4. INCOME TAXES

Loss before income tax benefit (provision) consisted of the following (in thousands):

 

The following table reconciles the federal statutory tax rate to the effective tax rate of the income tax provision:

 

The components of the income tax (benefit) provision are as follows (in thousands):

 

As of June 30, 2017, we had federal and state net operating loss carryforwards of approximately $218.3 million and $32.7 million, respectively. The net operating loss carryforwards will expire at various dates beginning in fiscal year ending June 30, 2018 through June 30, 2037, if not utilized. Partial amounts of the net operating losses are generated from the exercise of options and the tax benefit would be credited directly to stockholders’ equity (deficit). We also had federal research and development credit carryforwards of approximately $2.8 million as of June 30, 2017 which will expire at various dates beginning in fiscal year ending June 30, 2019 through June 30, 2037, if not utilized. The California research and development credit carryforwards are approximately $4.3 million as of June 30, 2017 and have an indefinite carryover period. We also have U.K. net operating loss carryforwards, which do not expire, of approximately $1.5 million as of June 30, 2017.

Utilization of the Federal and California net operating losses and credits may be subject to a substantial limitation due to the “change in ownership” provisions of the Internal Revenue Code of 1986 and similar state provisions. The annual limitation may result in the expiration of net operating losses and credits before utilization.

Deferred tax assets and liabilities reflect the net tax effects of net operating loss and credit carryforwards and of temporary differences between the carrying amounts of assets and liabilities for financial reporting and the amounts used for income tax purposes.

We early adopted ASU 2015-17, Income Taxes—Balance Sheet Classification of Deferred Taxes, as of June 30, 2016 on a prospective basis. Periods presented in the consolidated financial statements reflect the adoption of the guidance.

Significant components of our deferred tax assets and liabilities for federal, state and foreign income taxes are as follows (in thousands):

 

ASC 740, Income Taxes, provides for the recognition of deferred tax assets if realization of such assets is more likely than not. For the legacy eGain business in the United States, based upon the weight of available evidence, which includes our historical operating performance and the reported cumulative net losses in all prior years, we have provided a full valuation allowance against our net deferred tax assets.  For the legacy eGain business in the United Kingdom, based on the positive evidence, the Company has determined it would be able to utilize the deferred tax assets and does not have a valuation allowance against the deferred tax assets. The remaining eGain foreign operations as well as Exony’s business have historically been profitable and we believe it is more likely than not that those assets will be realized. Our tax provision primarily relates to foreign activities as well as state income taxes. Our income tax rate differs from the statutory tax rates primarily due to the utilization of net operating loss carryforwards which had previously been valued against as well as our foreign operations.  

The net valuation allowance increased by $2.9 million for the year ended June 30, 2017, compared to the increase of $2.3 million for year ended June 30, 2016.

Deferred tax liabilities have not been recognized for $11.2 million of undistributed earnings of our foreign subsidiaries as of June 30, 2017. It is our intention to reinvest such undistributed earnings indefinitely in our foreign subsidiaries. If we distribute these earnings, in the form of dividends or otherwise, we would be subject to both United States income taxes (net of applicable foreign tax credits) and withholding taxes payable to the foreign jurisdiction.

Uncertain Tax Positions

The aggregate changes in the balance of our gross unrecognized tax benefits during fiscal years 2017, 2016 and 2015 were as follows (in thousands):

 

No accrued interest and penalties have been recognized related to unrecognized tax (benefit) in the provision for income tax until the credits have been utilized.

We do not anticipate the amount of existing unrecognized tax benefits will significantly increase or decrease within the next 12 months. We file income tax returns in the United States, and various state and foreign jurisdictions. In these jurisdictions tax years 1994-2015 remain subject to examination by the appropriate governmental agencies due to tax loss carryovers from those years.