|12 Months Ended|
Dec. 31, 2017
|Income Tax Disclosure [Abstract]|
NOTE 14—INCOME TAXES
The Tax Reform Act was enacted in December 2017. The Tax Act significantly changes U.S. tax law by, among other things, lowering U.S. corporate income tax rates, implementing a territorial tax system, and imposing a one-time transition tax on deemed repatriated earnings of foreign subsidiaries. The Tax Act reduces the U.S. corporate income tax rate from 35% to 21%, effective January 1, 2018.
Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to reverse. As a result of the reduction in the U.S. corporate income tax rate from 35% to 21% under the Tax Act, we revalued our ending net deferred tax assets and liabilities at December 31, 2017 and recognized a $6.9 million tax expense that was offset by a change in valuation allowance.
The Tax Act provided for a one-time transition tax on the deemed repatriation of post-1986 undistributed foreign subsidiary earnings and profits (“E&P”). The Company currently has one foreign subsidiary that has not commenced operations. As a result, the international aspects of the Tax Act are not applicable.
In connection with the initial analysis of the impact of the Tax Act, the Company remeasured certain deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future, which is generally 21%. The remeasurement of the Company's deferred tax balance was primarily offset by application of its valuation allowance. The Company is still analyzing certain aspects of the Tax Act and refining its calculations, which could potentially affect the measurement of these balances or potentially give rise to new deferred tax amounts. Where the Company has been able to make reasonable estimates of the effects for which its analysis is not yet complete, the Company has recorded provisional amounts related to the remeasurement of the deferred tax balance. Where the Company has not yet been able to make reasonable estimates of the impact of certain elements, the Company has not recorded any amounts related to those elements and has continued accounting for them in accordance with ASC 740 on the basis of the tax laws in effect immediately prior to the enactment of the Tax Act.
For the years ended December 31, 2017 and 2016, the Company did not record an income tax provision due to net operating losses and the inability to record an income tax benefit.
A reconciliation of income taxes at the statutory federal income tax rate to net income taxes included in the accompanying statements of operations is as follows (in thousands):
The tax effects of temporary differences that give rise to significant components of the net deferred tax assets are as follows (in thousands):
At December 31, 2017, the Company had federal and state net operating loss carryforwards of approximately $63.2 million and $7.6 million, respectively, available to offset future taxable income. The Company’s federal and state net operating loss carryforwards will begin to expire in 2021 and 2017, respectively, if not used before such time to offset future taxable income or tax liabilities. For federal and state income tax purposes, a portion of the Company’s net operating loss carryforward is subject to certain limitations on annual utilization in case of changes in ownership, as defined by federal and state tax laws. The annual limitation may result in the expiration of the net operating loss before utilization.
At December 31, 2017, the Company had federal research and development tax credits of approximately $1.1 million, which expire in the year beginning 2022, and state research and development tax credits of approximately $4.9 million, which have no expiration date.
The Company has established a valuation allowance against its deferred tax assets due to the uncertainty surrounding the realization of such assets. The valuation allowance increased by $4.8 million from continuing operations, and the remaining changes in valuation allowance relates to the acquired assets and tax rate changes.
The total amount of unrecognized benefits as of December 31, 2017 and 2016 was $1.1 million and $0, respectively. The reconciliation of unrecognized tax benefits at the beginning and end of the year is as follows:
Included in the balance of unrecognized tax benefits as of December 31, 2017 is $79,000 that is expected to be recognized in the next twelve months and will not affect the Company’s effective tax rate.
The Company’s policy is to recognize interest and/or penalties related to income tax matters in income tax expense. As of December 31, 2017 and 2016, the Company had no accrued interest or penalties due to the Company’s net operating losses available to offset any tax adjustment. The Company currently has no federal or state tax examinations in progress nor has it had any federal or state tax examinations since its inception. As a result of the Company’s net operating loss carryforwards, all of its tax years are subject to federal and state tax examination.
The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.
Reference 1: http://www.xbrl.org/2003/role/presentationRef