13. Income Taxes
We recognized an income tax benefit of $0.7 million for the year ended December 31, 2017 as a result of monetizing our alternative minimum tax credit carryforwards as permitted by the Tax Cut and Jobs Act, or the Act, that was enacted on December 22, 2017. We did not have any income tax expense for the year ended December 31, 2016, and our income tax expense of $0.3 million for the year ended December 31, 2015, consisted primarily of current U.S. federal taxes.
Our income tax expense for the years ended December 31, 2017, 2016 and 2015 differed from the expected U.S. federal statutory income tax expense as set forth below: |
| | | | | | | | | | | |
| Years Ended December 31, |
| 2017 | | 2016 | | 2015 |
| (in thousands) |
Expected federal tax benefit | $ | (14,467 | ) | | $ | (10,234 | ) | | $ | (43,534 | ) |
Permanent differences | 673 |
| | 1,749 |
| | 2,263 |
|
State taxes, net of the deferred federal benefit | (2,150 | ) | | (1,589 | ) | | (6,762 | ) |
Tax credit carryforwards | — |
| | (37 | ) | | (2,735 | ) |
Adjustments to deferred tax assets and deferred tax liabilities | 5,291 |
| | 121 |
| | (1,267 | ) |
Alternative minimum tax | — |
| | — |
| | 321 |
|
Tax Cut and Jobs Act impact | 74,455 |
| | — |
| | — |
|
Other | — |
| | 79 |
| | 29 |
|
Change in valuation allowance | (64,522 | ) | | 9,911 |
| | 52,020 |
|
Income tax expense (benefit) | $ | (720 | ) | | $ | — |
| | $ | 335 |
|
The Act reduces the US federal corporate tax rate from 35% to 21%, effective for tax years including or commencing January 1, 2018. On December 22, 2017, the SEC staff issued Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act, or SAB 118, which allows the recording of provisional amounts during a measurement period not to extend beyond one year of the enactment date. In accordance with SAB 118, we have determined that our deferred tax asset value and associated valuation allowance reduction of $74.5 million is a provisional amount and a reasonable estimate at December 31, 2017. As noted above, there is a $0.7 million tax benefit as a result of monetizing the alternative minimum tax credit carryforwards. The Tax Cut and Jobs Act impact line in the income tax expense reconciliation table above includes tax expense of $75.2 million from the re-measurement of our deferred tax assets offset by tax benefit of $0.7 million as a result of monetizing the alternative minimum tax credit carryforwards. The final impact may differ from this provisional amount due to, among other things, changes in interpretations and assumptions we have made thus far and the issuance of additional regulatory or other guidance. We expect to complete the final impact within the measurement period.
The significant components of our deferred tax assets and liabilities are as follows: |
| | | | | | | |
| Years Ended December 31, |
| 2017 | | 2016 |
| (in thousands) |
Deferred tax assets (liabilities): | | | |
Net operating loss carryforwards | $ | 135,787 |
| | $ | 178,125 |
|
Tax credit carryforwards | 40,539 |
| | 40,051 |
|
Intangible assets | 22,206 |
| | 32,199 |
|
Accrued expenses | 88 |
| | 822 |
|
Stock-based compensation | 6,056 |
| | 11,974 |
|
Other | 391 |
| | (377 | ) |
Valuation allowance | (205,067 | ) | | (262,794 | ) |
Net deferred tax assets | $ | — |
| | $ | — |
|
We have recorded a valuation allowance against our deferred tax assets in each of the years ended December 31, 2017, 2016 and 2015 because management believes that it is more likely than not that these assets will not be realized. The valuation allowance decreased by approximately $57.7 million during the year ended December 31, 2017 primarily as a result of the re-measurement of our deferred tax balance following the Act. The valuation allowance increased by approximately $9.9 million during the year ended December 31, 2016 primarily as a result of the increase in our unbenefited net operating loss deferred tax asset. The valuation allowance increased by approximately $52.0 million during the year ended December 31, 2015 primarily as a result of unbenefited deferred tax assets such as deferred revenue and intangible assets.
Subject to the limitations described below, at December 31, 2017, we have cumulative net operating loss carryforwards of approximately $524.1 million and $407.3 million available to reduce federal and state taxable income, which expire through 2037, and have begun to expire and will continue to expire through 2037, respectively. In addition, we have cumulative federal and state tax credit carryforwards of $32.5 million and $10.2 million, respectively, available to reduce federal and state income taxes which expire through 2036 and 2030, respectively. Our net operating loss carryforwards and tax credit carryforwards are limited as a result of certain ownership changes, as defined under Sections 382 and 383 of the Internal Revenue Code. This limits the annual amount of these tax attributes that can be utilized to offset future taxable income or tax liabilities. The amount of the annual limitation is determined based on our value immediately prior to an ownership change. Subsequent ownership changes may affect the limitation in future years. The net operating losses and tax credit carryforwards that have and will expire unused in the future as a result of Section 382 and 383 limitations have been excluded from the amounts disclosed above.
At December 31, 2017 and 2016, we had no unrecognized tax benefits. As of December 31, 2017, 2016 and 2015, we had no accrued interest or penalties related to uncertain tax positions and no amounts have been recognized in our consolidated statements of operations. We will recognize interest and penalties related to uncertain tax positions in income tax expense. For all years through December 31, 2016, we generated research credits but have not conducted a study to document the qualified activities. This study may result in an adjustment to our research and development credit carryforwards; however, until a study is completed and any adjustment is known, no amounts are being presented as an uncertain tax position. A full valuation allowance has been provided against our research and development credits and, if an adjustment is required, this adjustment would be offset by an adjustment to the deferred tax asset established for the research and development credit carryforwards and the valuation allowance.
We file income tax returns in the U.S. federal, Massachusetts, and other state jurisdictions. The statute of limitations for assessment by the Internal Revenue Service, or IRS, and state tax authorities is closed for tax years prior to 2014, although carryforward attributes that were generated prior to tax year 2014 may still be adjusted upon examination by the IRS or state tax authorities if they either have been or will be used in a future period.