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Income Taxes | 12 Months Ended
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Dec. 31, 2016
Income Taxes |
4. | Income Taxes
Income tax data for the years ended December 31, 2016, 2015 and 2014 (in thousands):
|  | December 31, 2016 |  |  | December 31, 2015 |  |  | December 31, 2014 |
The components of income from operations before income taxes are as follows: |  |  |  |  |  |  |  |  |  |  |  |
Domestic |  | $ | (4,882 | ) |  | $ | (2,490 | ) |  | $ | (1,152 | )
Foreign |  |  | 16,574 |  |  |  | 15,913 |  |  |  | 12,290 |
Total |  | $ | 11,692 |  |  | $ | 13,423 |  |  | $ | 11,138 |
The current and deferred components of the provision for income taxes on operations are as follows: |  |  |  |  |  |  |  |  |  |  |  |
Current |  | $ | 4,077 |  |  | $ | 3,745 |  |  | $ | 2,480 |
Deferred |  |  | (4,066 | ) |  |  | 333 |  |  |  | 488 |
Total |  | $ | 11 |  |  | $ | 4,078 |  |  | $ | 2,968 |
The jurisdictional components of the provision for income taxes on operations are as follows: |  |  |  |  |  |  |  |  |  |  |  |
Federal |  | $ | (3,809 | ) |  | $ | 295 |  |  | $ | 214 |
State |  |  | (207 | ) |  |  | 276 |  |  |  | (67 | )
Foreign |  |  | 4,027 |  |  |  | 3,507 |  |  |  | 2,821 |
Total |  | $ | 11 |  |  | $ | 4,078 |  |  | $ | 2,968 |
At December 31, 2016, the Company had net operating loss carryforwards of approximately $48,550,000 in the U.S., net operating loss carryforwards of approximately €2,287,000 (approximately $2,407,000) in Germany, federal business tax credit carryforwards of $1,745,000 and state business tax credit carryforwards of approximately $442,000 available to reduce future domestic income taxes, if any. The net operating loss and business tax credits carryforwards will continue to expire at various dates through December 2036. The net operating loss and business tax credit carryforwards are subject to review and possible adjustment by the Internal Revenue Service and may be limited in the event of certain changes in the ownership interest of significant stockholders.
|  | December 31, 2016 |  |  | December 31, 2015 |
Deferred tax assets: |  |  |  |  |  |  |  |
Temporary timing differences: |  |  |  |  |  |  |  |
Stock compensation |  | $ | 1,722 |  |  | $ | 1,079 |
Contingent consideration |  |  | 3,333 |  |  |  | 2,126 |
Other |  |  | 1,895 |  |  |  | 1,150 |
Total temporary timing differences |  |  | 6,950 |  |  |  | 4,355 |
Net operating loss carryforwards |  |  | 12,284 |  |  |  | 12,389 |
Tax business credits carryforwards |  |  | 2,036 |  |  |  | 1,820 |
Total deferred tax assets |  |  | 21,270 |  |  |  | 18,564 |
Valuation allowance |  |  | (9,979 | ) |  |  | (18,514 | )
Net deferred tax assets |  | $ | 11,291 |  |  | $ | 50 |
Deferred tax liabilities: |  |  |  |  |  |  |  |
Goodwill and intangible assets |  | $ | (7,346 | ) |  | $ | (501 | )
Conversion option on convertible notes |  |  | (6,048 | ) |  |  | — |
Total deferred tax liabilities |  | $ | (13,394 | ) |  | $ | (501 | )
Net deferred tax liabilities |  | $ | (2,103 | ) |  | $ | (451 | )
The net change in the total valuation allowance was a decrease of $8,535,000 in the year ended December 31, 2016. U.S. jurisdiction deferred tax assets, previously subject to a valuation allowance, were initially recognized in 2016 due to the creation of a $4,525,000 deferred tax liability resulting from the TangenX Acquisition and a $6,514,000 deferred tax liability resulting from the issuance of the Company’s convertible senior notes, partially offset by increases in deferred tax assets derived from temporary timing differences. The $6,514,000 decrease to the valuation allowance was recorded to stockholder’s equity. The cumulative U.S. federal net operating loss includes $14,177,000 related to excess tax deductions from share-based payments, the tax benefit of which will be recognized as an increase to additional paid in capital when the deduction reduces current taxes payable. The valuation allowance increased by $1,216,000 for the year ended December 31, 2015 and increased by $727,000 for the year ended December 31, 2014. As of December 31, 2016, the Company continues to believe that realization of the remainder of its deferred tax assets beyond December 31, 2016 is not more likely than not, and the Company continues to maintain its valuation allowance against its remaining U.S. deferred tax assets with the exception for certain state tax credits. The reconciliation of the federal statutory rate to the effective income tax rate for the fiscal years ended December 31, 2016, 2015 and 2014 is as follows (amounts in thousands):
|  | Year Ended |
|  | December 31, 2016 |  |  | December 31, 2015 |  |  | December 31, 2014 |
Income before income taxes |  | $ | 11,692 |  |  |  |  |  |  | $ | 13,423 |  |  |  |  |  |  | $ | 11,138 |  |  |  |  |
Expected tax at statutory rate |  |  | 3,975 |  |  |  | 34.0 | % |  |  | 4,564 |  |  |  | 34.0 | % |  |  | 3,787 |  |  |  | 34.0 | %
Adjustments due to: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Difference between U.S. and foreign tax |  |  | (2,031 | ) |  |  | (17.4 | %) |  |  | (1,910 | ) |  |  | (14.2 | %) |  |  | (1,471 | ) |  |  | (13.2 | %)
State income and franchise taxes |  |  | (326 | ) |  |  | (2.8 | %) |  |  | 563 |  |  |  | 4.2 | % |  |  | 122 |  |  |  | 1.1 | %
Business tax credits |  |  | (236 | ) |  |  | (2.0 | %) |  |  | (115 | ) |  |  | (0.9 | %) |  |  | — |  |  |  | — |
Permanent differences |  |  | 567 |  |  |  | 4.8 | % |  |  | 118 |  |  |  | 0.9 | % |  |  | (172 | ) |  |  | (1.5 | %)
Change in valuation allowance |  |  | (1,981 | ) |  |  | (16.9 | %) |  |  | 1,216 |  |  |  | 9.1 | % |  |  | 727 |  |  |  | 6.5 | %
Other |  |  | 43 |  |  |  | 0.4 | % |  |  | (358 | ) |  |  | (2.7 | %) |  |  | (25 | ) |  |  | (0.2 | %)
Provision (benefit) for income taxes |  | $ | 11 |  |  |  | 0.1 | % |  | $ | 4,078 |  |  |  | 30.4 | % |  | $ | 2,968 |  |  |  | 26.7 | %
In June 2015, the Company received a final assessment from the Massachusetts Department of Revenue (“DOR”) regarding an examination for the years ended March 31, 2010 and 2011 and the nine months ended December 31, 2011. This examination related to the qualification of Research and Development tax credits. The final settlement resulted in a payment to the DOR of approximately $141,000, inclusive of interest and penalties. In December 2015, the Company reached a negotiated settlement with the DOR regarding an appeal of an assessment made in 2013 for the years ended March 31, 2008 and 2009. The primary issues in the appeal related to the sourcing of intellectual property settlements and the qualification of Research and Development tax credits. The final settlement resulted in a payment to the DOR of approximately $1,012,000, inclusive of interest. Of this amount, $926,000 had been provided for as a liability for an uncertain tax position as of September 30, 2015. The Company’s tax returns are subject to examination by federal, state and international taxing authorities for the following periods:
Jurisdiction |  | Fiscal years subject to examination |
United States – federal and state |  |  | 2013-2016 |
Sweden |  |  | 2011-2016 |
Germany |  |  | 2012-2016 |
At December 31, 2016, the Company had accumulated Federal research credits of $2,814,000 which were not recognized for financial statement purposes, as it was not more likely than not that the Company would have sufficient earnings to realize those benefits in addition to the benefits the Company may derive from use of its Net Operating Losses. However, given the past uncertainty at the state level regarding their sustainability under audit, the Company applied a reserve of $1,407,000 against these cumulative Federal research credits. The following is a tabular reconciliation of the total amounts of unrecognized tax benefits (in thousands):
Unrecognized tax benefits at January 1, 2016 |  |  | 1,289 |
Gross increases – tax positions in prior period |  |  | 118 |
Unrecognized tax benefits at December 31, 2016 |  | $ | 1,407 |
The amount of unrecognized tax benefits at December 31, 2015 that will impact our effective tax rate are $1,407,000. For the year ended December 31, 2016, the Company recognized interest and penalties of $16,000. At December 31, 2016, the Company has not provided for U.S. income taxes or foreign withholding taxes on outside basis differences of foreign subsidiaries of approximately $43,679,000 as it is the Company’s current intention to permanently reinvest these earnings outside the U.S. It is not practical to estimate the additional taxes that may be payable upon repatriation.

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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://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08.(h)) -URI http://asc.fasb.org/extlink&oid=26873400&loc=d3e23780-122690 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=65882285&loc=d3e32559-109319 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 15 -URI http://asc.fasb.org/extlink&oid=65882285&loc=d3e32718-109319 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 9 -URI http://asc.fasb.org/extlink&oid=65882285&loc=d3e32639-109319 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=65882285&loc=d3e32537-109319 + Details
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