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Income Taxes | 12 Months Ended
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Dec. 31, 2017
Income Taxes |
Income Taxes | 6. Income Taxes Our effective tax rate differs from the statutory federal income tax rate, primarily as a result of the changes in valuation allowance. The provision for income taxes is a benefit of $0.5 million and a charge of $1.0 million for the years ended December 31, 2017 and 2016 respectively. Current tax expense for each year represents federal and state alternative minimum tax. For the year ended December 31, 2015 there was no current provision for federal or state income taxes due to taxable losses subject to a valuation allowance incurred in each of the years. A reconciliation of the federal statutory income tax to our effective income tax is as follows (in thousands):
|  | Year Ended |
|  | December 31, |
|  | 2017 |  | 2016 |  | 2015 |
Federal statutory income tax |  | $ | (16,917) |  | $ | 7,718 |  | $ | (6,157) |
State and local income taxes |  |  | (2,436) |  |  | 1,451 |  |  | — |
Research and development credit |  |  | (5,554) |  |  | (2,544) |  |  | 708 |
Stock based compensation |  |  | 2,709 |  |  | 733 |  |  | 651 |
Effect of the 2017 Tax Cut and Jobs Act |  |  | 23,859 |  |  | — |  |  | — |
Other |  |  | 262 |  |  | 8 |  |  | 14 |
Net change in valuation allowance |  |  | (2,386) |  |  | (6,366) |  |  | 4,784 |
Income tax provision (benefit) |  | $ | (463) |  | $ | 1,000 |  | $ | — |
The tax effect of temporary differences that give rise to a significant portion of the deferred tax assets and liabilities at December 31, 2017 and 2016 is presented below (in thousands):
|  | 2017 |  | 2016 |
Deferred income tax assets |  |  |  |  |  |  |
Net operating loss carryforwards |  | $ | 25,564 |  | $ | 54,860 |
Research credits |  |  | 16,642 |  |  | 11,561 |
Depreciation |  |  | 437 |  |  | 668 |
Unrealized loss on securities |  |  | 504 |  |  | 573 |
Accrued compensation |  |  | 748 |  |  | 719 |
Deferred revenue |  |  | 26,442 |  |  | 5,236 |
State taxes |  |  | (2) |  |  | 97 |
Gross deferred income tax assets |  |  | 70,335 |  |  | 73,714 |
Valuation allowance |  |  | (67,284) |  |  | (69,670) |
Net deferred income tax assets |  |  | 3,051 |  |  | 4,044 |
Deferred income tax liabilities |  |  |  |  |  |  |
Patent costs |  |  | (2,873) |  |  | (3,725) |
Licensing costs |  |  | (142) |  |  | (261) |
Capitalized legal costs |  |  | (36) |  |  | (58) |
Gross deferred income tax liabilities |  |  | (3,051) |  |  | (4,044) |
Net deferred income tax asset |  | $ | — |  | $ | — |
The Tax Cuts and Jobs Act (TCJA) was enacted in December 2017 and made substantial changes in the US tax system. One of the changes was elimination of the AMT tax system for corporations and allowance of an income tax refund for AMT tax credit carryforwards as of December 31, 2017. We have reported an income tax receivable of $1.5 million as of December 31, 2017 to reflect the U.S. AMT credit carryforwards we have available. Due to the uncertainty surrounding the realization of the benefits of our deferred tax assets in future tax periods, we have placed a valuation allowance against our deferred tax assets at December 31, 2017. The Company recognizes valuation allowances to reduce deferred tax assets to the amount that is more likely than not to be realized. The Company’s net deferred income tax asset is not more likely than not to be realized due to the lack of sufficient sources of future taxable income and cumulative losses that have resulted over the years. As a result of the reduction in the U.S. statutory rate from 35% to 21% beginning in 2018, our total deferred assets at December 31, 2017 were reduced by $23.9 million. Upon analysis, there were changes in ownership under Section 382 of the Internal Revenue Code and related state provisions as a result of our sale of preferred stock and sale of common stock during 2013. Section 382 limits the amount of net operating losses and tax credit forwards that may be available after a change in ownership. The Company has adjusted its net operating loss and tax credit carryforwards to reflect the impact of the section 382 limitations. The Company’s tax returns remain open to potential inspection for the years 2013 and onwards for federal purposes and 2012 and onwards for state purposes. As of December 31, 2017, we had cumulative net operating loss carryforwards for federal and state income tax purposes of $104.8 million and $50.9 million respectively, and available tax credit carryforwards of approximately $10.0 million for federal income tax purposes and $6.6 million for state income tax purposes, which can be carried forward to offset future taxable income, if any. Our federal net operating loss carryforwards expire starting in 2026, state net operating losses expire starting in 2032, and federal tax credit carryforwards expire starting in 2019. Utilization of the net operating losses and tax credits are subject to a substantial annual limitation due to ownership changes which occurred. As a result of these changes, provisions in the Internal Revenue Code of 1986 under Section 382 and similar state provisions may result in the expiration of certain of our net operating losses and tax credits before we can use them.

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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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