Entity information:

• Entity registrant name: Sientra, Inc.
• CIK: 0001551693
• SEC filing page: http://www.sec.gov/Archives/edgar/data/1551693/000156459018005488/0001564590-18-005488-index.htm
• XBRL Instance: http://www.sec.gov/Archives/edgar/data/1551693/000156459018005488/sien-20171231.xml
• XBRL Cloud Viewer: https://edgardashboard.xbrlcloud.com/flex/viewer/XBRLViewer.html#instance=http://www.sec.gov/Archives/edgar/data/1551693/000156459018005488/sien-20171231.xml
• EDGAR Dashboard: https://edgardashboard.xbrlcloud.com/edgar-dashboard/?cik=0001551693
• Generator: Donnelley Financial Solutions
• Total assets: 92,213,000
• Income tax expense (benefit): -17,000
• Found reconcilation from statutory to effective rates: True
• Found income tax policy: Coming soon!

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(7) Income Taxes

The provision for income tax consists of the following:

 

Current income tax expense for the year ended December 31, 2017 was $4 thousand and related to foreign jurisdictions. There was no current income tax expense for the years ended December 31, 2016 and 2015. Total income tax benefit for the year ended December 31, 2017 was $17 thousand. Total income tax expense for the year ended December 31, 2016 was $0.1 million.  There was no current or deferred income tax (benefit) expense for the year ended December 2015.

 

Actual income tax expense differs from that obtained by applying the statutory federal income tax rate of 34% to income before income taxes as follows (in thousands):

 

 

The tax effects of temporary differences and carryforwards that give rise to significant portions of the deferred tax assets are as follows (in thousands):

 

 

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized.  Generally, the ultimate realization of deferred tax assets is dependent on the generation of future taxable income during the periods in which those temporary differences become deductible.  Based on all the relevant factors, a valuation allowance of $71.1 million has been established against deferred tax assets as of December 31, 2017 as management determined that it is more likely than not that sufficient taxable income will not be generated to realize these temporary differences. Net deferred tax liabilities are recorded in warranties and other long-term liabilities in the consolidated balance sheet.

As of December 31, 2017, the Company had net operating loss carryforwards of approximately $239 million and $138 million available to reduce future taxable income, if any, for federal and state income tax purposes, respectively. The federal net operating loss carryforward begins expiring in 2027, and the state net operating loss carryforwards begin expiring in 2017. It is possible that the Company will not generate taxable income in time to use these NOLs before their expiration. In addition, under Section 382 of the Internal Revenue Code of 1986, as amended, or the Code, if a corporation undergoes an “ownership change”, the corporation's ability to use its pre-change NOL carryforwards and other pre-change tax attributes to offset its post-change income may be limited.  In general, an “ownership change” occurs if there is a cumulative change in a loss corporation’s ownership by 5% shareholders that exceeds 50 percentage points over a rolling three-year period.  The Company has not performed a detailed analysis to determine whether an ownership change under Section 382 of the Code has previously occurred. As a result, if the Company earns net taxable income, its ability to use their pre-change net operating loss carryforwards to offset U.S. federal taxable income may become subject to limitations, which could potentially result in increased future tax liability to the Company. Until such analysis is completed, the Company cannot be sure that the full amount of the existing federal NOLs will be available to them, even if taxable income is generated before their expiration.

At December 31, 2017 the Company had research and development credit carryforwards of approximately $1.9 million and $2.1 million available to reduce future taxable income, if any, for federal and California state income tax purposes, respectively. The federal credit carryforwards begin expiring in 2027 and the state credits carryforward indefinitely.

At December 31, 2017, the Company had unrecognized tax benefits of approximately $1.0 million associated with the research and development credits. All of the unrecognized tax benefits that, if recognized, would affect the annual effective rate. The Company does not anticipate that total unrecognized net tax benefits will significantly change over the next twelve months.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):

 

 

It is the Company’s policy to include penalties and interest expense related to income taxes as a component of other (income) expense and interest expense, respectively, as necessary. There was no interest expense or penalties related to unrecognized tax benefits recorded through December 31, 2017.

The Company files U.S. federal, state and foreign income tax returns in jurisdictions with varying statutes of limitations. The years that may be subject to examination will vary by jurisdiction. The Company’s tax years 2014 to 2017 will remain open for examination by the federal and state tax authorities.

The Company has adopted ASU 2016-09, Improvements to Employee Share-Based Payment Accounting, on a modified prospective basis.  Under ASU 2016-09, differences between the tax deduction for share based awards and the related compensation expenses recognized under ASC 718 are now accounted for as a component of the provision for income taxes. In addition, ASU 2016-09 eliminated the requirement that excess tax benefits from share based compensation reduce taxes payable prior to being recognized in the financial statements. As of December 31, 2017, we had cumulative excess benefits related to share based compensation of $0.1 million which had not been reflected as a deferred tax asset. As a result of the adoption of ASU 2016-09, the excess benefits were reclassified to our net operating loss carryover resulting in an increase in our deferred tax assets and valuation allowance of $0.1 million as of January 1, 2016. There was no impact to retained earnings as a result of the adoption of ASU 2016-09 on January 1, 2017.

 

On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act makes broad and complex changes to the U.S. tax code, including, but not limited to, reducing the U.S. federal corporate tax rate to 21% and changing rules to allow an indefinite carryover period and a limitation of 80% of taxable income for net operating loss carryforwards created in tax years beginning after December 31, 2017. As a result and in accordance with Staff Accounting Bulletin No. 118, the Company has recorded a decrease related to its net deferred tax assets before valuation allowance of $34.6 million with a corresponding reduction in the valuation allowance.