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INCOME TAXES | 12 Months Ended
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Dec. 31, 2019
INCOME TAXES |
INCOME TAXES | 5. INCOME TAXES We recorded a provision for income taxes in the year ended December 31, 2019 of $5.2 million. We recorded a benefit from income taxes of $8,000 in the year ended December 31, 2018. The components of the provision for income taxes are as follows (in thousands):
|  | Year ended December 31,
|  | 2019 |  | 2018
Current: |  |  |  |  |  |
Federal |  |  | 8 |  |  | 54
State |  |  | 32 |  |  | 38
|  |  | 40 |  |  | 92
Deferred: |  |  |  |  |  |
Federal |  |  | 4,965 |  |  | (22)
State |  |  | 206 |  |  | (78)
|  |  | 5,171 |  |  | (100)
Provision for (benefit from) income taxes |  | $ | 5,211 |  | $ | (8)
A reconciliation of the U.S. federal statutory rate to the effective tax rate is as follows:
|  | Year ended December 31, |
|  | 2019 |  | 2018 |
Federal statutory rate |  | 21 | % | 21 | %
State rate, net of federal benefit |  | 6 |  | 6 |
Tax credits |  | 10 |  | (26) |
Permanent adjustments |  | (1) |  | 1 |
FDII deduction |  | — |  | (4) |
Change in valuation allowance |  | (202) |  | — |
Other |  | (1) |  | 1 |
Effective tax rate |  | (167) | % | (1) | %
Total income tax provision for the year ended December 31, 2019 was $5.2 million. The increase in the income tax provision for 2019 was primarily due to the change in valuation allowance for our deferred tax assets. Total income tax benefit for the year ended December 31, 2018 was $8,000. Income tax benefit for 2018 was based on: i) the U.S. statutory rate of 21%, ii) increased by state income taxes and permanent adjustments; and iii) reduced by Foreign-Derived Intangible Income (“FDII”) deduction and research tax credits. As of December 31, 2019, we had deferred tax assets of $6.3 million for which we recorded a $6.3 million valuation allowance. As of December 31, 2018, we had deferred tax assets of $5.2 million for which we recorded no valuation allowance. The principal components of deferred tax assets were as follows at December 31 (in thousands):
|  | 2019 |  | 2018
Depreciation |  | $ | 354 |  | $ | 327
Stock compensation |  |  | 115 |  |  | 87
Research and development credits |  |  | 4,975 |  |  | 4,689
Net operating loss |  |  | 789 |  |  | —
Other |  |  | 92 |  |  | 68
Total |  |  | 6,325 |  |  | 5,171
Less valuation allowance |  |  | (6,325) |  |  | —
Deferred tax assets, net |  | $ | — |  | $ | 5,171
As of December 31, 2019, we had a total of $6.3 million of deferred tax assets, of which $5.0 million relates to research credit carryforwards. We have assessed the need for a valuation allowance on our deferred tax assets. We evaluated and considered all available evidence, both positive and negative, to determine whether, based on the weight of that evidence, a valuation allowance for deferred tax assets was needed. As part of this analysis we have given more weight to recent, historical evidence than future projections as we consider the past more objective. As of the fourth quarter of 2019, we have a cumulative pretax loss over the most recent three-year period including a pretax loss of $3.1 million in 2019. We considered the cumulative loss as of the end of the fourth quarter of 2019 to be significant negative evidence in the overall analysis. Prior to this quarter, we have incurred pretax income cumulatively when calculating it for the twelve most recent quarters, however, the levels of pretax income have been declining in recent periods, most notably as of the fourth quarter of 2019 as a result of certain internal changes. In September 2019, we appointed a new Chief Executive Officer and, as a result, we reviewed and made changes to our strategy and business plans. As a result, we will be making additional investments in research, product development and sales and marketing including additional headcount. These changes in strategy and additional investment started in the fourth quarter of 2019 and will continue over the proceeding years. Our pretax income forecasts are highly predicated upon new product development and penetrating new markets. Therefore, this evidence is given nominal weight in the analysis compared to the recent history of losses and anticipated investment. Further, a significant portion of our deferred tax assets relates to federal and state research credits. These credits may only offset 75% of the tax liability after net operating loss carryforwards are utilized and thus, we have the risk that the credits could expire before utilization if sufficient taxable income in the carryforward periods doesn’t exist. Based upon the information available to us at this time, the above analysis of evidence represents our best estimate regarding the utilization of the deferred tax assets, and we have concluded that it is more likely than not that the deferred tax assets of $6.3 million will not be realized. Therefore, we have recorded a full valuation allowance of $6.3 million against our deferred tax assets during the fourth quarter of 2019. We will continue to monitor the evidence and the realizability of our deferred tax assets in future periods. Should evidence regarding the realizability of our deferred tax assets change at a future point in time, we will adjust the valuation allowance as required. A rollforward of the uncertain tax position that was primarily related to our research and development tax credits is as follows (in thousands):
Uncertain tax positions at December 31, 2017 |  | $ | 998
Increase due to positions taken in prior periods |  |  | —
Uncertain tax positions at December 31, 2018 |  |  | 998
Increase due to positions taken in prior periods |  |  | 10
Uncertain tax positions at December 31, 2019 |  | $ | 1,008
Uncertain tax positions of $0.8 million will impact our tax rate if realized. The difference between this amount and the total uncertain tax positions in the table above is the federal tax effect on state tax credits. The tax years from 2016 through 2019 are subject to examination by the IRS and the tax years 2003 through 2019 are subject to examination by state tax authorities.

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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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