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Income Taxes | 12 Months Ended
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Dec. 31, 2018
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. The tax provisions also may include discrete items, principally related to increases or decreases in tax reserves, tax provision vs. tax return differences and accrued interest for potential liabilities. On December 22, 2017, H.R.1., known as the Tax Cuts and Jobs Act (the “Tax Act”), was signed into law. The Tax Act did not have a significant impact on the Company’s consolidated financial statements for the year ended December 31, 2017. However, the reduction of the U.S. federal corporate tax rate from 35% to 21% r esulted in increases to the amounts reflected in the Company’s tax rate reconciliation table for the year ended December 31, 2017 compared to the year ended December 31, 2016. The change in the U.S. federal corporate tax rate, which was effective January 1, 2018, is also reflected in the Company’s deferred tax table below. Effective for the 2018 tax year, the Tax Act implements certain additional provisions including the Global Intangible Low-Taxes Income (“GILTI”) inclusion and the Foreign Derived Intangible Income (“FDII”) deduction. The Company is electing to account for the GILTI inclusion as a period cost. Also, on December 22, 2017, the Securities and Exchange Commission staff issued Staff Accounting Bulletin No. 118 to address the application of U.S. GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Tax Act. The Company recognized the provisional tax impacts related to deemed repatriated earnings and the revaluation of deferred tax assets and liabilities and included these amounts in its consolidated financial statements for the year ended December 31, 2017. The Company did not record any adjustments in the year ended December 31, 2018 to these provisional amounts that were material to its financial statements. As of December 31, 2018, the Company’s accounting treatment with regards to the Tax Act is complete. The reconciliation of the federal statutory rate on the income (loss) before income taxes to the effective income tax rate for the years ended December 31 is as follows:
|  | 2018 |  |  | 2017 |  |  | 2016 |
Statutory federal tax rate |  |  | 21.0 | % |  |  | (34.0 | )% |  |  | (34.0 | )%
State income taxes, net of federal income tax benefit |  |  | 3.6 |  |  |  | 97.2 |  |  |  | 1.9 |
Increase (decrease) in valuation allowance |  |  | (9.1 | ) |  |  | (936.1 | ) |  |  | 46.5 |
Permanent items |  |  | (5.9 | ) |  |  | (861.2 | ) |  |  | 0.9 |
Tax credits |  |  | (5.5 | ) |  |  | (1,222.3 | ) |  |  | (13.6 | )
Provision vs. tax return differences |  |  | (1.7 | ) |  |  | — |  |  |  | — |
Foreign rate differential and deferred items |  |  | 0.7 |  |  |  | (91.8 | ) |  |  | (0.8 | )
Decrease in tax reserves |  |  | 0.1 |  |  |  | (5.1 | ) |  |  | — |
Rate change due to tax reform |  |  | — |  |  |  | 3,441.1 |  |  |  | — |
Refundable income taxes — AMT credit |  |  | — |  |  |  | (751.0 | ) |  |  | — |
Capital gain on sale to noncontrolling interest |  |  | — |  |  |  | — |  |  |  | 3.9 |
Decrease in unremitted Vicor Custom Power earnings |  |  | — |  |  |  | — |  |  |  | (0.9 | )
Book income attributable to noncontrolling interest |  |  | — |  |  |  | — |  |  |  | 0.1 |
Other |  |  | 0.1 |  |  |  | (0.1 | ) |  |  | (0.2 | )
|  |  | 3.3 | % |  |  | (363.3 | )% |  |  | 3.8 | %
In 2018, the Company utilized net operating loss carryforwards to offset federal income tax expense. In 2017 and 2016, 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 8). For financial reporting purposes, income (loss) before income taxes for the years ended December 31 include the following components (in thousands):
|  | 2018 |  |  | 2017 |  |  | 2016 |
Domestic |  | $ | 31,455 |  |  | $ | (1,591 | ) |  | $ | (6,034 | )
Foreign |  |  | 1,478 |  |  |  | 1,493 |  |  |  | 4 |
|  | $ | 32,933 |  |  | $ | (98 | ) |  | $ | (6,030 | )
Significant components of the provision (benefit) for income taxes for the years ended December 31 are as follows (in thousands):
|  | 2018 |  |  | 2017 |  |  | 2016 |
Current: |  |  |  |  |  |  |  |  |  |  |  |
Federal |  | $ | — |  |  | $ | (736 | ) |  | $ | — |
State |  |  | 231 |  |  |  | 156 |  |  |  | 172 |
Foreign |  |  | 911 |  |  |  | 396 |  |  |  | 137 |
|  |  | 1,142 |  |  |  | (184 | ) |  |  | 309 |
Deferred: |  |  |  |  |  |  |  |  |  |  |  |
Federal |  |  | — |  |  |  | — |  |  |  | (55 | )
Foreign |  |  | (55 | ) |  |  | (172 | ) |  |  | (23 | )
|  |  | (55 | ) |  |  | (172 | ) |  |  | (78 | )
|  | $ | 1,087 |  |  | $ | (356 | ) |  | $ | 231 |
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, a provisional amount of approximately $122,000 was recorded in 2017 as additional tax expense related to approximately $813,000 of untaxed accumulated unremitted foreign earnings. As noted above, the additional tax of $122,000 was fully offset by existing net operating losses in the U.S. Effective for the Company’s 2018 tax year, foreign earnings will be taxed currently in the U.S. under new GILTI and FDII provisions of the Act. As of December 31, 2018, unremitted foreign earnings, which were not significant, are permanently re-invested in the Company’s foreign subsidiaries. Upon repatriation of those earnings, in the form of dividends or otherwise, the Company could be subject to immaterial withholding taxes payable to the various foreign countries. As noted above, the change in the U.S. federal corporate tax rate, which was 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):
|  | 2018 |  |  | 2017 |
Deferred tax assets: |  |  |  |  |  |  |  |
Research and development tax credit carryforwards |  | $ | 23,244 |  |  | $ | 20,019 |
Stock-based compensation |  |  | 3,133 |  |  |  | 2,793 |
Inventory reserves |  |  | 2,109 |  |  |  | 2,059 |
Investment tax credit carryforwards |  |  | 1,976 |  |  |  | 2,181 |
Vacation accrual |  |  | 1,218 |  |  |  | 1,255 |
Net operating loss carryforwards |  |  | 1,091 |  |  |  | 4,918 |
UNICAP |  |  | 275 |  |  |  | 3 |
International deferred tax assets |  |  | 265 |  |  |  | 210 |
Unrealized loss on investments |  |  | 132 |  |  |  | 135 |
Sales allowances |  |  | 128 |  |  |  | 25 |
Contingent consideration liabilities |  |  | 88 |  |  |  | 148 |
Deferred revenue |  |  | 66 |  |  |  | 79 |
Bad debt reserves |  |  | 52 |  |  |  | 36 |
Warranty reserves |  |  | 35 |  |  |  | 45 |
Other |  |  | 233 |  |  |  | 35 |
Total deferred tax assets |  |  | 34,045 |  |  |  | 33,941 |
Less: Valuation allowance for deferred tax assets |  |  | (30,031 | ) |  |  | (33,024 | )
Net deferred tax assets |  |  | 4,014 |  |  |  | 917 |
Deferred tax liabilities: |  |  |  |  |  |  |  |
Depreciation |  |  | (3,144 | ) |  |  | (76 | )
Prepaid expenses |  |  | (473 | ) |  |  | (470 | )
Patent amortization |  |  | (107 | ) |  |  | (161 | )
Other |  |  | (25 | ) |  |  | — |
Total deferred tax liabilities |  |  | (3,749 | ) |  |  | (707 | )
Net deferred tax assets (liabilities) |  | $ | 265 |  |  | $ | 210 |
As of December 31, 2018, the Company has a valuation allowance of approximately $30,031,000 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. While recent positive operating results caused the Company to be in a cumulative income position as of December 31, 2018, it has been in such a position for only a limited number of quarters. In addition, some uncertainty in economic conditions that could potentially impact the Company has led management to conclude a full valuation allowance against all domestic net deferred tax assets is still warranted as of December 31, 2018. 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 the positive quarterly earnings continue, the Company may release all or a portion of the valuation in the near-term. 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. The state and federal research and development tax credit carryforwards of approximately $12,139,000 and $14,920,000, respectively, expire beginning in 2019 for state purposes and in 2025 for federal purposes. The Company has federal net operating loss carryforwards of approximately $2,584,000, which expire beginning in 2033, as well as net operating loss carryforwards in certain states of approximately $8,249,000, which expire beginning in 2019 through 2037. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):
|  | 2018 |  |  | 2017 |  |  | 2016 |
Balance on January 1 |  | $ | 1,104 |  |  | $ | 946 |  |  | $ | 830 |
Additions based on tax positions related to the current year |  |  | 245 |  |  |  | 138 |  |  |  | 125 |
Additions for tax positions of prior years |  |  | 120 |  |  |  | 29 |  |  |  | — |
Settlements |  |  | — |  |  |  | (1 | ) |  |  | — |
Lapse of statute |  |  | (7 | ) |  |  | (8 | ) |  |  | (9 | )
Balance on December 31 |  | $ | 1,462 |  |  | $ | 1,104 |  |  | $ | 946 |
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, 2018, 2017, and 2016 of $1,462,000, $1,104,000, and $946,000, 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, 2018, 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, 2018, 2017, and 2016, the Company recognized approximately $7,000, $6,000, and $6,000, respectively, in net interest expense. As of December 31, 2018 and 2017, the Company had accrued approximately $35,000 and $29,000, 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 2016 and 2017 and 2009 through 2017, respectively. In addition, 2012 and 2014 tax years resulted in losses and the Company generated federal research and development credits in tax years 2005 through 2015. These years may also be subject to examination when the losses or credits are carried forward and utilized in future years. The Company’s subsidiary in Italy, Vicor Italy S.r.l. (“Vicor Italy”), underwent a tax inspection during 2014 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 on December 31, 2017 for tax year 2011, and on December 31, 2018 for tax year 2012. Due to the non-response by Italian authorities after nearly five years, and the lapse of the first four out of the five years under examination, the Company does not believe the ultimate impact 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 was completed in May 2018 resulting in no tax liability to the Company. 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. The audit was completed in the third quarter of 2018, resulting in an immaterial assessment. 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://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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