Income Taxes

12 Months Ended

Sep. 30, 2019

8. INCOME TAXES

Provision for Income Taxes

Income (loss) before income taxes for the years ended September 30, 2019, 2018, and 2017 is comprised of the following (amounts shown in thousands):


	2019		2018		2017
Domestic	$	8,992	$	(1,584)	$	4,057
Foreign	(12,980)		(7,157)		(886)
Total	$	(3,988)	$	(8,741)	$	3,171

For the years ended September 30, 2019, 2018, and 2017 the income tax benefit (provision) was as follows (amounts shown in thousands):


	2019		2018		2017
Federal—current	$	(117)	$	(87)	$	(127)
Federal—deferred	639		(4,537)		8,291
State—current	(438)		(26)		(20)
State—deferred	515		773		2,748
Foreign—current	594		(270)		29
Foreign—deferred	2,071		1,081		—
Total	$	3,264	$	(3,066)	$	10,921

Deferred Income Tax Assets and Liabilities

Significant components of the Company’s net deferred tax assets and liabilities as of September 30, 2019 and 2018 are as follows (amounts shown in thousands):


	2019		2018
Deferred tax assets:
Stock-based compensation	$	2,646	$	3,067
Net operating loss carryforwards	9,419		8,568
Research credit carryforwards	5,570		3,890
Intangibles	58		—

Other, net	90		354
Total deferred assets	17,783		15,879
Deferred tax liabilities:
Intangibles	—		(181)
Foreign deferred liabilities	(5,811)		(8,032)
Net deferred tax asset	11,972		7,666
Valuation allowance for net deferred tax assets	(931)		(472)
Net deferred tax asset	$	11,041	$	7,194

The net change in the total valuation allowance for the fiscal years ended September 30, 2019 and 2018 was an increase of $0.5 million and an increase of $0.4 million, respectively. In assessing the realizability of deferred tax assets, the Company considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during periods in which those temporary differences become deductible. The Company considers projected future taxable income and planning strategies in making this assessment. Based on the level of historical operating results and the projections for future taxable income, the Company has determined that it is more likely than not that the deferred tax assets may be realized for all deferred tax assets with the exception of the net foreign deferred tax assets at Mitek Systems B.V.

As of September 30, 2019, the Company has available net operating loss carryforwards of $29.5 million for federal income tax purposes, of which $2.1 million were generated in the fiscal year ended September 30, 2019 and can be carried forward indefinitely under the Tax Cuts and Jobs Act. The remaining federal net operating loss of $27.4 million, which were generated prior to the fiscal year ended September 30, 2019, will start to expire in 2032 if not utilized. The net operating losses for state purposes are $29.4 million and will begin to expire in 2028. As of September 30, 2019, the Company has available federal research and development credit carryforwards, net of reserves, of $2.8 million. The federal research and development credits will start to expire in 2027. As of September 30, 2019, the Company has available California research and development credit carryforwards, net of reserves, of $2.4 million, which do not expire.

Sections 382 and 383 of the Internal Revenue Code of 1986, as amended (the “IRC”) limit the utilization of tax attribute carryforwards that arise prior to certain cumulative changes in a corporation’s ownership. The Company has completed an IRC Section 382/383 analysis through March 31, 2017 and any identified ownership changes had no impact to the utilization of tax attribute carryforwards. Any future ownership changes may have an impact on the utilization of the tax attribute carryforwards.

Income Tax Provision Reconciliation

The difference between the income tax benefit (provision) and income taxes computed using the U.S. federal income tax rate was as follows for the years ended September 30, 2019, 2018, and 2017 (amounts shown in thousands):


	2019		2018		2017
Amount computed using statutory rate	$	841	$	2,122	$	(1,078)
Net change in valuation allowance for net deferred tax assets	(459)		(367)		10,058
AMT and other	—		(191)		20
Foreign rate differential	664		22		(169)
Non-deductible items	(151)		(276)		(370)
State income tax	(370)		50		(34)

Impact of tax reform on deferred taxes	—		(4,901)		—
Research and development credits	1,694		475		2,494
Foreign income tax	(494)		—		—
Stock compensation, net	1,539		—		—
Income tax benefit (provision)	$	3,264	$	(3,066)	$	10,921

Uncertain Tax Positions

In accordance with authoritative guidance, the impact of an uncertain income tax position on the income tax return must be recognized at the largest amount that is more-likely-than-not to be sustained upon audit by the relevant taxing authority. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained.

The following table reconciles the beginning and ending amount of unrecognized tax benefits for the fiscal years ended September 30, 2019, 2018, and 2017 (amounts shown in thousands):


	2019		2018		2017
Gross unrecognized tax benefits at the beginning of the year	$	1,321	$	1,181	$	—
Additions from tax positions taken in the current year	213		140		140
Additions from tax positions taken in prior years	73		—		1,041
Reductions from tax positions taken in prior years	—		—		—
Tax settlements	—		—		—
Gross unrecognized tax benefits at end of the year	$	1,607	$	1,321	$	1,181

Of the total unrecognized tax benefits at September 30, 2019, $1.6 million will impact the Company’s effective tax rate. The Company does not anticipate that there will be a substantial change in unrecognized tax benefits within the next twelve months.

The Company's practice is to recognize interest and/or penalties related to income tax matters in income tax expense. As of September 30, 2019, no accrued interest or penalties related to uncertain tax positions are recorded in the consolidated financial statements.

The Company is subject to income taxation in the U.S. at the federal and state levels. All tax years are subject to examination by U.S., California, and other state tax authorities due to the carryforward of unutilized net operating losses and tax credits. The Company is also subject to foreign income taxes in the countries in which it operates. The Company’s U.S. federal tax return for the year ended September 30, 2017 is currently under examination. To our knowledge, the Company is not currently under examination by any other taxing authorities.