11. Income Taxes

 

A reconciliation of the expected income tax benefit (expense) computed using the federal statutory income tax rate to the Company’s effective income tax rate is as follows for the years ended December 31, 2015, 2016, and 2017:

 

 

At December 31, 2017, the Company had net operating loss carryforwards totaling approximately $247,493,000 and $315,755,000 for federal and state income taxes, respectively, that may be used to offset future taxable income. If not used, the net operating loss carryforwards and research and development credits will begin expiring in the year 2021. The Company has determined that it experienced a change in ownership as defined under Section 382 of the U.S. Internal Revenue Code (the “Code”), as a result of the public offering in August 2011. As a result, the future use of its net operating losses, after giving effect to net unrealized built-in gains, will be limited to approximately $218,700,000 for 2017. Any available but unused amounts will become available for use in all successive years, subject to certain limitations. Utilization of these net operating loss carryforwards would require the Company to generate future taxable income prior to their expiration. Furthermore, the utilization of the net operating loss carryforwards could be limited beyond the Company's generation of taxable income if a change in the underlying ownership of the Company's common stock has occurred, resulting in a limitation on the amounts that could be utilized in any given period under Section 382 of the Code.

 

Net deferred tax assets and liabilities are comprised of the following:

 

 

For the year ended December 31, 2017, net operating loss carryforwards in the table above have been reduced by $2.3 million of uncertain tax liabilities. All deferred tax asset and liability balances have been revalued due to the 2017 Tax Act (as defined and discussed further below). A reconciliation of the beginning and ending amount of the unrecognized tax positions is as follows:

 

 

At December 31, 2017 there were no uncertain tax liabilities that if recognized would affect the annual effective tax rate, due to the Company’s full valuation allowance. The Company does not recognize interest accrued related to unrecognized tax liabilities.

 

On December 22, 2017, the President of the United States signed into law the Tax Cuts and Jobs Act (the “2017 Tax Act”) which, among other provisions, reduces the corporate income tax rate from 35% to 21% effective January 1, 2018. During the fourth quarter of 2017, the Company revalued its net deferred tax assets using the newly enacted rate, resulting in a reduction of its net deferred tax assets of $33.1 million. The Company also reduced its valuation allowance by $33.1 million, resulting in no income tax expense being recognized as a result of the revaluation. 

 

The Company’s estimate of the impact of the 2017 Tax Act is based upon its analysis and interpretations of currently available information.  Uncertainties remain regarding the impact of the 2017 Tax Act due to future regulatory and rulemaking processes, prospects of additional corrective or supplemental legislation, and potential trade or other litigation.  These uncertainties, along with the Company’s completion of the calculations and potential changes in its initial assumptions as new information becomes available, could cause the actual charge to ultimately differ from the provisional amount recorded in 2017 related to the enactment of the 2017 Tax Act.