Entity information:
Income Taxes
The Company uses the asset-liability method to account for taxes. Under this method, deferred income tax assets and liabilities result from temporary differences between the tax basis of assets and liabilities and their reported amounts in the financial statements that will result in income and deductions in future years. The components of income tax expense (benefit) are as follows (in thousands):
 
Year Ended December 31,
 
2017
 
2016
 
2015
Current:
 
 
 
 
 
Federal
$
(1,091
)
 
$
(8,433
)
 
$
(10,370
)
State
517

 
530

 
(309
)
 
(574
)
 
(7,903
)
 
(10,679
)
Deferred:
 
 
 
 
 
Federal
(605
)
 
25

 
33,482

State
5

 
3

 
7,462

 
(600
)
 
28

 
40,944

Total
$
(1,174
)
 
$
(7,875
)
 
$
30,265


On December 22, 2017, President Donald Trump signed into law H.R.1, formerly known as the Tax Cuts and Jobs Act (the “Tax Legislation”). The Tax Legislation significantly revised the U.S. tax code that will affect the Company's year ending December 31, 2018, including, but not limited to, lowering the U.S. federal corporate income tax rate from 35% to 21%; bonus depreciation that will allow for full expensing of qualified property; limitations on the deductibility of certain executive compensation and other deductions; and limitations of net operating loss carryforwards created in tax years beginning after December 31, 2017. The enactment of the Tax Legislation resulted in a one-time remeasurement of the Company's U.S. federal deferred tax assets and liabilities from 35% to the lower enacted corporate tax rate or 21%. The provisional remeasurement of the Company's deferred tax balance was primarily offset by a corresponding change in the valuation allowance.
Each reporting period, the Company assesses the likelihood that it will be able to recover its deferred tax assets, which represent timing differences in the recognition of certain tax deductions for accounting and tax purposes. The realization of deferred tax assets is dependent in part upon future taxable income. Significant judgment is required in determining any valuation allowance recorded against deferred tax assets. In assessing the need for a valuation allowance, the Company considers all available evidence, including past operating results, estimates of future taxable income given current business conditions affecting the Company, and the feasibility of ongoing tax planning strategies.
As of December 31, 2017, the Company continues to record a full valuation allowance against all net deferred tax assets, as was the case at December 31, 2016. The Company intends to maintain a valuation allowance against its deferred tax assets until sufficient positive evidence exists to support its reversal.
Deferred income tax balances reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities and their tax bases and are stated at enacted tax rates expected to be in effect when taxes are paid or recovered.
Significant components of the Company’s deferred tax assets and liabilities and balance sheet classifications are as follows (in thousands):
 
As of December 31,
 
2017
 
2016
Deferred tax assets:
 
 
 
Net operating loss
$
2,414

 
$
1,052

Fixed assets
(291
)
 
(1,241
)
Bad debt
1,506

 
1,979

Vacation accrual
1,880

 
3,249

Stock-based compensation
6,435

 
12,827

Deferred rent
4,818

 
12,687

State tax
1,520

 
2,534

Bonus accrual
1,372

 
1,873

Accrued expenses
3,711

 
5,994

Revenue reserves
104

 
135

Other
766

 
760

Total deferred tax assets
24,235

 
41,849

Valuation allowance
(23,891
)
 
(41,849
)
Net deferred tax assets
344

 
—

Deferred tax liabilities:
 
 
 
Indefinite-lived intangibles
(517
)
 
(773
)
Total deferred tax liabilities
(517
)
 
(773
)
Total net deferred tax assets (liabilities)
$
(173
)
 
$
(773
)

At December 31, 2017, the Company had federal net operating loss carryforwards of $5.5 million, which are available to offset future taxable income. The federal net operating loss carryforwards will begin to expire in 2021. The Company’s utilization of net operating loss carryforwards may be subject to annual limitations due to ownership change provisions of Section 382 of Internal Revenue Code of 1986, as amended.
The following table presents a reconciliation of the income tax expense (benefit) computed using the federal statutory tax rate of 35% and the Company's provision for income taxes (in thousands):
 
Year Ended December 31,
 
2017
 
2016
 
2015
Computed expected federal tax expense
$
3,277

35.0
 %
 
$
(13,270
)
35.0
 %
 
$
(14,066
)
35.0
 %
State taxes, net of federal benefit
321

3.4

 
(551
)
1.5

 
(655
)
1.6

Permanent differences
(362
)
(3.8
)
 
341

(0.9
)
 
1,033

(2.6
)
Penalty
—

—

 
2,800

(7.4
)
 
—

—

Uncertain tax positions
677

7.2

 
346

(1.0
)
 
480

(1.2
)
Credits
(466
)
(4.9
)
 
(402
)
1.1

 
(206
)
0.5

Stock compensation
1,277

13.6

 
116

(0.3
)
 
1,246

(3.1
)
Federal tax rate change
11,974

127.9

 
—

—

 
—

—

Valuation allowance
(17,958
)
(191.8
)
 
2,708

(7.1
)
 
42,419

(105.5
)
Other
86

0.9

 
37

(0.1
)
 
14

—

Income tax expense (benefit)
$
(1,174
)
(12.5
)%
 
$
(7,875
)
20.8
 %
 
$
30,265

(75.3
)%

The following table presents a reconciliation of the beginning and ending amount of unrecognized tax benefits (in thousands):
 
Year Ended December 31,
 
2017
 
2016
 
2015
Unrecognized tax benefits at beginning of period
$
20,248

 
$
20,589

 
$
20,877

Gross increases-tax positions in prior period
427

 
176

 
169

Gross decreases-tax positions in prior period
(1,354
)
 
(517
)
 
(2
)
Gross increases-current period tax positions
—

 
—

 
—

Settlements
—

 
—

 
(455
)
Lapse of statute of limitations
(452
)
 
—

 
—

Unrecognized tax benefits at end of period
$
18,869

 
$
20,248

 
$
20,589


Included in the amount of unrecognized tax benefits at December 31, 2017 and 2016 is $14.8 million and $13.2 million, respectively, of tax benefits that, if recognized, would affect the Company's effective tax rate. Also included in the balance of unrecognized tax benefits at December 31, 2017 and 2016 is $3.9 million and $7.1 million, respectively, of tax benefits that, if recognized, would result in adjustments to other tax accounts, primarily deferred tax assets. It is reasonably possible that the total amount of the unrecognized tax benefit will change during the next 12 months; however, the Company does not expect the potential change to have a material effect on the results of operations or financial position in the next year.
The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. At December 31, 2017 and 2016, the Company had approximately $2.7 million and $2.4 million, respectively, of accrued interest, before any tax benefit, related to uncertain tax positions.
The Company has analyzed filing positions in all of the federal and state jurisdictions where it is required to file income tax returns, as well as all open tax years in these jurisdictions. The tax years 2001 through 2016 are open to examination by major taxing jurisdictions to which the Company is subject.
The Company is currently under Internal Revenue Service audit examinations of the Company’s income and payroll tax returns for the years 2013 through 2016.
The Company’s income tax returns are being audited by the California Franchise Tax Board for the years 2008 through 2015. The Company was notified by the Franchise Tax Board in March 2017 that they are continuing to challenge the Company’s filing position. The Company continues to work toward resolution, and based on all available information the Company has accrued for any uncertain tax positions that may be addressed in the audit.
The Company’s income tax returns are being audited by the Oregon Department of Revenue for the years 2012 through 2014. In January 2017, the Oregon Department of Revenue issued Notices of Deficiencies, which were appealed by the Company. The Company does not expect any significant adjustments to amounts already reserved.