15.  Income Taxes

The Company did not record a provision for federal income taxes for fiscal 2017, 2016 or 2015, due to its net operating losses in those periods. The Company's effective tax rate differs from the statutory federal income tax rate, primarily as a result of net operating loss carryforwards and research and development tax credit carryforwards.

For purposes of federal income taxes, the Company operates in only one jurisdiction, the United States. The following table presents a reconciliation of the tax expense (benefit) computed at the statutory federal tax rate of 34% and the Company's tax expense (benefit) for the periods presented (in thousands):

 

The tax effects of temporary differences and carryforwards that give rise to significant portions of deferred tax assets and liabilities as of September 30, 2017 and 2016 are as follows (in thousands):

 

As of September 30, 2017, the Company had net operating loss carryforwards for federal and state income tax purposes of $181.5 million and $31.4 million. These net operating loss carryforwards will expire, if not utilized, beginning in 2026 and 2018 for federal and state income tax purposes.

Realization of deferred tax assets is dependent upon future taxable income, the existence and timing of which is uncertain. Based on the Company's history of losses, management has determined it cannot conclude that it is more likely than not that the deferred tax assets will be realized, and accordingly has placed a full valuation allowance on the net deferred tax assets. The valuation allowance increased by $17.3 million and $13.6 million in fiscal 2017 and 2016.

As of September 30, 2017, the Company had tax credit carryforwards of $4.4 million and $2.9 million available to reduce future taxable income, if any, for federal and California state income tax purposes. The federal tax credit carryforwards begin to expire in 2022, and California tax credit carryforwards have no expiration date.

The Tax Reform Act of 1986 and similar California legislation impose substantial restrictions on the utilization of net operating losses and tax credits in the event of an ownership change of a corporation. Accordingly, the Company's ability to utilize net operating losses and tax credit carryforwards may be significantly limited in the future as a result of such an ownership change.

The Company did not have any material unrecognized tax benefits (“UTBs”) as of September 30, 2017. The Company had UTBs of approximately $0.7 million and $0.2 million as of September 30, 2016 and 2015. The following table summarizes the activity related to the UTBs (in thousands):

 

It is the Company's policy to include penalties and interest expense related to income taxes as a component of other expense and interest expense, as necessary. There was no interest expense or penalties related to the UTBs recorded through September 30, 2017.

The Company files income tax returns in the U.S. federal jurisdiction as well as in various states. The tax years ending September 30, 2013 to September 30, 2016 remain open to examination by the major jurisdictions in which the Company is subject to tax. Fiscal years outside the normal statute of limitation remain open to audit by tax authorities due to tax attributes generated in those early years, which have been carried forward and may be audited in subsequent years when utilized.