase for prior period tax positions |  |  | — |  |  |  | 1,520 |  |  |  | 7,928 |
Increase for current period tax positions |  |  | 3,101 |  |  |  | 9,495 |  |  |  | 11,847 |
Ending balance of unrecognized tax benefits |  | $ | 68,301 |  |  | $ | 78,014 |  |  | $ | 66,999 |
Included in the balance of unrecognized tax benefits at December 31, 2018, is $55.5 million that could impact our effective tax rate, subject to our remaining valuation allowance. We do not foresee any material changes to our gross unrecognized tax benefits within the next twelve months. We recognize interest and/or penalties related to income tax matters in income tax expense. We did not recognize any accrued interest and penalties related to gross unrecognized tax benefits during the year ended December 31, 2018. We are subject to taxation in the U.S. and various state and foreign jurisdictions. Our tax years for 1999 through 2018 are subject to examination by the U.S. federal, state and foreign tax authorities. We do not provide for a U.S. income tax liability and foreign withholding taxes on undistributed foreign earnings of our foreign subsidiaries as we consider those earnings to be permanently reinvested. It is not practicable for us to calculate the amount of unrecognized deferred tax liabilities associated with these earnings. We are subject to periodic audits by domestic and foreign tax authorities; however, we are not aware of any audits at this time. We believe that we have appropriate support for the income tax positions taken on our tax returns and our accruals for tax liabilities are adequate for all open audit years. Our conclusions are based on an assessment of many factors, including past experience and interpretations of tax law applied to the facts of each matter.

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- Definition 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. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 + Details
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