13. Income Taxes
The Company had no income tax expense due to operating losses incurred for the year ended December 31, 2017. The Company recorded a deferred income tax benefit for the year ended December 31, 2016 of $2,959 relating to a book impairment of a deferred tax liability set up in purchase accounting which was not subject to a valuation allowance.
The components of the (benefit) provision for income taxes are as follows:
| Year Ended December 31, |
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| 2017 | 2016 | |||||||
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Current income tax provision |
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Federal |
$ | — | $ | — | ||||
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State |
— | — | ||||||
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Total current income tax provision |
— | — | ||||||
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Deferred income tax (benefit) provision |
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Federal |
— | (2,356 | ) | |||||
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State |
— | (603 | ) | |||||
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Total deferred income tax (benefit) provision |
— | (2.959 | ) | |||||
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Total income tax (benefit) provision |
$ | — | $ | (2.959 | ) | |||
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A reconciliation of the provision for income taxes computed at the statutory federal income tax rate to the provision for income taxes as reflected in the financial statements is as follows:
| 2017 | 2016 | |||||||
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Income tax computed at federal statutory tax rate |
34.0 | % | 34.0 | % | ||||
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State taxes, net of federal benefit |
5.0 | % | 4.3 | % | ||||
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Research and development credits |
0.9 | % | 0.7 | % | ||||
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Nondeductible interest |
(0.1 | )% | (0.1 | )% | ||||
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Write-down of intangible asset |
0.0 | % | (5.6 | )% | ||||
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Permanent differences |
(0.3 | )% | (0.5 | )% | ||||
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Federal deferred rate change |
(97.7 | %) | 0.0 | % | ||||
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Other |
(3.1 | )% | (3.0 | )% | ||||
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Change in valuation allowance |
61.3 | % | (20.2 | )% | ||||
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Total |
0.0 | % | 9.6 | % | ||||
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The significant components of the Company’s deferred tax assets as of December 31, 2017 and 2016 were as follows:
| 2017 | 2016 | |||||||
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Deferred tax assets: |
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Net operating loss carryforwards |
$ | 32,820 | $ | 43,455 | ||||
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Research and development credit carryforwards |
2,789 | 2,493 | ||||||
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Capitalized start-up expenses |
983 | 1,221 | ||||||
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Other |
2,377 | 2,862 | ||||||
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Total deferred tax assets |
38,969 | 50,031 | ||||||
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Valuation allowance |
(38,969 | ) | (50,031 | ) | ||||
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Net deferred tax liabilities |
$ | — | $ | — | ||||
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At December 31, 2017, the Company had net operating loss carryforwards for federal and state income tax purposes of approximately $131,774 and $81,449 respectively, which were available to reduce future taxable income. The net operating loss carryforwards expire at various dates from 2023 through 2037. The Company has research and development credits for federal and state income tax purposes of approximately $1,925 and $1,094, respectively, which expire at various dates from 2022 through 2037.
On December 22, 2017, the Tax Cuts and Jobs Act (“the Act”) was enacted in the United States. The Act reduces the U.S. federal corporate tax rate from 34% to 21%, requires companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred and creates new taxes on certain foreign sourced earnings. At December 31, 2017, the Company has completed its accounting for the tax effects of enactment of the Act, including the effects on its existing deferred tax balances and the one-time transition tax. For the year ended December 31, 2017, no transition tax is recognized.
As a result of the Act, the Company remeasured certain deferred tax assets and liabilities based on the rates at which they are anticipated to reverse in the future, which is generally 21%. This resulted in a decrease to the Company’s gross deferred tax assets and a corresponding decrease in its valuation allowance.
Management of the Company evaluated the positive and negative evidence bearing upon the realizability of its deferred tax assets and determined that it is more likely than not that the Company will not recognize the benefits of the deferred tax assets. As a result, a full valuation allowance was recorded as of December 31, 2017 and 2016. The valuation allowance decreased by $11,062 during the year ended December 31, 2017, primarily due to impact of the decrease in the federal tax rate on the Company’s deferred tax assets, offset by current period losses incurred by the Company.
The Company applies FASB Interpretation Number 48, “Accounting for Uncertainty in Income Taxes, an interpretation of FAS 109” (codified within ASC 740, Income Taxes), for the financial statement recognition, measurement, presentation and disclosure of uncertain tax positions taken or expected to be taken in income tax returns. Unrecognized tax benefits represent tax positions for which reserves have been established. A full valuation allowance has been provided against the Company’s deferred tax assets, so that the effect of the unrecognized tax benefits is to reduce the gross amount of the deferred tax asset and the corresponding valuation allowance.
The Company is currently not under examination by the Internal Revenue Service or any other jurisdictions for any tax years. The Company files income tax returns in the United States for federal and state income taxes. In the normal course of business, the Company is subject to examination by tax authorities in the United States. Since the Company is in a loss carry-forward position, the Company is generally subject to U.S. federal and state income tax examinations by tax authorities for all years for which a loss carry-forward is utilized. The Company’s returns remain subject to federal and state audits for the years 2014 through 2017. However, carryforward attributes from prior years may still be adjusted upon examination by tax authorities if they are used in an open period.
The Company may from time to time be assessed interest or penalties by major tax jurisdictions. The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. The Company has not recorded interest or penalties on any unrecognized tax benefits since its inception.
The Company anticipates that the amount of unrecognized tax benefits recorded will not materially change in the next twelve months.
The roll-forward of the Company’s gross uncertain tax positions is as follows:
| Gross Uncertain Tax Position |
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Balance — January 1, 2016 |
$ | 1,086 | ||
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Additions for current year tax positions |
86 | |||
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Balance — December 31, 2016 |
1,172 | |||
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Additions for current year tax positions |
59 | |||
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Reductions for prior year tax positions |
(122 | ) | ||
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Balance — December 31, 2017 |
$ | 1,109 | ||
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