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Income Taxes | 12 Months Ended
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Dec. 31, 2018
Income Taxes |
Income Taxes | Note 8. Income taxes United States and foreign (loss) income before income taxes was as follows (in thousands):
|  | Year ended December 31, |
|  | 2018 |  | 2017 |  | 2016 |
United States |  | $ | (14,776) |  | $ | 12,543 |  | $ | 12,214 |
Foreign |  |  | 2,408 |  |  | (12,542) |  |  | (7,649) |
Total |  | $ | (12,368) |  | $ | 1 |  | $ | 4,565 |
The provision for income taxes was as follows (in thousands):
|  | December 31, |
|  | 2018 |  | 2017 |  | 2016 |
Current: |  |  |  |  |  |  |  |  |  |
Federal |  | $ | — |  | $ | 235 |  | $ | (28) |
State |  |  | 274 |  |  | 93 |  |  | 71 |
Foreign |  |  | 309 |  |  | — |  |  | — |
|  |  | 583 |  |  | 328 |  |  | 43 |
Deferred: |  |  |  |  |  |  |  |  |  |
Federal |  |  | — |  |  | (235) |  |  | — |
State |  |  | — |  |  | — |  |  | — |
Foreign |  |  | — |  |  | — |  |  | — |
|  |  | — |  |  | (235) |  |  | — |
Provision for income taxes |  | $ | 583 |  | $ | 93 |  | $ | 43 |
The reconciliations of the U.S. federal statutory tax expense to the combined effective tax provision are as follows:
|  | Year ended |
|  | December 31, |
(amounts in thousands) |  | 2018 |  | 2017 |  | 2016 |
Statutory rate of tax expense | $ | (2,597) | $ | - | $ | 1,552 |
State income taxes, net of federal benefit |  | (1,518) |  | (17) |  | 530 |
Permanent and other items |  | (4,658) |  | (5,199) |  | 789 |
Nondeductible offering costs |  | - |  | - |  | 7 |
Research credits |  | (2,556) |  | (2,215) |  | (1,945) |
Uncertain tax positions |  | 6,143 |  | 1,108 |  | 940 |
Change in tax rate |  | (250) |  | 1,013 |  | 1,337 |
Tax Cuts and Jobs Act |  | - |  | 25,216 |  | - |
Valuation allowance |  | 6,019 |  | (19,813) |  | (3,167) |
Provision for income taxes | $ | 583 | $ | 93 | $ | 43 |
Significant components of the Company’s net deferred tax assets at December 31, 2018 and December 31, 2017 are as follows (in thousands):
|  | December 31, |
|  | 2018 |  | 2017 |
Deferred tax assets: |  |  |  |  |  |  |
Net operating loss carryforwards |  | $ | 40,041 |  | $ | 37,571 |
Tax credits |  |  | 7,754 |  |  | 6,713 |
Depreciation and amortization |  |  | 9,356 |  |  | 10,765 |
Stock-based compensation |  |  | 9,838 |  |  | 7,184 |
Reserves and accruals |  |  | 5,030 |  |  | 3,739 |
Total deferred tax assets |  |  | 72,019 |  |  | 65,972 |
Deferred tax liabilities: |  |  |  |  |  |  |
Other, net |  | $ | (65) |  | $ | (42) |
Valuation allowance |  |  | (71,954) |  |  | (65,695) |
Net deferred tax assets |  | $ | — |  | $ | 235 |
Based on the weight of available evidence, management has established a valuation allowance for all of the deferred tax assets as it is more likely than not that the deferred tax assets will not be realized. The net change in the valuation allowance was $6.3 million in 2018. At December 31, 2018, the Company had approximately $154.5 million, $120.6 million and $15.8 million of net operating loss carryforwards for federal, state and foreign purposes, respectively, available to offset future taxable income. The federal net operating loss carryforwards incurred prior to 2018 will begin to expire in 2025. A federal net operating loss carryforward of $27.2 million will not expire, but can only be used to offset 80 percent of future taxable income. The state net operating loss carryforwards will begin to expire in 2019. The foreign net operating losses will begin to expire in 2023. At December 31, 2018, the Company had federal and state research and development credit carryforwards of $9.1 million and $8.1 million, respectively, which begin to expire in 2021 for federal purposes and carry over indefinitely for state purposes. Utilization of the net operating loss and tax credit carryforwards will be subject to annual limitations under Sections 382 and 383 of the Internal Revenue Code of 1986 and similar state provisions due to several ownership changes that have occurred previously or that could occur in the future. These ownership changes will limit the amount of net operating loss and tax credit carryforwards and other deferred tax assets that can be utilized to offset future taxable income and tax. In general, all ownership changes as defined by IRC Section 382 result from transactions increasing ownership of certain stockholders in the stock of the Company by more than 50 percentage points over a three‑year period. An analysis was performed by the Company which indicated that several ownership changes have occurred in previous years which created annual limitations on the Company’s ability to utilize net operating loss and tax credit carryforwards. The Company has not, however, conducted a IRC Section 382 study for any periods subsequent to December 31, 2009 and as such, the Company cannot provide any assurance that a change in ownership within the meaning of IRC has not occurred since that date. Due to the existence of the valuation allowance, limitations created by future ownership changes, if any, will not impact the Company’s effective tax rate. Certain foreign subsidiary earnings are subject to U.S. taxation under the Act, which also repeals U.S. taxation on the subsequent repatriation of those earnings. The Company intends to invest substantially all of its foreign earnings, as well as its capital in the foreign subsidiaries, indefinitely outside of the U.S. in those jurisdictions in which the Company would incur significant, additional costs upon repatriation of such amounts. A reconciliation of the beginning and ending amount of gross unrecognized tax benefits for the years ended December 31, 2018, December 31, 2017 and December 31, 2016, excluding interest and penalties, is as follows (in thousands):
|  | December 31,
|  | 2018 |  | 2017 |  | 2016
Balance at beginning of the year |  | $ | 7,227 |  | $ | 5,947 |  | $ | 4,848
Net addition (reduction) for tax positions—prior years |  |  | 4,558 |  |  | — |  |  | (49)
Net additions for tax positions—current year |  |  | 1,701 |  |  | 1,280 |  |  | 1,148
Balance at end of the year |  | $ | 13,486 |  | $ | 7,227 |  | $ | 5,947
As of December 31, 2018, approximately $0.3 million of unrecognized tax benefits would reduce our annual effective tax rate if recognized. The Company’s policy is to recognize interest expense and penalties related to income tax matters as a component of income tax expense. There was no accrued interest and penalties associated with uncertain tax positions as of December 31, 2018, December 31, 2017 and December 31, 2016. It is not anticipated that there will be a significant change in the unrecognized tax benefits over the next 12 months. Due to the Company’s net operating loss carryforwards, its federal, state and foreign income tax returns are open to examination by the Internal Revenue Service and state jurisdictions for all years since inception. The Tax Cuts and Jobs Act The Act was enacted on December 22, 2017 resulting in significant modifications to existing law. The Company follows the guidance of Staff Accounting Bulletin (SAB) 118, which provides additional clarification regarding the application of ASC 740 in situations where the Company does not have the necessary information available, prepared or analyzed in reasonable detail to complete the accounting for certain income tax effects of the Act for the reporting period in which the Act was enacted. SAB 118 provides for a measurement period beginning in the reporting period that includes the Act’s enactment and ending when the Company has obtained, prepared and analyzed the information needed in order to complete the accounting requirements, but in no circumstances should the measurement period extend beyond one year from the enactment date. The Company has completed its analysis of the Act’s income tax effects. In total, the Company recorded $25.2 million related to the remeasurement of deferred tax assets which was fully offset by a corresponding decrease in the valuation allowance. Further, the Company has recorded the tax impact of IRC Section 162(m) as amended by the Act, which resulted in a reduction to its deduction of compensation paid to covered executives.

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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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