12. Income Taxes
The Company has no current and no deferred income tax expense for the years ended December 31, 2017 and 2016, respectively. The Company did not record a federal income tax provision or benefit for the years ended December 31, 2017 and 2016.
The reconciliation between income taxes computed at the federal statutory income tax rate and the provision for (benefit from) income taxes is as follows:
| YEARS ENDED DECEMBER 31, | ||||||||||||
| 2017 | 2016 | 2015 | ||||||||||
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Federal statutory rate |
34.0 | % | 34.0 | % | 34.0 | % | ||||||
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Effect of: |
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Impact of foreign rate differential |
(17.6 | ) | (31.4 | ) | (12.6 | ) | ||||||
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Tax reform impact |
(29.6 | ) | — | — | ||||||||
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Change in valuation allowance |
13.5 | — | (24.4 | ) | ||||||||
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Research and development tax credit |
0.6 | (0.7 | ) | 0.9 | ||||||||
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Stock-based compensation |
(0.8 | ) | (0.9 | ) | (0.9 | ) | ||||||
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Other |
(0.1 | ) | (1.0 | ) | 3.0 | |||||||
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Total |
0.0 | % | 0.0 | % | 0.0 | % | ||||||
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The components of the Company’s deferred tax assets are as follows:
| AS OF DECEMBER 31, | ||||||||
| 2017 | 2016 | |||||||
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Deferred tax assets: |
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Net operating loss carryforwards |
$ | 32,008 | $ | 36,727 | ||||
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Capitalized research and development costs |
618 | 1,044 | ||||||
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Research and development credit carryforwards |
3,481 | 2,982 | ||||||
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Stock compensation |
6,066 | 7,298 | ||||||
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Depreciation and other costs |
42 | (77 | ) | |||||
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Net deferred tax assets |
42,215 | 47,974 | ||||||
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Valuation allowance |
(42,215 | ) | (47,974 | ) | ||||
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Net deferred tax assets |
$ | — | $ | — | ||||
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On December 22, 2017, the Tax Cuts and Jobs Act (the “TCJA”) was signed into law in the United States. The TCJA reduced the U.S. corporate tax rate from the 34% to 21% for tax years beginning after December 31, 2017. As a result of the newly enacted law, the Company was required to revalue all deferred tax assets and liabilities existing as of December 31, 2017 so as to reflect the reduction in the federal tax rate. This revaluation resulted in a reduction to the Company’s deferred tax asset of $17.8 million, with a corresponding reduction to the Company’s valuation allowance. Consequently, there was no impact on the accompanying consolidated financial statements that resulted from the reduction in the federal tax rate. Other relevant provisions of the TCJA did not have a material impact on the accompanying consolidated financial statements.
Management has evaluated the positive and negative evidence bearing upon the realizability of the Company’s net deferred tax assets and has determined that it is more likely than not that the Company will not recognize the benefits of the net deferred tax assets. As a result, the Company has recorded a full valuation allowance at December 31, 2017 and 2016.
Realization of the future tax benefits is dependent on many factors, including the Company’s ability to generate taxable income within the net operating loss carryforward period. Under the provisions of the Internal Revenue Code, certain substantial changes in the Company’s ownership, including a sale of the Company or significant changes in ownership due to sales of equity, may have limited, or may limit in the future, the amount of net operating loss carryforwards, which could be used annually to offset future taxable income.
As of December 31, 2017, the Company had approximately $113.5 million of federal and $102.1 million of state net operating loss carryforwards. If not utilized, the federal and state net operating loss carryforwards expire starting in 2029 and 2030, respectively. Additionally, as of December 31, 2017, the Company had $2.1 million of federal and $1.3 million of Massachusetts tax credits that expire starting in 2028 and 2023, respectively.
As of December 31, 2017, the Company had $1.5 million of unrecognized tax benefits, all of which would affect income tax expense if recognized, before consideration of the Company’s valuation allowance. The Company does not expect the unrecognized tax benefits to change significantly over the next 12 months. The Company recognizes both interest and penalties associated with uncertain tax positions as a component of income tax expense. As of December 31, 2017 and 2016, the Company had no accrued penalties or provisions for interest.
A reconciliation of the gross unrecognized tax benefit is as follows:
| YEARS ENDED DECEMBER 31, |
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| 2017 | 2016 | |||||||
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Unrecognized tax benefits at the beginning of the period |
$ | 1,210 | $ | 1,430 | ||||
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Additions for current tax positions |
243 | — | ||||||
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Changes for previous tax positions |
(2 | ) | (220 | ) | ||||
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Unrecognized tax benefits at the end of the period |
$ | 1,451 | $ | 1,210 | ||||
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The Company files income tax returns in the United States, the Commonwealth of Massachusetts, Colorado and New Jersey. The tax years 2008 through 2016 remain open to examination by these jurisdictions, as carryforward attributes generated in past years may be adjusted in a future period. The Company is not currently under examination by the Internal Revenue Service or any other jurisdiction for these years. The Company has not recorded any interest or penalties for unrecognized tax benefits since its inception.