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Income Taxes | 12 Months Ended
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Dec. 31, 2019
Income Taxes [Abstract] |
Income Taxes | 5. Income Taxes Income (loss) before income taxes is comprised of (in thousands):
|  | Year Ended December 31, |
|  | 2019 |  |  | 2018 |  |  | 2017 |
United States |  | $ | 344,280 |  |  | $ | (69,576 | ) |  | $ | (5,289 | )
Foreign |  |  | 2,489 |  |  |  | (6,580 | ) |  |  | (11,474 | )
Income (loss) before income taxes |  | $ | 346,769 |  |  | $ | (76,156 | ) |  | $ | (16,763 | )
Our income tax expense (benefit) was as follows (in thousands):
|  | Year Ended December 31, |
|  | 2019 |  |  | 2018 |  |  | 2017 |
Current: |  |  |  |  |  |  |  |  |
Federal |  | $ | 35,861 |  |  | $ | 438 |  |  | $ | (7,460 | )
State |  |  | 14,329 |  |  |  | (1,442 | ) |  |  | 1,246 |
Foreign |  |  | 413 |  |  |  | 374 |  |  |  | 234 |
Total current income tax expense (benefit) |  |  | 50,603 |  |  |  | (630 | ) |  |  | (5,980 | )
Deferred: |  |  |  |  |  |  |  |  |  |  |  |
Federal |  |  | (7,096 | ) |  |  | (290,511 | ) |  |  | — |
State |  |  | — |  |  |  | — |  |  |  | — |
Total deferred income tax benefit |  |  | (7,096 | ) |  |  | (290,511 | ) |  |  | — |
Total income tax expense (benefit) |  | $ | 43,507 |  |  | $ | (291,141 | ) |  | $ | (5,980 | )
Our expense (benefit) for income taxes differs from the amount computed by applying the U.S. federal statutory rate to income (loss) before taxes. The sources and tax effects of the differences are as follows (in thousands):
|  | Year Ended December 31, |
|  | 2019 |  |  | 2018 |  |  | 2017 |
Pre-tax income (loss) |  | $ | 346,769 |  |  |  |  |  | $ | (76,156 | ) |  |  |  |  | $ | (16,763 | ) |  |  |
Statutory rate |  |  | 72,822 |  |  |  | 21.0 | % |  |  | (15,993 | ) |  |  | 21.0 | % |  |  | (5,867 | ) |  |  | 35.0 | %
State income tax net of federal benefit |  |  | 49,119 |  |  |  | 14.2 | % |  |  | (2,202 | ) |  |  | 2.9 | % |  |  | 820 |  |  |  | (4.9 | )%
Foreign |  |  | 340 |  |  |  | 0.1 | % |  |  | 1,735 |  |  |  | (2.3 | )% |  |  | 4,299 |  |  |  | (25.6 | )%
Net change in valuation allowance |  |  | (37,765 | ) |  |  | (10.9 | )% |  |  | (277,924 | ) |  |  | 364.9 | % |  |  | (86,296 | ) |  |  | 514.8 | %
Net operating loss expiration |  |  | — |  |  |  | 0.0 | % |  |  | 8,864 |  |  |  | (11.6 | )% |  |  | 3,987 |  |  |  | (23.8 | )%
TEGSEDI licensing gain |  |  | — |  |  |  | 0.0 | % |  |  | 59,583 |  |  |  | (78.2 | )% |  |  | — |  |  |  | 0.0 | %
Impact from outside basis differences |  |  | (16,344 | ) |  |  | (4.7 | )% |  |  | — |  |  |  | 0.0 | % |  |  | — |  |  |  | 0.0 | %
Tax credits |  |  | (22,296 | ) |  |  | (6.4 | )% |  |  | (73,362 | ) |  |  | 96.3 | % |  |  | (32,769 | ) |  |  | 195.5 | %
Deferred tax true-up |  |  | 646 |  |  |  | 0.2 | % |  |  | 9,947 |  |  |  | (13.1 | )% |  |  | 4,848 |  |  |  | (28.9 | )%
Tax rate change |  |  | 1,811 |  |  |  | 0.5 | % |  |  | (1,808 | ) |  |  | 2.4 | % |  |  | 114,832 |  |  |  | (685.0 | )%
Non-deductible compensation |  |  | 3,361 |  |  |  | 1.0 | % |  |  | 3,154 |  |  |  | (4.1 | )% |  |  | 1,575 |  |  |  | (9.4 | )%
Other non-deductible items |  |  | 329 |  |  |  | 0.1 | % |  |  | (569 | ) |  |  | 0.7 | % |  |  | 2,548 |  |  |  | (15.2 | )%
Akcea deconsolidation adjustment at IPO |  |  | — |  |  |  | 0.0 | % |  |  | — |  |  |  | 0.0 | % |  |  | 469 |  |  |  | (2.8 | )%
Stock-based compensation |  |  | (4,837 | ) |  |  | (1.4 | )% |  |  | (4,199 | ) |  |  | 5.5 | % |  |  | (14,337 | ) |  |  | 85.5 | %
Foreign-derived intangible income benefit |  |  | (2,071 | ) |  |  | (0.6 | )% |  |  | — |  |  |  | 0.0 | % |  |  | — |  |  |  | 0.0 | %
Other |  |  | (1,608 | ) |  |  | (0.5 | )% |  |  | 1,633 |  |  |  | (2.1 | )% |  |  | (89 | ) |  |  | 0.5 | %
Effective rate |  | $ | 43,507 |  |  |  | 12.6 | % |  | $ | (291,141 | ) |  |  | 382.3 | % |  | $ | (5,980 | ) |  |  | 35.7 | %
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 our deferred tax assets and liabilities as of December 31, 2019 and 2018 are as follows (in thousands):
|  | Year Ended December 31, |
|  | 2019 |  |  | 2018 |
Deferred Tax Assets: |  |  |  |  |  |
Net operating loss carryovers |  | $ | 20,191 |  |  | $ | 89,717 |
R&D credits |  |  | 210,455 |  |  |  | 313,652 |
Deferred revenue |  |  | 127,763 |  |  |  | 27,381 |
Stock-based compensation |  |  | 65,703 |  |  |  | 61,027 |
Intangible and capital assets |  |  | 77,861 |  |  |  | 49,007 |
Other |  |  | 12,510 |  |  |  | 8,275 |
Total deferred tax assets |  | $ | 514,483 |  |  | $ | 549,059 |
Deferred Tax Liabilities: |  |  |  |  |  |  |  |
Convertible debt |  | $ | (6,110 | ) |  | $ | (24,018 | )
Fixed assets |  |  | (1,958 | ) |  |  | — |
Other |  |  | (3,884 | ) |  |  | — |
Net deferred tax asset |  | $ | 502,531 |  |  | $ | 525,041 |
Valuation allowance |  |  | (196,974 | ) |  |  | (234,245 | )
Total net deferred tax assets and liabilities |  | $ | 305,557 |  |  | $ | 290,796 |
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. We reversed the valuation allowance in 2018 as we expected to generate U.S. pre-tax income on an Ionis standalone basis in future periods at a level that would result in us fully utilizing our U.S. federal net operating loss carryforwards and our Research and Development and Orphan Drug tax credit carryforwards. We utilized a significant portion of these carryforwards in 2019 to partially offset our estimated federal tax liability for the year. Our valuation allowance decreased by $37.3 million from December 31, 2018 to December 31, 2019. The decrease relates primarily to the current year utilization of a portion of our net deferred state tax assets, primarily California net operating loss carryovers, that had been fully reserved by the valuation allowance. We continue to maintain a full valuation allowance of $197.0 million against all of Akcea’s net deferred tax assets and the net state deferred tax assets of Ionis at December 31, 2019 due to uncertainties related to our ability to realize the tax benefits associated with these assets. We generated combined state taxable income and recognized a combined state tax liability in 2019. We utilized Ionis’ state deferred tax assets, primarily California net operating loss carry forwards, to reduce our combined state tax liability for the year by $59.1 million, which resulted in a corresponding reduction to our combined state valuation allowance. We have historically generated combined state net operating losses due primarily to Akcea’s net operating losses. However, Akcea generated net income in 2019. This was due to an increase in their research and development and license revenue, primarily related to non-recurring transactions in the first and fourth quarter from Novartis’ exercise of its option to license AKCEA-APO(a)-LRx and Pfizer’s license of AKCEA-ANGPTL3-LRx, respectively. Although Akcea generated net income in 2019, given their history of losses, there can be no assurance that they will achieve profitability in future periods. We expect Akcea to incur additional operating losses for the foreseeable future and therefore we continue to maintain a full valuation allowance against our remaining net deferred state tax assets. At December 31, 2019, we had federal and state, primarily California, tax net operating loss carryforwards of $99.5 million and $117.9 million, respectively. Our federal tax loss carryforwards are available indefinitely. Our California tax loss carryforwards will begin to expire in 2033. At December 31, 2019, we also had federal and California research and development tax credit carryforwards of $198.8 million and $74.1 million, respectively. Our Federal research and development tax credit carryforwards will begin to expire in 2034. 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 subjecting certain foreign earnings to U.S. taxation through base erosion anti-abuse tax, or BEAT, and global intangible low-taxed income, or GILTI, 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 in the year of enactment. Our accounting for the elements of the Tax Act is complete. We have made an accounting policy election to treat taxes due on the GILTI inclusion as a current period expense. 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):
|  | Year Ended December 31, |
|  | 2019 |  |  | 2018 |  |  | 2017 |
Beginning balance of unrecognized tax benefits |  | $ | 68,301 |  |  | $ | 78,014 |  |  | $ | 66,999 |
Decrease for prior period tax positions |  |  | (867 | ) |  |  | (12,814 | ) |  |  | — |
Increase for prior period tax positions |  |  | 736 |  |  |  | — |  |  |  | 1,520 |
Increase for current period tax positions |  |  | 1,614 |  |  |  | 3,101 |  |  |  | 9,495 |
Ending balance of unrecognized tax benefits |  | $ | 69,784 |  |  | $ | 68,301 |  |  | $ | 78,014 |
Included in the balance of unrecognized tax benefits at December 31, 2019, is $21.7 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, 2019. 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.

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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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