14. Income Taxes

The components of the provision for income taxes are as follows:

On December 22, 2017, the Tax Cuts and Jobs Acts was enacted into law. This U.S. Tax Reform contains several key provisions including the reduction of the corporate income tax rate to 21% effective January 1, 2018 as well as a variety of other changes including the limitation of the tax deductibility of interest expense, acceleration of expensing of certain business assets, and reductions in the amount of executive pay that could qualify as a tax deduction. As a result of the change in the corporate tax rate, the Company remeasured its deferred tax assets as of December 31, 2017 based on the rate at which they are expected to reverse in the future. This remeasurement and interpretation of the new law is provisional subject to clarifications of the provisions of the new legislation and final calculations. Any future changes to the Company’s provisional estimated impact of the U.S. Tax Reform will be reflected as a change in estimate in the period in which the change in estimate is made in accordance with Staff Accounting Bulletin No. 118 (SAB 118), Income Tax Accounting Implications of the Tax Cuts and Jobs Ac. SAB 118 allows for a measurement period of up to one year after the enactment date of the U.S. Tax Reform to finalize the recording of the related tax impacts.

A reconciliation of the provisions (benefits) for income taxes to the amounts computed by applying the statutory federal income tax rate to income (loss) before income taxes is shown as follows:

 

The tax effects of cumulative temporary differences that give rise to significant deferred tax assets and deferred tax liabilities are as follows:

Recognition of deferred tax assets is appropriate when realization of these assets is more likely than not. Each reporting period the Company assesses the recoverability of its deferred tax assets and are required to establish a valuation allowance for any portion of the assets that the Company concludes is not more likely than not realizable. Based upon the weight of available evidence, which includes the Company’s historical operating performance and the recorded cumulative net losses in prior fiscal periods, the Company recorded a valuation allowance of $81.3 million and $56.4 million against the net U.S. deferred tax assets as of December 31, 2017 and 2016, respectively. The valuation allowance increased by $24.9 million and $22.9 million during 2017 and 2016, respectively, primarily as a result of additional losses generated, net of the remeasurement of deferred tax assets based upon changes to the U.S. Corporate income tax rate.

As of December 31, 2017 and 2016, the Company had U.S. federal net operating loss carryforwards of $195.2 million and $62.9 million, respectively, and state net operating loss carryforwards of $96.4 million and $42.0 million, respectively. The federal and state net operating loss carryforwards are subject to limitations under applicable tax laws and will expire at various dates beginning in 2033, if not utilized.

The Company’s tax attributes may be limited by the ownership provisions of Section 382 of the Internal Revenue Code.  As a result, if the Company experienced an “ownership change” during any three-year period, its use of these tax attributes may be limited. The Company has not performed a detailed analysis to determine if an ownership change has occurred.

Uncertain Tax Positions

As of December 31, 2017 and 2016, the Company had gross unrecognized tax benefits of $1.6 million and $0.9 million, respectively, none of which would materially impact the effective tax rate if realized during the year due to the Company’s full valuation allowance position. The Company’s policy for classifying interest and penalties associated with unrecognized income tax benefits is to include such items in the provision for income tax. The Company believes that it is reasonably possible that a decrease of up to $1.2 million in unrecognized tax benefits may occur within the coming year.

The activity related to the unrecognized tax benefits is as follows:

 

The Company is subject to taxation in the United States and various states. All tax years remain open and are subject to examinations by the appropriate governmental agencies in all of the jurisdictions where the Company files tax returns. Certain US federal income tax returns are currently under examination, the resolution of which is not expected to have a material adverse effect on the Company's results of operations, cash flows or financial condition.