Entity information:
Income Taxes
The components of the provision for income taxes are presented in the following table:
 
Year Ended December 31,
 
2017
 
2016
 
2015
Current:
 
 
 
 
 
Federal
$
(498
)
 
$
228

 
$
338

State
17

 
28

 
52

Foreign
100

 
164

 
1

Total current provision
(381
)
 
420

 
391

Deferred:
 
 
 
 
 
Federal
(3,001
)
 
(12,613
)
 
—

State
1,179

 
(2,807
)
 
—

Entity status change
—

 
(8,719
)
 
—

Foreign
—

 
(78
)
 
—

Total deferred benefit
(1,822
)
 
(24,217
)
 
—

Provision for (benefit from) income taxes, net
$
(2,203
)
 
$
(23,797
)
 
$
391



The provision for income taxes differs from the amount of income tax determined by applying the applicable U.S. statutory federal income tax rate to pretax loss as a result of the following differences:
 
Year Ended December 31,
 
2017
 
2016
 
2015
United States federal tax at statutory rate
34.00
 %
 
34.00
 %
 
34.00
 %
Items affecting federal income tax rate:
 
 
 
 
 
State tax rate, net of federal benefit
3.53
 %
 
4.04
 %
 
0.11
 %
Pass - through losses
—
 %
 
(8.87
)%
 
(32.18
)%
Valuation allowance
1.41
 %
 
(24.84
)%
 
(0.70
)%
LLC conversion to C corporation
—
 %
 
12.96
 %
 
—
 %
Stock compensation
(1.95
)%
 
(1.36
)%
 
—
 %
"Tax Act" 2017 impact
(34.83
)%
 
—
 %
 
—
 %
Other adjustments
(0.51
)%
 
(1.44
)%
 
(2.10
)%
Effective income tax rate
1.65
 %
 
14.49
 %
 
(0.87
)%


On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (the "Act") was signed into law making significant changes to the Internal Revenue Code. Changes include, but are not limited to, a corporate tax rate decrease from 35% to 21% effective for tax years beginning after December 31, 2017, the transition of U.S. international taxation from a worldwide tax system to a territorial system, and a one-time transition tax on the mandatory deemed repatriation of cumulative foreign earnings as of December 31, 2017. The Company has calculated its best estimate of the impact of the Act in accordance with its understanding of the Act and guidance available as of the date of this filing. As a result of the tax rate reduction, the Company has reduced the deferred tax asset balance as of December 31, 2017 by $46,529. The Company has also reduced the valuation allowance by $49,071.
In December 2017, the SEC staff issued Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act (SAB 118), which allows us to record provisional amounts during a measurement period not to extend beyond one year of the enactment date. The impact of the change in tax rate is based on estimates of our net U.S. deferred tax assets and corresponding change to the valuation allowance as of December 31, 2017. Additionally, potential further guidance may be forthcoming from the Financial Accounting Standards Board and the Securities and Exchange Commission, as well as regulations, interpretations and rulings from federal and state tax agencies, which could result in additional impacts. The company will continue to analyze additional information and guidance related to the Act as supplemental legislation, regulatory guidance, or evolving technical interpretations become available. The final impacts may differ from the recorded amounts as of December 31, 2017, and the Company will continue to refine such amounts within the measurement period provided by SAB 118.
As of December 31, 2017, we had an immaterial amount of unremitted earnings related to certain foreign subsidiaries. We intend to continue to reinvest our foreign earnings indefinitely and do not expect to incur any significant taxes related to such amounts.

Prior to June 1, 2016, NantHealth was a limited liability company taxed as partnership. It also owned a number of subsidiaries, including single member limited liability companies taxed as disregarded entities and corporations. As detailed in the table above, a significant amount of the Company’s losses before income taxes was generated by pass-through entities during the year ended December 31, 2015. Since the losses of the pass-through entities flow directly to the members of the Company for tax purposes, no provision for income taxes was reflected in the Consolidated and Combined Financial Statements for these entities. The Company recorded a tax provision on its domestic and foreign corporate subsidiaries.

From January 1, 2016 to May 31, 2016, the Company recorded an income tax benefit of $5,986, mainly consisted of the deferred tax benefit from the amortization of NaviNet’s purchase accounting intangibles when NaviNet was a stand-alone corporation for tax purposes. On June 1, 2016, NantHealth converted from a limited liability company to a C corporation and formed a consolidated group with its domestic corporate subsidiaries for federal tax purposes. Upon the LLC conversion, the Company recorded $8,725 of tax benefit that represents the valuation allowance release to offset the purchase accounting deferred tax liability recorded on NaviNet’s separate company basis, and tax expense related to certain deferred tax liability arising from tax goodwill amortization. Going forward, the Company will record federal and state tax provision of the consolidated group, and foreign tax provision of its foreign subsidiaries.
Also in 2016, the Company's issuance of the Convertible Notes and the requirement for the Company to separately account for the Note liability (debt), and equity (conversion option), and make-whole liability (other liability) components of the Convertible Notes resulted in a difference between the carrying amount and the tax basis of the Convertible Notes. This temporary difference resulted in the Company recognizing a deferred tax liability for the temporary difference between the carrying value and the tax basis of the Convertible Notes excluding the make-whole liability, which was recorded as an adjustment to additional paid-in capital of $8,631. The creation of the deferred tax liability recognized as a component of equity represents a source of future taxable income pursuant to ASC 740, Income Taxes. The Company considered amounts recorded directly to equity in evaluating the need for a valuation allowance on deferred tax assets related to continuing operations. Accordingly, the Company recognized a tax benefit in continuing operations that represents the hypothetical realizable benefit of its current year operating losses resulting from the creation of the deferred tax liability in an amount equal to the $8,631 deferred tax liability that it recognized in connection with the issuance of the Convertible Notes.
Significant components of the Company’s deferred tax assets and liabilities as of December 31, 2017 and 2016 are as follows:
 
 
December 31,
 
2017
 
2016
Deferred income tax assets:
 
 
 
Accounts payable and accrued expenses
$
1,520

 
$
3,222

Inventory impairment
466

 
431

Deferred revenue
3,458

 
5,562

Allowance for doubtful accounts
178

 
31

Property, plant and equipment, net
1,098

 
3,279

Intangibles
4,865

 
2,918

Investments
22,404

 
15,653

Stock compensation
3,487

 
8,976

Other
32

 
1,144

Net operating loss carryforwards
93,689

 
93,974

Less: Valuation allowance
(97,324
)
 
(88,291
)
Total deferred income tax assets
33,873

 
46,899

Deferred income tax liabilities:
 
 
 
Accounts receivable, net
—

 
(250
)
State taxes
(3,397
)
 
(2,906
)
Intangible assets, net
(28,768
)
 
(32,155
)
Convertible notes
(5,437
)
 
(9,700
)
Deferred implementation cost
(1,960
)
 
(1,224
)
Other
(149
)
 
(580
)
Total deferred income tax liabilities
(39,711
)
 
(46,815
)
Deferred income taxes, net
$
(5,838
)
 
$
84



 The realization of deferred income tax assets may be dependent on the Company’s ability to generate sufficient income in future years in the associated jurisdiction to which the deferred tax assets relate. The Company considers all available positive and negative evidence, including scheduled reversals of deferred income tax liabilities, projected future taxable income, tax planning strategies, and recent financial performance. Based on the review of all positive and negative evidence, including a three year cumulative pre-tax loss, the Company concluded that except for the deferred tax liability recorded on amortization of certain goodwill due to its indefinite life and deferred tax liability in excess of deferred tax asset for certain separate state and city jurisdictions, it should record a full valuation allowance against all other net deferred income tax assets at December 31, 2017 and 2016 as none of these deferred income tax assets were more likely than not to be realized as of the balance sheet dates. However, the amount of the deferred income tax assets considered realizable may be adjusted if estimates of future taxable income during the carryforward period are increased or if objective negative evidence in the form of cumulative losses is no longer present. In addition, the position of the valuation allowance for deferred tax assets for which subsequently recognized tax benefits will be credited directly to contributed capital is $356.

A summary of activity in the valuation reserve deducted from deferred tax assets for the years ended December 31, 2017, 2016 and 2015 is as follows:
 
Balance at beginning of the year
 
Additions (Adjustments)
 
Deductions
 
Balance at the end of the year
Year to Date December 31, 2017
$
88,291

 
9,032

 
—

 
$
97,323

Year to Date December 31, 2016
$
30,849

 
66,161

 
(8,719
)
 
$
88,291

Year to Date December 31, 2015
$
28,995

 
1,854

 
—

 
$
30,849



The Company records a tax benefit from uncertain tax positions only if it is more likely than not the tax position will be sustained with the taxing authority having full knowledge of all relevant information. The Company records a liability for unrecognized tax benefits from uncertain tax positions as discrete tax adjustments in the first period that the more-likely-than-not threshold is not met. As of December 31, 2017 and 2016, the Company had approximately $0 and $977, respectively, of unrecognized tax benefits, without interest or penalty, all of which would not impact the effective tax rate if recognized. The unrecognized tax benefits are recorded consistent with ASU No. 2013-11, Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists (a consensus of the FASB Emerging Issues Task Force), in two parts. In 2017, the Company filed the accounting method change on the account receivable, account payable and other liabilities; therefore, the Company more likely than not does not have any uncertain tax positions in 2017. Therefore, the Company reversed the ASC 740 reserve on these items as well as any net operating loss associated with them.
 
 
December 31,
 
2017
 
2016
Balance as of January 1
$
977

 
$
879

Increases/(decreases) related to tax positions taken during the current year
(977
)
 
98

Balance as of December 31
$
—

 
$
977



The Company’s policy is to recognize interest and penalties related to uncertain tax positions in income tax expense.  As of December 31, 2017 and 2016, there are no material interest and penalties associated with unrecognized tax benefits recorded in our Consolidated and Combined Statements of Operations or Consolidated Balance Sheets. Any changes to unrecognized tax benefits recorded as of December 31, 2017 that are reasonably possible to occur within the next 12 months are not expected to be material.

The Company is no longer subject to income tax examination by the U.S. federal, state or local tax authorities for years ended December 31, 2012 or prior; however, its tax attributes, such as net operating loss (“NOL”) carryforwards and tax credits, are still subject to examination in the year they are used.

  As of December 31, 2017, the Company had federal, state and foreign NOL carryforwards of $353,503, $271,867 and $0, respectively, expiring at various dates through 2037. Utilization of the NOL carryforwards is subject to annual limitations due to ownership change limitations that occurred or could occur in the future as provided by Section 382 of the Internal Revenue Code of 1986, as amended, as well as similar state and foreign provisions. These ownership changes may limit the amount of the NOL carryforwards that can be utilized annually to offset future taxable income. The total NOL amounts above do not include the NOLs expected to expire.