Income taxes

The Company is subject to federal and state income taxes in the United States. For the years ended December 31, 2018 and 2017, the provision (benefit) for income taxes on loss from continuing operations consisted of the following:



	Year Ended December 31
(In thousands)	2018			2017
Current
Federal	$	—		$	—
State	—			—
	—			—
Deferred
Federal	3,726			(7,117		)
State	81			(1,855		)
Less: valuation allowance	(3,761		)	8,972
	46			—
Income tax expense	$	46		$	—

For the years ended December 31, 2018 and 2017, reconciliation of the Company's effective income tax rate to the U.S. corporate statutory income tax rate is as follows:



	Year Ended December 31
(In thousands)	2018					2017
Income tax expense at federal statutory rate	$	(3,756	)	21.0	%	$	(18,090	)	34.0	%
Share-based compensation shortfall	7,080			(39.6	)	5,133			(9.6	)
Effect of state taxes, net of federal tax benefit	64			(0.4	)	(1,515		)	2.8
Deferred remeasurement for tax rate change	—			—		5,117			(9.6	)
Loss on amendment of warrants	—			—		342			(0.6	)
Non-deductible items	396			(2.3	)	—			—
Return to provision adjustment	(4		)	0.2		—			—
Other	27			0.2		41			(0.1	)
Change in valuation allowance	(3,761		)	21.0		8,972			(16.9	)
Income tax expense	$	46		0.1	%	$	—		—	%

As of December 31, 2018 and 2017, the components of deferred tax assets and liabilities consist of the following:



(In thousands)	December 31, 2018			December 31, 2017
Deferred tax assets:
Net operating loss carryforwards	$	8,908		$	7,555
Share-based compensation	5,753			16,321
Interest expense limitation	2,171			—
Settlement liability	—			1,037
Accounts receivable, net	451			480
Accrued expenses and other current liabilities	74			91
Property and equipment, net	73			—
Other	145			22
	17,575			25,506
Valuation allowance	(5,238		)	(10,853		)
	12,337			14,653
Deferred tax liabilities:
Intangible assets	(12,383		)	(14,505		)
Property and equipment, net	—			(148		)
	(12,383		)	(14,653		)
Net deferred tax liability	$	(46	)	$	—

As of December 31, 2018, the Company has federal net operating losses of $36,973, of which $26,128 begin to expire in 2035, and $10,845 which can be carried forward indefinitely. As of December 31, 2018, the Company has state net operating loss carryforwards of $36,075, which begin to expire in 2035. Certain net operating losses generated by the Company in 2014 and 2015 are subject to annual limitation under IRC Section 382 due to ownership changes.

For the year ended December 31, 2018, the Tax Act established a new limitation on deductible interest expense under IRC Section 163(j), which limits the Company’s annual deduction of interest expense to the sum of business interest income and 30 percent of the adjusted taxable income of the Company. For the year ended December 31, 2018, the limitation resulted in disallowed interest of $8,417, which can be carried forward indefinitely.

For the year ended December 31, 2018, the Spin-off of Red Violet contributed to a $1,500 decrease to the net deferred tax assets of the Company, which was fully offset by a corresponding reduction to the valuation allowance. The aforementioned decrease represents the net deferred tax assets attributable to Red Violet on the date of the Spin-off.

As of December 31, 2018 and 2017, the Company recorded a full valuation allowance against its net deferred tax assets of $5,238 and $10,853, respectively. For the year ended December 31, 2018, the decrease in the valuation allowance is primarily a result of the movement in the net deferred tax asset in the current year. The Company intends to continue maintaining a full valuation allowance on these net deferred tax assets until there is sufficient evidence to support the release of all or some portion of these allowances. Based on the Company’s history of losses, current income (loss) from continuing operations, estimated future taxable income exclusive of reversing temporary differences and carryforwards, future reversals of existing taxable temporary differences and consideration of available tax planning strategies, the Company believes there is a reasonable possibility that within the next twelve months sufficient positive evidence may become available to allow a conclusion to be reached that a significant portion, if not all, of the valuation allowance may be released. Release of some or all of the valuation allowance would result in the recognition of certain deferred tax assets and an increase in deferred tax benefit for any period in which such a release may be recorded; however, the exact timing and amount of any valuation allowance release are subject to change, depending upon the level of profitability that the Company is able to achieve and the net deferred tax assets available.

The Company continually evaluates expiring statutes of limitations, audits, proposed settlements, changes in tax law and new authoritative rulings. The Company files tax returns in federal and certain state and local jurisdictions. The 2015 tax year is the earliest tax year that remains subject to examination by the following taxing authorities in major jurisdictions: Federal, California, New York and New York City. Since inception, the Company has generated net operating losses, and thus the 2014 tax year remains open to examination by taxing authorities to the extent the net operating losses generated in such year are utilized in subsequent periods with open statutes.

For the years ended December 31 2018 and 2017, reconciliation of the gross amounts of unrecognized tax benefits, excluding accrued interest and penalties, consists of the following:



	Year Ended December 31
(In thousands)	2018		2017
Unrecognized tax benefits, opening balance	$	1,134	$	1,668
Decrease as a result of the Tax Act	—		(534		)
Increase in unrecognized tax benefits	346		—
Unrecognized tax benefits, ending balance	$	1,480	$	1,134

The unrecognized tax benefits, if recognized, would result in an increase to net operating losses that would be subject to a valuation allowance and, accordingly, result in no impact to the Company’s annual effective tax rate. As of December 31, 2018, the Company has not accrued any interest or penalties with respect to its uncertain tax positions.

The Company does not anticipate a significant increase or reduction in unrecognized tax benefits within the next twelve months.