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Income Taxes | 12 Months Ended
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Dec. 31, 2017
Income Tax Disclosure [Abstract] |
Income Taxes | 14. INCOME TAXES The tax provision includes estimated federal, state and foreign income taxes on the Company’s pre-tax income and, in 2015, estimated federal and state income taxes for certain noncontrolling interest subsidiaries that were not part of the Company’s consolidated income tax returns. The tax provisions also may include discrete items, principally related to tax credits, increases or decreases in tax reserves, tax provision vs. tax return differences and accrued interest for potential liabilities. On December 22, 2017, the U.S. government enacted comprehensive tax legislation, referred to as the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act makes broad and complex changes to the U.S. tax code, including, but not limited to: (1) reducing the U.S. federal corporate tax rate from 35% to 21%; (2) elimination of the corporate alternative minimum tax (“AMT”) and changing how existing AMT credits can be realized; (3) changing rules related to the usage and limitation of net operating loss carryforwards created in tax years beginning after December 31, 2017; and (4) implementing a territorial tax system, which generally eliminates the U.S. federal income tax on dividends from foreign subsidiaries, and imposes a one-time transition tax on certain earnings of foreign subsidiaries previously untaxed in the United States. U.S. GAAP requires the impact of tax legislation to be recorded in the period of enactment. The Tax Act, though, did not have a significant impact on the Company’s consolidated financial statements, primarily because it continues to maintain a full valuation allowance against all domestic net deferred tax assets, as discussed below. While the Company re-measured its net deferred tax assets using the lower U.S. corporate income tax rate at which it is now expected to reverse in the future, the adjustment was offset by a corresponding change in the Company’s valuation allowance. The one-time transition tax is based on total post–1986 earnings and profits which were not previously subject to U.S. income taxes. While the Company recorded a provisional amount for the one-time transition tax liability for all its controlled foreign corporations, it was fully offset by existing net operating losses in the U.S. The Company did record a benefit in the fourth quarter of 2017 due to the elimination of the AMT, as discussed below. Certain impacts of the Tax Act would generally require accounting to be completed in the period of enactment. However, in response to the complexities of the Tax Act, the Securities and Exchange Commission (“SEC”) issued guidance through Staff Accounting Bulletin No. 118 to provide companies with relief. Specifically, when the initial accounting for items under the Tax Act is incomplete, the guidance allows companies to include provisional amounts when reasonable estimates can be made. The SEC has provided up to a one-year measurement period for companies to finalize the accounting for the impact of the new legislation and the Company expects to finalize the accounting over the coming quarters. The Company has recognized the provisional tax impacts related to the re-measurement of its deferred tax assets and liabilities, and one-time transition tax, for the year ended December 31, 2017. The ultimate impact may differ from these provisional amounts due to, among other things, additional analysis, changes in interpretations and assumptions the Company has made, additional regulatory guidance that may be issued, and actions the Company may take as a result of the Tax Act. The reconciliation of the federal statutory rate on the loss before income taxes and before the gain from sale of equity method investment to the effective income tax rate for the years ended December 31 is as follows:
|  | 2017 |  |  | 2016 |  |  | 2015 |
Statutory federal tax rate |  |  | (34.0 | )% |  |  | (34.0 | )% |  |  | (34.0 | )%
State income taxes, net of federal income tax benefit |  |  | 97.2 |  |  |  | 1.9 |  |  |  | 46.4 |
Rate change due to tax reform |  |  | 3,441.1 |  |  |  | — |  |  |  | — |
Tax credits |  |  | (1,222.3 | ) |  |  | (13.6 | ) |  |  | 29.9 |
Increase (decrease) in valuation allowance |  |  | (936.1 | ) |  |  | 46.5 |  |  |  | (138.4 | )
Permanent items |  |  | (861.2 | ) |  |  | 0.9 |  |  |  | 21.2 |
Refundable income taxes — AMT credit |  |  | (751.0 | ) |  |  | — |  |  |  | — |
Foreign rate differential and deferred items |  |  | (91.8 | ) |  |  | (0.8 | ) |  |  | (18.2 | )
Decrease in tax reserves |  |  | (5.1 | ) |  |  | — |  |  |  | (248.6 | )
Capital gain on sale to noncontrolling interest |  |  | — |  |  |  | 3.9 |  |  |  | 237.8 |
Decrease in unremitted Vicor Custom Power earnings |  |  | — |  |  |  | (0.9 | ) |  |  | (108.7 | )
Book income attributable to noncontrolling interest |  |  | — |  |  |  | 0.1 |  |  |  | 47.0 |
Other |  |  | (0.1 | ) |  |  | (0.2 | ) |  |  | (0.1 | )
|  |  | (363.3 | )% |  |  | 3.8 | % |  |  | (165.7 | )%
In 2017, 2016, and 2015, the Company did not recognize a tax benefit for the majority of its losses as it maintained a full valuation allowance against all net domestic deferred tax assets due to the inability to project net future taxable income, as described below. In 2017, the benefit for income taxes was primarily due to the Company’s AMT credit carryforwards of approximately $736,000 becoming fully refundable in future years, due to the repeal of the corporate AMT under the Tax Act. In 2016, in connection with the Company’s acquisition of 100% ownership of certain operating assets and cash of Converpower, the related deferred tax liability for unremitted earnings of $55,000 was reversed and recorded as a discrete benefit in the first quarter of 2016 (see Note 9). In 2015, the Company entered into voluntary disclosure agreements with several states. As a result, the Company recognized a tax benefit of approximately $555,000 as a discrete item in the fourth quarter of 2015 for the release of tax reserves. In addition, in connection with the Company’s sale of its 49% interest in APS, recognized as a capital gain, the related deferred tax liability for unremitted earnings of $274,000 was reversed and recorded as a deferred tax benefit in the fourth quarter of 2015 (see Note 9). For financial reporting purposes, income (loss) before income taxes and before the gain from sale of equity method investment for the years ended December 31 include the following components (in thousands):
|  | 2017 |  |  | 2016 |  |  | 2015 |
Domestic |  | $ | (1,591 | ) |  | $ | (6,034 | ) |  | $ | 1,373 |
Foreign |  |  | 1,493 |  |  |  | 4 |  |  |  | (1,615 | )
|  | $ | (98 | ) |  | $ | (6,030 | ) |  | $ | (242 | )
Significant components of the provision (benefit) for income taxes for the years ended December 31 are as follows (in thousands):
|  | 2017 |  |  | 2016 |  |  | 2015 |
Current: |  |  |  |  |  |  |  |  |  |  |  |
Federal |  | $ | (736 | ) |  | $ | — |  |  | $ | 144 |
State |  |  | 156 |  |  |  | 172 |  |  |  | (473 | )
Foreign |  |  | 396 |  |  |  | 137 |  |  |  | 111 |
|  |  | (184 | ) |  |  | 309 |  |  |  | (218 | )
Deferred: |  |  |  |  |  |  |  |  |  |  |  |
Federal |  |  | — |  |  |  | (55 | ) |  |  | (274 | )
Foreign |  |  | (172 | ) |  |  | (23 | ) |  |  | 91 |
|  |  | (172 | ) |  |  | (78 | ) |  |  | (183 | )
|  | $ | (356 | ) |  | $ | 231 |  |  | $ | (401 | )
As discussed in Note 8, the Company recorded a gain from equity method investment in the third quarter of 2015 for cash consideration received equal to its gross investment in GWS of $4,999,719 for the full preference value of its non-voting convertible preferred stock upon GWS’ acquisition by Intersil, as the value of the investment for financial reporting purposes was zero. For income tax purposes, though, the tax basis of the investment was $4,999,719 at the time of the redemption as it was not previously deducted for tax purposes and, therefore, there was no gain or loss on the transaction for income tax purposes. The Tax Act eliminates the deferral of U.S. income tax on accumulated foreign earnings by imposing a one-time mandatory transition tax on such earnings. As a result, we recorded a provisional amount of approximately $122,000 in additional taxable income related to approximately $813,000 of untaxed accumulated unremitted foreign earnings. As noted above, the additional taxable income of $122,000 was fully offset by existing net operating losses in the U.S. Going forward, the Company intends to continue to reinvest certain of its foreign earnings indefinitely. As noted above, the change in the U.S. federal corporate tax rate, which is effective January 1, 2018, is reflected in the Company’s deferred tax table below. Significant components of the Company’s deferred tax assets and liabilities as of December 31 were as follows (in thousands):
|  | 2017 |  |  | 2016 |
Deferred tax assets: |  |  |  |  |  |  |  |
Research and development tax credit carryforwards |  | $ | 20,019 |  |  | $ | 13,967 |
Net operating loss carryforwards |  |  | 4,918 |  |  |  | 4,902 |
Stock-based compensation |  |  | 2,793 |  |  |  | 4,066 |
Investment tax credit carryforwards |  |  | 2,181 |  |  |  | 1,576 |
Inventory reserves |  |  | 2,059 |  |  |  | 3,143 |
Vacation accrual |  |  | 1,255 |  |  |  | 1,928 |
Contingent consideration liabilities |  |  | 148 |  |  |  | — |
Unrealized loss on investments |  |  | 135 |  |  |  | 136 |
Deferred revenue |  |  | 79 |  |  |  | 154 |
Warranty reserves |  |  | 45 |  |  |  | 73 |
Bad debt reserves |  |  | 36 |  |  |  | 52 |
Alternative minimum tax credit carryforward |  |  | — |  |  |  | 340 |
Other |  |  | 273 |  |  |  | 331 |
Total deferred tax assets |  |  | 33,941 |  |  |  | 30,668 |
Less: Valuation allowance for deferred tax assets |  |  | (33,024 | ) |  |  | (29,274 | )
Net deferred tax assets |  |  | 917 |  |  |  | 1,394 |
Deferred tax liabilities: |  |  |  |  |  |  |  |
Prepaid expenses |  |  | (470 | ) |  |  | (654 | )
Patent amortization |  |  | (161 | ) |  |  | (296 | )
Depreciation |  |  | (76 | ) |  |  | (406 | )
Total deferred tax liabilities |  |  | (707 | ) |  |  | (1,356 | )
Net deferred tax assets (liabilities) |  | $ | 210 |  |  | $ | 38 |
As of December 31, 2017, the Company has a valuation allowance of approximately $33,024,000 against all domestic net deferred tax assets, for which realization cannot be considered more likely than not at this time. Management assesses the need for the valuation allowance on a quarterly basis. In assessing the need for a valuation allowance, the Company considers all positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies, and past financial performance. The Company remains in a significant cumulative loss position as of December 31, 2017 and, as a result, management believes a full valuation allowance against all domestic net deferred tax assets is warranted as of December 31, 2017. The valuation allowance against these deferred tax assets may require adjustment in the future based on changes in the mix of temporary differences, changes in tax laws, and operating performance. If and when the Company determines the valuation allowance should be released (i.e., reduced), the adjustment would result in a tax benefit reported in that period’s Consolidated Statements of Operations, the effect of which would be an increase in reported net income. As described in Note 2 — Impact of recently issued accounting standards, the Company adopted new guidance for employee stock-based payment accounting during the first quarter of 2017. The new guidance, among other considerations, requires excess tax benefits and tax deficiencies related to employee stock-based compensation to now be recorded in earnings when the awards vest or are settled, rather than in stockholders’ equity under previous guidance. In addition, it eliminates the requirement that excess tax benefits be realized with the taxing authority before they can be recognized in the financial statements. In connection with the adoption of this new guidance, the Company recorded a cumulative-effect adjustment as of January 1, 2017 to increase gross deferred tax assets and the related valuation allowance against deferred tax assets by $3,485,000. This amount was allocated and added to deferred tax assets for research and development tax credit carryforwards, net operating loss carryforwards and the alternative minimum tax credit carryforward but, as noted above, was fully offset by a corresponding increase in the valuation allowance against deferred tax assets, resulting in no net effect on the Company’s consolidated financial statements. The research and development tax credit carryforwards of approximately $11,711,000 and $11,714,000, respectively, expire beginning in 2018 for state purposes and in 2022 for federal purposes. The Company has federal net operating loss carryforwards of approximately $18,351,000, which expire beginning in 2033, as well as net operating loss carryforwards in certain states of approximately $28,770,000, which expire beginning in 2018 through 2037. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):
|  | 2017 |  |  | 2016 |  |  | 2015 |
Balance on January 1 |  | $ | 946 |  |  | $ | 830 |  |  | $ | 1,254 |
Additions based on tax positions related to the current year |  |  | 138 |  |  |  | 125 |  |  |  | 120 |
Additions for tax positions of prior years |  |  | 29 |  |  |  | — |  |  |  | — |
Settlements |  |  | (1 | ) |  |  | — |  |  |  | (480 | )
Lapse of statute |  |  | (8 | ) |  |  | (9 | ) |  |  | (64 | )
Balance on December 31 |  | $ | 1,104 |  |  | $ | 946 |  |  | $ | 830 |
The Company has reviewed the tax positions taken, or to be taken, in its tax returns for all tax years currently open to examination by a taxing authority. The total amount of unrecognized tax benefits, that is the aggregate tax effect of differences between tax return positions and the benefits recognized in the Company’s financial statements, as of December 31, 2017, 2016, and 2015 of $1,104,000, $946,000, and $830,000, respectively, if recognized, may decrease the Company’s income tax provision and effective tax rate. None of the unrecognized tax benefits as of December 31, 2017, are expected to significantly change during the next twelve months. The Company recognizes accrued interest and penalties, if any, related to unrecognized tax benefits as a component of income tax expense. During the years ended December 31, 2017, 2016, and 2015, the Company recognized approximately $6,000, $6,000, and $21,000, respectively, in net interest expense. As of December 31, 2017 and 2016, the Company had accrued approximately $29,000 and $25,000, respectively, for the potential payment of interest. The Company files income tax returns in the United States and various foreign tax jurisdictions. These tax returns are generally open to examination by the relevant tax authorities from three to seven years from the date they are filed. The tax filings relating to the Company’s federal and state taxes are currently open to examination for tax years 2014 and 2016 and 2008 through 2016, respectively. In addition, the 2003, 2004, and 2007 tax years resulted in losses. These years may also be subject to examination since the losses were carried forward and utilized in future years. The Company’s subsidiary in Italy, Vicor Italy S.r.l. (“Vicor Italy”), underwent during 2014 a tax inspection for tax years 2009 through 2013, covering corporation, regional and value added taxes. Vicor Italy received a preliminary tax audit report dated June 30, 2014. The Company filed a response to the preliminary tax audit report in the third quarter of 2014. The statute of limitations for the tax authorities in Italy to file an assessment, if any, expired on December 31, 2015 for tax year 2009, on December 31, 2016 for tax year 2010, and on December 31, 2017 for tax year 2011. While management believes it is too early to determine the likelihood or amount of potential liability at this time, it does not believe the ultimate impact of this matter will be material to the Company’s financial statements. In May 2017, the Company received notice from the Internal Revenue Service that its federal corporate tax return for tax year 2015 had been selected for examination. The examination is ongoing. In January 2018, the Company received notice from the New York State Department of Taxation and Finance that its New York State tax returns for tax years 2014 through 2016 were selected for audit. On site fieldwork for this audit will take place in March 2018. There are no other income tax examinations or audits currently in process.

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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 740 -URI http://asc.fasb.org/topic&trid=2144680 + Details
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