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Note 10 - Income Taxes | 12 Months Ended
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Dec. 31, 2018
Notes to Financial Statements |
Income Tax Disclosure [Text Block] |
10 . | Income Taxes
For the years ended December 31, 2018, 2017 and 2016, we did not record a provision for income taxes due to a full valuation allowance against our deferred tax assets. The difference between the provision for income taxes and income taxes computed using the effective U.S. federal statutory rate is as follows (in thousands):
|  | December 31, |
|  | 2018 |  |  | 2017 |  |  | 2016 |
Tax at statutory federal rate |  | $ | (37,557 | ) |  | $ | (67,145 | ) |  | $ | (58,868 | )
State tax, net of federal benefit |  |  | (6,527 | ) |  |  | (6,203 | ) |  |  | 2,013 |
Research and development credits |  |  | (4,775 | ) |  |  | (5,962 | ) |  |  | (4,206 | )
Stock-based compensation expense |  |  | (2,059 | ) |  |  | 3,151 |  |  |  | 2,694 |
Non-deductible compensation |  |  | 901 |  |  |  | — |  |  |  | 1,864 |
Change in valuation allowance |  |  | 50,834 |  |  |  | 3,241 |  |  |  | 55,173 |
Impact of the 2017 Tax Act |  |  | — |  |  |  | 74,361 |  |  |  | — |
Other |  |  | (817 | ) |  |  | (1,443 | ) |  |  | 1,330 |
Provision for income taxes |  | $ | — |  |  | $ | — |  |  | $ | — |
Deferred income tax assets and liabilities arising from differences between accounting for financial statement purposes and tax purposes, less valuation allowance at year-end are as follows (in thousands):
|  | December 31, |
|  | 2018 |  |  | 2017 |
Deferred tax assets: |  |  |  |  |  |  |  |
Net operating loss carryforward |  | $ | 172,113 |  |  | $ | 134,659 |
Research and development credits |  |  | 35,670 |  |  |  | 25,919 |
Stock-based compensation |  |  | 11,905 |  |  |  | 8,633 |
Other |  |  | 3,171 |  |  |  | 2,920 |
Total gross deferred tax assets |  |  | 222,859 |  |  |  | 172,131 |
Valuation allowance |  |  | (222,859 | ) |  |  | (172,131 | )
Net deferred tax assets |  | $ | — |  |  | $ | — |
We have established a valuation allowance to offset net deferred tax assets as of December 31, 2018 and 2017 due to the uncertainty of realizing future tax benefits from such assets. As of December 31, 2018, we had federal, California and other state net operating loss (“NOL”) carryforwards of $715.3 million, $122.3 million and $824.9 million, respectively. The federal NOL carryforwards consist of $549.7 million generated before January 1, 2018, which will begin to expire in 2021 and $165.6 million that will carryforward indefinitely but are subject to the 80% taxable income limitation. The state NOL carryforwards will begin to expire in 2028. As of December 31, 2018, we had federal and California state research and development credit carryforwards of $27.2 million and $13.3 million, respectively. The federal research and development credit carryforwards will begin to expire in 2022. The California state credits can be carried forward indefinitely. Internal Revenue Code (“IRC”) Section 382 and 383 places a limitation on the amount of taxable income that can be offset by NOL and credit carryforwards after a change in control (generally greater than 50% change in ownership within a three -year period) of a loss corporation. California has similar rules. Generally, after a change in control, a loss corporation cannot deduct NOL and credit carryforwards in excess of the IRC Section 382 and 383 limitation. We have performed an IRC Section 382 and 383 analysis and determined there were ownership changes in 2007, 2011, and 2013. We are currently in the process of completing the IRC Section 382 and 383 analysis for 2018. The limitation in the federal and state carryforwards associated with the NOL and credit carryforwards reduce the deferred tax assets, which are further offset by a full valuation allowance. The limitation can result in the expiration of the NOLs and credit carryforwards available as of December 31, 2018. We file U.S. and state income tax returns with varying statutes of limitations. The tax years from 1999 to 2018 remain open to examination due to the carryover of unused NOL carryforwards and tax credits. The Tax Cuts and Jobs Act ( “2017 Tax Act”) was enacted in December 2017. The 2017 Tax Act, among other things, reduces the U.S. federal corporate tax rate from 35% to 21%, effective January 1, 2018, requires companies to pay a one -time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred and creates new taxes on certain foreign earnings. We revalued our deferred tax assets as of December 31, 2017 based on a U.S. federal tax rate of 21%, which resulted in a reduction to our deferred tax assets of $74.3 million fully offset by a reduction to the valuation allowance. We were not required to pay a one -time transition tax on earnings of our foreign subsidiary as the foreign subsidiary has an accumulated deficit. In addition, the Global Intangible Low-taxed Income provision is not applicable given the Company’s controlled foreign corporations incurred losses for the year ended December 31, 2018. In December 2017, the SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118” ), which provides guidance for the tax effects of the 2017 Tax Act. SAB 118 provides a measurement period that should not extend beyond one year from the Tax Act’s enactment date for companies to complete the accounting under ASC 740. In accordance with SAB 118, we must reflect the income tax effects of those aspects of the Tax Act for which the accounting under ASC 740 is complete. To the extent that our accounting for certain income tax effects of the Tax Act is incomplete, but we are able to determine a reasonable estimate, we must record a provisional estimate in our financial statements. If we cannot determine a provisional estimate to be included in our financial statements, we should continue to apply ASC 740 on the basis of the provisions of the tax laws that were in effect immediately before the enactment of the Tax Act. We have completed our analysis of the Tax Act’s income tax effects. In accordance with SAB 118, the Tax Act-related income tax effects that we initially reported as provisional estimates were refined as additional analysis was performed. Our analysis was complete in the fourth quarter of 2018 and there was no material impact to our consolidated balance sheets or statements of operations and comprehensive loss. A reconciliation of our unrecognized tax benefits is as follows (in thousands):
|  | Year Ended December 31, |
|  | 2018 |  |  | 2017 |  |  | 2016 |
Balance at beginning of year |  | $ | 120 |  |  | $ | 120 |  |  | $ | 120 |
Additions for tax positions of prior years |  |  | — |  |  |  | — |  |  |  | — |
Additions based on tax positions related to current year |  |  | 2,265 |  |  |  | — |  |  |  | — |
Balance at end of year |  | $ | 2,385 |  |  | $ | 120 |  |  | $ | 120 |
Due to our valuation allowance, the $2.4 million of unrecognized tax benefits would not affect the effective tax rate, if recognized. It is the Company’s practice to recognize interest and penalties related to income tax matters in income tax expense. As of December 31, 2018, we had no accrued interest and penalties related to uncertain tax positions. We do not expect any material changes to the estimated amount of liability associated with our uncertain tax positions within the next 12 months.

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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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