Income Taxes
We have a history of losses and therefore have made no provision for income taxes. Deferred income taxes reflect the tax effect of net operating loss and tax credit carryforwards and the net temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.
Significant components of deferred income taxes are as follows:
|
| | | | | | | |
| December 31, |
| 2017 | | 2016 |
| (In thousands) |
Deferred tax assets: | | | |
Net operating loss carryforwards | $ | 90,498 |
| | $ | 126,410 |
|
Tax credit carryforwards | 26,748 |
| | 18,741 |
|
Stock-based compensation | 7,829 |
| | 11,102 |
|
Deferred rent | 2,123 |
| | 3,318 |
|
Other | 4,749 |
| | 4,401 |
|
Total deferred tax assets | 131,947 |
| | 163,972 |
|
Less valuation allowance | (131,947 | ) | | (163,972 | ) |
Net deferred tax assets | $ | — |
| | $ | — |
|
As of December 31, 2017 and 2016, we had federal net operating loss carryforwards of approximately $414.5 million and $378.9 million, respectively, state net operating losses of approximately $68.9 million and $50.0 million, respectively.
As of December 31, 2017, we remeasured certain deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future, which is generally 21.0%. However, we are still analyzing certain aspects of the Tax Act, which could potentially affect the measurement of these assets and liabilities or potentially give rise to new deferred tax assets and liabilities. The provisional amount recorded related to the remeasurement of our deferred tax balance was $61.3 million.
In certain circumstances, due to ownership changes, our net operating loss and tax credit carryforwards may be subject to limitations under Section 382 of the Internal Revenue Code. To date, we have not completed a Section 382 study. Unless previously utilized, our net operating loss and research and development tax credit carryforwards expire between 2018 and 2036.
We have established a 100% valuation allowance due to the uncertainty of our ability to generate sufficient taxable income to realize the deferred tax assets. Our valuation allowance decreased $32.0 million, increased $24.9 million and increased $30.4 million in 2017, 2016 and 2015, respectively, primarily due to net operating losses incurred during these periods.
Reconciliation of income tax computed at federal statutory rates to the reported provisions for income taxes is as follows:
|
| | | | | | | | |
| Year ended December 31, |
| 2017 | | 2016 | | 2015 |
U.S. Federal statutory rate on net loss | (34 | )% | | (34 | )% | | (34 | )% |
State tax, net of federal tax benefit | (2 | )% | | (2 | )% | | (2 | )% |
Effects of statutory rate change | 115 | % | | — | % | | — | % |
Change in valuation allowance | (60 | )% | | 37 | % | | 41 | % |
Tax credits | (11 | )% | | (4 | )% | | (5 | )% |
Other | (8 | )% | | 3 | % | | — | % |
Effective tax rate | — | % | | — | % | | — | % |
We file federal and certain state income tax returns, which provides varying statutes of limitations on assessments. However, because of net operating loss carryforwards, substantially all of our tax years remain open to federal and state tax examination.
We recognize interest and penalties related to the underpayment of income taxes as a component of income tax expense. To date, there have been no interest or penalties charged to us in relation to the underpayment of income taxes.