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INCOME TAXES | 12 Months Ended
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Dec. 31, 2018
INCOME TAXES |
INCOME TAXES | 14. INCOME TAXES The provision for income taxes for the years ended December 31, 2018 and 2017 consists of the following:
|  | For the Years Ended December 31, |
|  | 2018 |  | 2017 |  |
Current provision |  |  |  |  |  |  |  |
Federal |  | $ | — |  | $ | — |  |
Foreign |  |  | — |  |  | — |  |
State |  |  | 98 |  |  | 5 |  |
Total current benefit |  |  | 98 |  |  | 5 |  |
Deferred credit |  |  |  |  |  |  |  |
Federal |  |  | (3,978) |  |  | 31,614 |  |
State |  |  | (2,963) |  |  | 468 |  |
Total deferred credit |  |  | (6,941) |  |  | 32,082 |  |
Increase (decrease) in deferred tax valuation allowance |  |  | 6,638 |  |  | (37,132) |  |
Total benefit for income taxes |  | $ | (205) |  | $ | (5,045) |  |
On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act makes broad and complex changes to the U.S. tax code, including, but not limited to, (1) reducing the U.S. federal corporate tax rate; (2) eliminating the corporate alternative minimum tax; (3) creating a new limitation on deductible interest expense; and (4) changing rules related to uses and limitations of net operating loss carryforwards created in tax years beginning after December 31, 2017. With the Tax Act, the Securities and Exchange Commission issued guidance under Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act (“SAB 118”) directing taxpayers to consider the impact of the U.S. legislation as “provisional” when it does not have the necessary information, prepared or analyzed in reasonable detail to complete its accounting for the change in tax law. During the year ended December 31, 2018, the Company recorded a benefit for income taxes of $205, compared to a benefit for income taxes of $5,045 during the year ended December 31, 2017. The income tax benefit during the year ended December 31, 2017 included an income tax benefit of $5,060 from the partial release of the valuation allowance, net of Red Wolf’s current state taxes, resulting from the consolidation of the Company’s deferred tax assets with Red Wolf’s deferred tax liabilities upon acquisition. The total change in the deferred tax valuation allowance was $6,638 and ($37,132) for the years ended December 31, 2018 and 2017, respectively. The changes in the deferred tax valuation allowances in 2018 and 2017 were primarily the result of (decreases) increases to the deferred tax assets pertaining to federal and state NOLs. The tax effects of the temporary differences and NOLs that give rise to significant portions of deferred tax assets and liabilities are as follows:
|  | As of December 31, |
|  | 2018 |  | 2017 |
Noncurrent deferred income tax assets: |  |  |  |  |  |  |
Net operating loss carryforwards |  | $ | 63,906 |  | $ | 56,619 |
Intangible assets |  |  | 7,261 |  |  | 6,889 |
Accrual and reserves |  |  | 2,502 |  |  | 2,402 |
Other |  |  | 19 |  |  | 88 |
Total noncurrent deferred tax assets |  |  | 73,688 |  |  | 65,998 |
Valuation allowance |  |  | (73,129) |  |  | (66,491) |
Noncurrent deferred tax assets, net of valuation allowance |  |  | 559 |  |  | (493) |
Noncurrent deferred income tax liabilities: |  |  |  |  |  |  |
Fixed assets |  |  | 593 |  |  | (152) |
Intangible assets |  |  | — |  |  | — |
Total noncurrent deferred tax liabilities |  |  | 593 |  |  | (152) |
Net deferred income tax liability |  | $ | (34) |  | $ | (341) |
Valuation allowances of $73,129 and $66,491 have been provided for deferred income tax assets for which realization is uncertain as of December 31, 2018 and 2017, respectively. A reconciliation of the beginning and ending amounts of the valuation is as follows:
Valuation allowance as of December 31, 2017 |  | $ | (66,491) |
Gross increase for current year activity |  |  | (6,638) |
Valuation allowance as of December 31, 2018 |  | $ | (73,129) |
As of December 31, 2018, the Company had federal and unapportioned state NOL carryforwards of approximately $248,717 of which $228,787 will begin to expire in 2026. The majority of the NOL carryforwards will expire in various years from 2028 through 2037. NOLs generated after January 1, 2018 will not expire. The reconciliation between the statutory U.S. federal income tax rate and the Company’s effective income tax rate is as follows:
|  | For the Year Ended
|  | December 31,
|  | 2018 |  | 2017 |
Statutory U.S. federal income tax rate |  | 21.0 | % | 34.0 | %
State and local income taxes, net of federal income tax benefit |  | 3.2 |  | 3.4 |
Permanent differences |  | (4.4) |  | (1.2) |
Change in valuation allowance |  | (18.7) |  | 446.7 |
Change in uncertain tax positions |  | 0.0 |  | 0.5 |
Other |  | (0.3) |  | 0.1 |
Effect of U.S. tax rate change |  | 0.0 |  | (422.6) |
Effective income tax rate |  | 0.8 | % | 60.9 | %
The Company accounts for the uncertainty in income taxes by prescribing a minimum recognition threshold for a tax position taken, or expected to be taken, in a tax return that is required to be met before being recognized in the financial statements. The changes in the Company’s uncertain income tax positions for the years ended December 31, 2018 and 2017 consisted of the following:
|  | For the Year |
|  | Ended |
|  | December 31, |
|  | 2018 |  | 2017 |
Beginning balance |  | $ | 1 |  | $ | 27 |
Tax positions related to current year: |  |  |  |  |  |  |
Additions |  |  | — |  |  | — |
Reductions |  |  | — |  |  | — |
|  |  | — |  |  | — |
Tax positions related to prior years: |  |  |  |  |  |  |
Additions |  |  | — |  |  | — |
Reductions |  |  | — |  |  | — |
Settlements |  |  | — |  |  | — |
Lapses in statutes of limitations |  |  | (1) |  |  | (26) |
Additions from current year acquisitions |  |  | — |  |  | — |
|  |  | (1) |  |  | (26) |
Ending balance |  | $ | — |  | $ | 1 |
The amount of unrecognized tax benefits at December 31, 2018 that would affect the effective tax rate if the tax benefits were recognized was $0. It is the Company’s policy to include interest and penalties in tax expense. During the years ended December 31, 2018 and 2017, the Company recognized and accrued approximately $0 of interest and penalties. The Company files income tax returns in the U.S. federal and state jurisdictions. As of December 31, 2018, open tax years in the federal and some state jurisdictions date back to 1996 due to the taxing authorities’ ability to adjust NOL carryforwards. The Company’s 2008 and 2009 federal tax returns were examined in 2011 and no material adjustments were identified related to any of the Company’s tax positions. Although these periods have been audited, they continue to remain open until all NOLs generated in those tax years have either been utilized or expire. Section 382 of the Internal Revenue Code of 1986, as amended (the “IRC”), generally imposes an annual limitation on the amount of NOL carryforwards and associated built‑in losses that may be used to offset taxable income when a corporation has undergone certain changes in stock ownership. The Company’s ability to utilize NOL carryforwards and built‑in losses may be limited, under this section or otherwise, by the Company’s issuance of common stock or by other changes in stock ownership. Upon completion of the Company’s analysis of IRC Section 382, the Company has determined that aggregate changes in stock ownership have resulted in an annual limitation of $14,284 on NOLs and built‑in losses available for utilization based on the triggering event in 2010. To the extent the Company’s use of NOL carryforwards and associated built‑in losses is significantly limited in the future due to additional changes in stock ownership, the Company’s income could be subject to U.S. corporate income tax earlier than it would if the Company were able to use NOL carryforwards and built‑in losses without such annual limitation, which could result in lower profits and the loss of the majority of the benefits from these attributes. In February 2013, the Company adopted a Stockholder Rights Plan, which was amended in February 2016 and approved by our stockholders (as amended, the “Rights Plan”), designed to preserve the Company’s substantial tax assets associated with NOL carryforwards under IRC Section 382. On February 7, 2019, the Board of Directors (the “Board”) approved an amendment extending the Rights Plan for an additional three years. The amendment is subject to approval by our stockholders at our 2019 Annual Meeting of Stockholders. The Rights Plan is intended to act as a deterrent to any person or group, together with its affiliates and associates, being or becoming the beneficial owner of 4.9% or more of the Company’s common stock and thereby triggering a further limitation of the Company’s available NOL carryforwards. In connection with the adoption of the Rights Plan, the Board declared a non‑taxable dividend of one preferred share purchase right (a “Right”) for each outstanding share of the Company’s common stock to the Company’s stockholders of record as of the close of business on February 22, 2013. Each Right entitles its holder to purchase from the Company one one‑thousandth of a share of the Company’s Series A Junior Participating Preferred Stock at an exercise price of $4.25 per Right, subject to adjustment. As a result of the Rights Plan, any person or group that acquires beneficial ownership of 4.9% or more of the Company’s common stock without the approval of the Board would be subject to significant dilution in the ownership interest of that person or group. Stockholders who owned 4.9% or more of the outstanding shares of the Company’s common stock as of February 12, 2013 will not trigger the preferred share purchase rights unless they acquire additional shares after that date. As of December 31, 2018, the Company had $0 of unrecognized tax benefits, which would have a favorable impact on income tax expense. The Company recognizes interest and penalties related to uncertain tax positions as income tax expense. The Company had accrued interest and penalties of $0 as of December 31, 2018. As of December 31, 2017, the Company had unrecognized tax benefits of $1, of which $1 represented accrued interest and penalties.

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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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