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INCOME TAXES | 12 Months Ended
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Dec. 31, 2019
Income Tax Disclosure [Abstract] |
INCOME TAXES | INCOME TAXES Income tax provisions for the years ended December 31, 2019, 2018 and 2017 consisted of the following (in thousands):
| Year Ended December 31,
| 2019 |  | 2018 |  | 2017
Income (loss) before provisions for income taxes | $ | (19,573 | ) |  | $ | 54,735 |  |  | $ | (44,811 | )
Provision for income taxes | (471 | ) |  | (392 | ) |  | (480 | )
Effective tax rate | (2.4 | )% |  | 0.7 | % |  | (1.1 | )%
The 2019, 2018 and 2017 provision for income taxes resulted primarily from estimated foreign taxes and foreign withholding tax expense. The Company reported pre-tax book income (loss) consisted of (in thousands):
| Year Ended December 31,
| 2019 |  | 2018 |  | 2017
Domestic | $ | (17,970 | ) |  | $ | 49,509 |  |  | $ | (23,994 | )
Foreign | (1,603 | ) |  | 5,226 |  |  | (20,817 | )
Total | $ | (19,573 | ) |  | $ | 54,735 |  |  | $ | (44,811 | )
The provisions for income taxes consisted of the following (in thousands):
| Year Ended December 31,
| 2019 |  | 2018 |  | 2017
Current: |  |  |  |  |
U.S. federal | — |  |  | $ | — |  |  | $ | — |
State and local | (3 | ) |  | (3 | ) |  | (5 | )
Foreign | (190 | ) |  | (331 | ) |  | (448 | )
Total current | $ | (193 | ) |  | $ | (334 | ) |  | $ | (453 | )
Deferred: |  |  |  |  |
U.S. federal | — |  |  | — |  |  | — |
State and local | — |  |  | — |  |  | — |
Foreign | (278 | ) |  | (58 | ) |  | (27 | )
Total deferred | (278 | ) |  | (58 | ) |  | (27 | )
Total provision for income taxes | $ | (471 | ) |  | $ | (392 | ) |  | $ | (480 | )
On July 27, 2015, a U.S. Tax Court opinion (Altera Corporation et. al v. Commissioner) concerning the treatment of stock-based compensation expense in an intercompany cost sharing arrangement was issued. In its opinion, the U.S. Tax Court accepted Altera's position of excluding stock-based compensation from its intercompany cost sharing arrangement. On February 19, 2016, the IRS appealed the ruling to the U.S. Court of Appeals for the Ninth Circuit (the “Ninth Circuit”). On July 24, 2018, the Ninth Circuit reversed the 2015 decision of the U.S. Tax Court that had found certain Treasury regulations related to stock-based compensation to be invalid. On August 7, 2018, the Ninth Circuit withdrew its July 24, 2018 opinion to allow a reconstituted panel to confer on the decision. This reconstituted panel reconsidered the validity of the cost sharing regulations at issue. The regulations at issue require related entities to share the cost of employee stock compensation in order for their cost-sharing arrangements to be classified as “qualified cost-sharing arrangements” and to avoid potential IRS adjustment. On June 7, 2019, the reconstituted panel of the Ninth Circuit upheld the 2018 decision of the Ninth Circuit, concluding stock-based compensation must be included in intercompany cost sharing agreements for the agreements to be classified as “qualified cost-sharing arrangements”. On July 22, 2019, Altera filed a petition for an en banc rehearing with the Ninth Circuit which was denied. On February 10, 2020, Altera filed an appeal to the United States Supreme Court (the “Supreme Court”) for review. Although the Company believes stock-based compensation is not required to be included in its pool of shared costs under its intercompany cost sharing arrangement, the Company has concluded that it is not more likely than not that Altera will prevail with an appeal to the Supreme Court. As such, the Company has made corresponding provisions. The Company will continue to monitor ongoing developments and potential impacts to its consolidated financial statements. On December 22, 2017, the Tax Act was passed into law. Among other changes, the Tax Act reduced the US federal corporate income tax rate from 35% to 21%, required companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred and created new taxes on certain foreign sourced earnings. In addition, the Act introduced the Base Erosion and Anti-Abuse Tax (the “BEAT”), which creates a new tax on certain related-party payments. The Company concluded that it has not met the threshold requirements of the BEAT. Although the measurement period has closed, further technical guidance related to the Tax Act, including final regulations on a broad range of topics, is expected to be issued. In accordance with ASC 740, the Company will recognize any effects of the guidance in the period that such guidance is issued. Deferred tax assets and liabilities are recognized for the temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, tax losses, and credit carryforwards. Significant components of the net deferred tax assets and liabilities consisted of (in thousands):
| December 31,
| 2019 |  | 2018
Deferred tax assets: |  |  |
Net operating loss carryforwards | $ | 4,936 |  |  | $ | 4,968 |
State income taxes | 1 |  |  | 1 |
Deferred revenue | 6,291 |  |  | 2,347 |
Research and development and other credits | 8,282 |  |  | 9,590 |
Reserves and accruals recognized in different periods | 1,128 |  |  | 3,734 |
Capitalized R&D expenses | 3,447 |  |  | 3,415 |
Depreciation and amortization | 3,636 |  |  | 472 |
Lease liability | 806 |  |  | — |
Deferred rent | — |  |  | 160 |
Other | — |  |  | 6 |
Total deferred tax assets | 28,527 |  |  | 24,693 |
Valuation allowance | (28,057 | ) |  | (24,398 | )
Net deferred tax assets | 470 |  |  | 295 |
Right of use lease assets | (466 | ) |  | — |
Foreign credits | (23 | ) |  | (29 | )
Other | (40 | ) |  | (17 | )
Net deferred tax liabilities | (529 | ) |  | (46 | )
Net deferred taxes | $ | (59 | ) |  | $ | 249 |
The Company accounts for deferred taxes under ASC 740 which requires a reduction of the carrying amounts of deferred tax assets by a valuation allowance if, based on available evidence, it is more likely than not that such assets will not be realized. Accordingly, the need to establish valuation allowances for deferred tax assets is assessed periodically based on the ASC 740 more-likely-than-not realization (“MLTN”) threshold criterion. This assessment considers matters such as future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. The evaluation of the recoverability of the deferred tax assets requires that the Company weigh all positive and negative evidence to reach a conclusion that it is more likely than not that all or some portion of the deferred tax assets will not be realized. The weight given to the evidence is commensurate with the extent to which it can be objectively verified. As of December 31, 2018, based on its assessment of the realizability of its deferred tax assets, the Company continued to maintain a full valuation allowance against all of its federal and state, and certain of its foreign net deferred tax assets. As of December 31, 2019, the net operating loss carryforwards for federal and state income tax purposes were approximately $1.3 million and $53.0 million, respectively. The state net operating losses begin to expire in 2028. The federal net operating losses for tax years after 2017 can be carried forward indefinitely. The Company also has net operating loss (“NOL”) carryforwards from Ireland of $1.8 million that can be carried forward indefinitely and do not expire. Based on the Company’s assessment of positive and negative evidence as of December 31, 2019, the Company concluded it was not more likely than not that the deferred tax asset arising from the Ireland NOL carryforward would be realized. Therefore, as of December 31, 2019 the Company recorded $1.6 million to reflect a full valuation allowance against Ireland’s deferred tax asset. As of December 31, 2019, the Company had federal and state tax credit carryforwards of approximately $8.3 million and $2.4 million, respectively, available to offset future tax liabilities. The federal credit carryforwards will expire between 2020 and 2038 and the California tax credits will carryforward indefinitely. In addition, as of December 31, 2019, the Company has Canadian research and development credit carryforwards of $1.7 million, which will expire at various dates through 2039. These operating losses and credit carryforwards have not been reviewed by the relevant tax authorities and could be subject to adjustment upon examinations. Section 382 of the Internal Revenue Code (“IRC Section 382”) imposes limitations on a corporation’s ability to utilize its net operating losses and credit carryforwards if it experiences an “ownership change” as defined by IRC Section 382. Utilization of a portion of the Company’s federal net operating loss carryforward was limited in accordance with IRC Section 382, due to an ownership change that occurred during 1999. This limitation has fully lapsed as of December 31, 2010. As of December 31, 2019, the Company conducted an IRC Section 382 analysis with respect to its net operating loss and credit carryforwards and determined there was no limitation. There can be no assurance that future issuances of the Company’s securities will not trigger limitations under IRC Section 382 which could limit utilization of these tax attributes. For purposes of the reconciliation between the provision for income taxes at the statutory rate and the effective tax rate, a national U.S. 21% rate is applied for 2019 and 2018, the years in which the Tax Act took effect. For 2017, the national U.S. rate of 35%, the rate in effect prior to the Tax Act change, was applied for the reconciliation between the provision for income taxes at the statutory rate and the effective tax rate:
| Years Ended December 31,
| 2019 |  | 2018 |  | 2017
Federal statutory tax rate | 21.0 | % |  | 21.0 | % |  | 35.0 | %
Foreign withholding | (0.3 | )% |  | 0.1 | % |  | (0.2 | )%
Stock compensation expense | (11.3 | )% |  | (1.0 | )% |  | (2.0 | )%
Foreign rate differential | (2.6 | )% |  | (1.5 | )% |  | (17.0 | )%
Prior year true-up items | 0.2 | % |  | — | % |  | (0.1 | )%
Tax reserves | (2.1 | )% |  | (1.3 | )% |  | (0.1 | )%
Loss on expiration of capital loss carryover | — | % |  | 1.1 | % |  | — | %
Credits | 0.1 | % |  | (0.1 | )% |  | 0.4 | %
Other | (1.6 | )% |  | 0.9 | % |  | — | %
FTC conversion true up | (5.9 | )% |  | — | % |  | — | %
2017 Tax Act impact | — | % |  | 1.1 | % |  | (28.7 | )%
Valuation allowance | 0.1 | % |  | (19.6 | )% |  | 11.6 | %
Effective tax rate | (2.4 | )% |  | 0.7 | % |  | (1.1 | )%
Undistributed earnings of the Company’s foreign subsidiaries are considered to be indefinitely reinvested and accordingly, no provision for applicable income taxes has been provided thereon. Upon distribution of those earnings, the Company would be subject to withholding taxes payable to various foreign countries. As of December 31, 2019, any foreign withholding taxes on the undistributed earnings of the Company’s foreign subsidiaries were immaterial. The Company maintains liabilities for uncertain tax positions. These liabilities involve considerable judgment and estimation and are continuously monitored by management based on the best information available, including changes in tax regulations, the outcome of relevant court cases, and other information. A reconciliation of the beginning and ending amount of gross unrecognized tax benefits is as follows (in thousands):
| Years Ended December 31,
| 2019 |  | 2018 |  | 2017
Balance at beginning of year | $ | 4,611 |  |  | $ | 4,672 |  |  | $ | 6,232 |
Gross increases for tax positions of prior years | 394 |  |  | — |  |  | — |
Gross decreases for federal tax rate change for tax positions of prior years | — |  |  | — |  |  | (1,670 | )
Gross increases for tax positions of current year | 34 |  |  | 45 |  |  | 110 |
Lapse of statute of limitations | (213 | ) |  | (106 | ) |  | — |
Balance at end of year | $ | 4,826 |  |  | $ | 4,611 |  |  | $ | 4,672 |
The unrecognized tax benefits relate primarily to federal and state research and development credits and intercompany profit on the transfer of certain IP rights to one of the Company’s foreign subsidiaries as part of the Company’s tax reorganization completed in 2015. The Company’s policy is to account for interest and penalties related to uncertain tax positions as a component of income tax expense. As of December 31, 2019, the Company accrued interest or penalties related to uncertain tax positions in the amount of $25,000. As of December 31, 2019, the total amount of unrecognized tax benefits that would affect the Company’s effective tax rate, if recognized, is $97,000. Because the Company has net operating loss and credit carryforwards, there are open statutes of limitations in which federal, state and foreign taxing authorities may examine the Company’s tax returns for all years from 2000 through the current period.

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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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