On December 22, 2017, the United States enacted significant changes to U.S. tax law following the passage and signing of H.R.1, “An Act to Provide for Reconciliation Pursuant to Titles II and V of the Concurrent Resolution on the Budget for Fiscal Year 2018” (the Tax Act).   The Tax Act reduces the U.S. federal corporate tax rate to a maximum of 21 percent.  As of December 31, 2017, we have not completed our accounting for the tax effects of the enactment of the Tax Act, however, in certain cases, as described below, we have made a reasonable estimate of the effects on our existing deferred tax balances. The application of this rate reduction to the ending deferred tax assets and deferred tax liabilities impacted our expense for income taxes by $7.1 million which was fully offset by a corresponding change to our valuation allowance in 2017.  We are still analyzing the Tax Act and refining our calculations, which could potentially impact the measurement of our tax balances.  The Tax Act contains several base broadening provisions that became effective on January 1, 2018, that we do not expect to have a material impact on future earnings.  The 2017 impact of the enactment of the Tax Act is reflected in the tables below.

Deferred tax asset (liability) is comprised of the following (in thousands):

 

 

Deferred taxes arise from temporary differences in the recognition of certain expenses for tax and financial reporting purposes.  We have determined it is more likely than not that some portion or all of the deferred tax assets will not be realized.  Accordingly, we have provided a valuation allowance for deferred tax assets.

The following table summarizes the change in the valuation allowance (in thousands).

 

As of December 31, 2017, net operating loss carryforwards for U.S. federal tax purposes totaled $22.5million and expire at various dates from 2021 through 2037.  Net operating loss carryforwards for state tax purposes totaled $15.6 million at December 31, 2017, and expire at various dates from 2018 through 2037.  We generated a capital loss carryforward of $29.1 million from the redemption of membership interest in Nutra S.A. for which the Company does not expect to realize benefit.  Therefore, a valuation allowance has been recorded as of December 31, 2017.

We experienced several ownership changes as defined in IRC Section 382(g) as a result of offerings and conversions that occurred in 2013 and 2014 and a new shareholder obtaining a greater than 5% interest in the value our equity in September 2017.  Our ability to utilize previously accumulated net operating loss carryforwards was subject to substantial annual limitations due to change in ownership provisions of the Internal Revenue Code of 1986, as amended, and similar state regulations.  In the fourth quarter of 2017 we completed a formal analysis to determine the amount of annual limitation on net operations loss carryforwards prior to utilization.

We are subject to taxation in the U.S. federal jurisdiction and various state and local jurisdictions.  We record liabilities for income tax contingencies based on our best estimate of the underlying exposures.  We are open for audit by the IRS for years after 2013 and, generally, by U.S. state tax jurisdictions after 2012.

Because we had a net loss from continuing operations and net income from discontinued operations, we were required to allocate a tax benefit to net loss from continuing operations under financial accounting guidance (ASC 740-25-7) in both 2017 and 2016.  The tax benefit allocated to the loss from continuing operations was limited to the lesser of the tax effect of the loss from continuing operations or the tax avoided on the overall net pretax income from discontinued operations that provide a source of realization of the continuing operations loss.  The components of income tax benefit follow (in thousands).

 

 

Reconciliations between the amount computed by applying the U.S. federal statutory tax rate (34%) to loss before income taxes, and income tax benefit follows (in thousands):

 

We recognize interest and penalties related to uncertain tax positions in selling, general and administrative expenses.  We have not identified any uncertain tax positions requiring a reserve as of December 31, 2017 or 2016.  We do not expect that the total amount of unrecognized tax benefits will materially change over the next twelve months.