Income Taxes

12 Months Ended

Dec. 31, 2020

INCOME TAXES

Current and Deferred Income Tax Expense

Domestic and foreign pre-tax income (loss) is as follows:


	Year Ended December 31,
	2020		2019
Domestic	$	(25,590)	$	(16,072)
Foreign	(341)		7,448
Domestic and foreign pre-tax loss	$	(25,931)	$	(8,624)

Income tax expense attributable to operations is comprised of the following:


	Year Ended December 31,
	2020		2019
Current:
Federal	$	(74)	$	(103)
State	3		2
Foreign	643		509
Total current	572		408
Deferred:


Foreign	26		45
Total deferred	26		45
Income tax expense	$	598	$	453

The reconciliation of the U.S. federal statutory income tax rate to our effective income tax rate is as follows:


	Year Ended December 31,
	2020		2019
Federal statutory rate	21	%	21	%
Expiration of tax attributes	(14)		(38)
Impact of foreign earnings	(7)		(25)
Permanent items	(1)		3
Research and development credits	1		7
Stock-based compensation	(2)		(5)
Change in valuation allowance	—		31
Tax contingencies, net of reversals	—		1



Effective income tax rate	(2)	%	(5)	%

Deferred Tax Assets, Liabilities and Valuation Allowance

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts for income tax purposes. Significant components of our deferred tax assets and liabilities are as follows:


	December 31,
	2020		2019
Deferred tax assets:
Research and experimentation credit and deduction carryforwards	$	65,772	$	67,648
Net operating loss carryforwards	50,917		47,779
Depreciation and amortization	2,282		1,956
Deferred stock-based compensation	1,158		1,134
Foreign tax credit carryforwards	275		719
Reserves and accrued expenses	145		1,785

Other	2,074		1,434
Total gross deferred tax assets	122,623		122,455
Deferred tax liabilities:

Other	(1,526)		(1,300)
Total gross deferred tax liabilities	(1,526)		(1,300)
Less valuation allowance	(120,981)		(121,005)
Net deferred tax assets	$	116	$	150

We continue to record a full valuation allowance against our U.S. and Canadian net deferred tax assets as of December 31, 2020 and 2019, as it is not more likely than not that we will realize a benefit from these assets in a future period. We have not provided a valuation allowance against any of our foreign net deferred tax assets as we have concluded it is more likely than not that we will realize a benefit from these assets in a future period because our subsidiaries in these jurisdictions are cost-plus taxpayers. The net valuation allowance decreased $24 for the year ended December 31, 2020 and decreased $2,667 for the year ended December 31, 2019.

As of December 31, 2020, we had federal, state and foreign net operating loss carryforwards of $195,856, $8,610 and $34,309 respectively, which will begin to expire in 2021 with $32,258 of our federal net operating loss carryforward lasting indefinitely. As of December 31, 2020, we had available federal, state and foreign research and experimentation tax credit carryforwards of $8,631, $4,761, and $26,869 respectively. The federal and state tax credits will begin expiring in 2021 while the foreign credits have an indefinite life. In addition, our Canadian subsidiary has unclaimed scientific and experimental expenditures to be carried forward and applied against future income in Canada of approximately $121,076. We have a general foreign tax credit of $163 which will begin to expire in 2021.

Our ability to utilize our federal net operating losses may be limited by Section 382 of the Internal Revenue Code of 1986, as amended, which imposes an annual limit on the ability of a corporation that undergoes an "ownership change" to use its net operating loss carryforwards to reduce its tax liability. An ownership change is generally defined as a greater than 50% increase in equity ownership by 5% shareholders in any three-year period.

We are not indefinitely reinvested in the earnings of our subsidiaries and have accrued tax on the future repatriation of cash for jurisdictions where withholding taxes would apply.

Our Chinese subsidiary is designated as an Advanced Technology Service Enterprise, allowing it to benefit from a Chinese tax holiday resulting in a reduction of its tax rate to 15% through 2021. The tax rate will return to 25% in 2022 upon expiration of the tax holiday.

Uncertain Tax Positions

We have recorded tax liabilities to address potential exposures involving positions that could be challenged by taxing authorities. As of December 31, 2020, the amount of our uncertain tax positions was a liability of $1,610 and a reduction to deferred tax assets of $1,189. As of December 31, 2019, the amount of our uncertain tax positions was a liability of $1,554 and a reduction to deferred tax assets of $1,100.

The following is a summary of the change in our liability for uncertain tax positions and interest and penalties:


	2020		2019
Uncertain tax positions:
Balance at beginning of year	$	2,569	$	2,504
Accrual for positions taken in a prior year	24		(14)
Accrual for positions taken in current year	192		188
Reversals due to lapse of statute of limitations	(74)		(109)

Balance at end of year	$	2,711	$	2,569
Interest and penalties:
Balance at beginning of year	$	85	$	82
Accrual for positions taken in prior year	18		28
Accrual for positions taken in current year	—		2
Reversals due to lapse of statute of limitations	(15)		(27)

Balance at end of year	$	88	$	85

During the years ended December 31, 2020 and 2019 we recognized $18 and $30, respectively, of interest and penalties in income tax expense in our consolidated statements of operations.

We file income tax returns in the U.S. and various foreign jurisdictions. A number of years may elapse before an uncertain tax position is resolved by settlement or statute of limitations. Settlement of any particular position could require the use of cash. If the uncertain tax positions we have accrued for are sustained by the taxing authorities in our favor, the reduction of the liability will reduce our effective tax rate. We reasonably expect reductions in the liability for unrecognized tax benefits and interest and penalties of approximately $13 within the next twelve months due to the expiration of statutes of limitation in federal, state and foreign jurisdictions.

We are no longer subject to U.S. federal, state, and foreign examinations for years before 2017, 2016 and 2013, respectively. Our net operating loss and tax credit carryforwards from all years may be subject to adjustment for three years following the year in which utilized. We do not anticipate that any potential tax adjustments will have a significant impact on our financial position or results of operations.

We were not subject to, nor have we received any notice of, income tax examinations in any jurisdiction as of December 31, 2020.