12. Income Taxes
We recorded no provision or benefit for income taxes during the years ended December 31, 2017 and 2016. We had a benefit for income taxes of $0.6 million for the year ended December 31, 2015. The benefit for income tax related to the reduction in the deferred tax liability resulting from the impairment charge to IPR&D, which was not recognized for tax purposes.
Significant components of our deferred tax assets and liabilities as of December 31, 2017 and 2016 consisted of the following (in thousands):
|
|
|
As of December 31, |
|
|||||
|
|
|
2017 |
|
|
2016 |
|
||
|
Deferred tax assets: |
|
|
|
|
|
|
|
|
|
Net operating loss carryforwards |
|
$ |
99,710 |
|
|
$ |
74,586 |
|
|
Depreciation and amortization |
|
|
423 |
|
|
|
463 |
|
|
Research and development credits |
|
|
7,415 |
|
|
|
4,552 |
|
|
Deferred revenue |
|
|
6,207 |
|
|
|
3,400 |
|
|
Accruals and stock-based compensation expense |
|
|
10,968 |
|
|
|
5,457 |
|
|
Total deferred tax assets |
|
|
124,723 |
|
|
|
88,458 |
|
|
Valuation allowance |
|
|
(124,723 |
) |
|
|
(88,458 |
) |
|
Net deferred tax assets |
|
|
— |
|
|
|
— |
|
|
Deferred tax liabilities: |
|
|
|
|
|
|
|
|
|
Acquired IPR&D |
|
|
(194 |
) |
|
|
(194 |
) |
|
Total deferred tax liabilities |
|
|
(194 |
) |
|
|
(194 |
) |
|
Net deferred tax liabilities |
|
$ |
(194 |
) |
|
$ |
(194 |
) |
Reconciliations of the statutory federal income tax benefit rate to our effective tax for the years ended December 31, 2017, 2016 and 2015 are as follows:
|
|
|
Year Ended December 31, |
|
|||||||||
|
|
|
2017 |
|
|
2016 |
|
|
2015 |
|
|||
|
Tax (benefit) at statutory federal rate |
|
|
34.0 |
% |
|
|
34.0 |
% |
|
|
34.0 |
% |
|
Foreign tax, net of federal benefit |
|
|
— |
|
|
|
— |
|
|
|
(1.1 |
) |
|
Permanent differences |
|
|
(1.1 |
) |
|
|
(1.2 |
) |
|
|
(0.8 |
) |
|
Research and development credits |
|
|
0.8 |
|
|
|
2.0 |
|
|
|
0.7 |
|
|
Federal deferred remeasurement |
|
|
(22.9 |
) |
|
|
— |
|
|
|
— |
|
|
Change in valuation allowance |
|
|
(10.8 |
) |
|
|
(34.8 |
) |
|
|
(32.0 |
) |
|
Effective tax rate |
|
|
0.0 |
% |
|
|
0.0 |
% |
|
|
0.8 |
% |
A valuation allowance is provided when it is more likely than not that the deferred tax assets will not be realized. We have established a valuation allowance to offset deferred tax assets as of December 31, 2017 and 2016 due to the uncertainty of realizing future tax benefits from our net operating loss carryforwards and other deferred tax assets. Our valuation allowance increased by approximately $36.3 million and $31.7 million for the years ended December 31, 2017 and 2016, respectively.
On December 22, 2017, the Tax Cuts and Jobs Acts (“Tax Act”) was signed into law. The Tax Act, among other changes, lowers our federal tax rate from 34% to 21%. Based on provisions of the Tax Act, we remeasured our deferred tax assets and liabilities to reflect the lower statutory tax rate. However, since we established a valuation allowance to offset our deferred tax assets, there is no impact to our effective tax rate, as any changes to deferred taxes would be offset by the valuation allowance. Our deferred tax remeasurement is provisional and is subject to revision as we complete our analysis of the Tax Act, collect and prepare necessary data and interpret any additional guidance issued by standard-setting bodies. We currently anticipate finalizing and recording any resulting adjustments related to the tax effects of the Tax Act in 2018.
As of December 31, 2017, we had net operating loss (“NOL”) carryforwards available to reduce future taxable income, if any, for federal, California and Canadian income tax purposes of $452.2 million, $44.2 million and $3.2 million, respectively. The federal and California NOL carryforwards will begin expiring during the year ended December 31, 2030 and the Canadian NOL carryforwards will begin expiring during the year ended December 31, 2028.
As of December 31, 2017, we also had research and development credit carryforwards of $7.2 million, $4.4 million and $0.5 million available to reduce future taxable income, if any, for federal, California and Canadian income tax purposes, respectively. The federal and Canadian credit carryforwards will begin expiring in 2031 and the California state credit carryforwards has no expiration date.
In general, if we experience a greater than 50 percentage point aggregate change in ownership over a three‑year period (a Section 382 ownership change), utilization of our pre‑change NOL carryforwards is subject to an annual limitation under Section 382 of the Internal Revenue Code (California has similar laws). The annual limitation generally is determined by multiplying the value of our stock at the time of such ownership change (subject to certain adjustments) by the applicable long‑ term tax‑exempt rate. Such limitations may result in expiration of a portion of the NOL carryforwards before utilization. We have experienced at least one ownership change since inception and utilization of NOL carryforwards will therefore be subject to annual limitation. In addition, our ability to use our remaining NOL carryforwards may be further limited if we experience a Section 382 ownership change in connection with future changes in our stock ownership.
We recognize uncertain tax positions when it is more likely than not, based on the technical merits, that the position will not be sustained upon examination. The guidance also clarifies the financial statement classification of tax‑related penalties and interest and sets forth new disclosure regarding unrecognized tax benefits. Our policy is to include interest and penalties, if any, related to unrecognized tax benefits within our provision for income taxes.
As we have a full valuation allowance against our deferred tax assets, the unrecognized tax benefits will reduce the deferred tax assets and the valuation allowance in the same amount. We do not expect the amount of unrecognized tax benefits to change significantly in the next 12 months. A summary of the activity of the unrecognized tax benefits is as follows (in thousands):
|
|
|
Year Ended December 31, |
|
|||||||||
|
|
|
2017 |
|
|
2016 |
|
|
2015 |
|
|||
|
Unrecognized benefit - beginning of year |
|
$ |
3,022 |
|
|
$ |
1,072 |
|
|
$ |
635 |
|
|
Gross increases - current year tax provisions |
|
|
1,603 |
|
|
|
1,327 |
|
|
|
437 |
|
|
Gross increases - prior year tax positions |
|
|
— |
|
|
|
623 |
|
|
|
— |
|
|
Unrecognized benefit - end of year |
|
$ |
4,625 |
|
|
$ |
3,022 |
|
|
$ |
1,072 |
|
We file income tax returns in the United States, California and other state tax jurisdictions and Canada. We are not currently under examination by income tax authorities in federal, state, Canadian or other jurisdictions. All tax returns for 2012 and later will remain open for examination by the federal, state and Canadian authorities for three, four and four years, respectively. The U.S. federal and U.S. state taxing authorities may choose to audit tax returns for tax years beyond the statute of limitation period due to significant tax attribute carryforwards from prior years, making adjustments only to carryforward attributes.