(5) Income Taxes

On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (the "2017 Tax Act") was signed into law making significant changes to U.S. federal corporate income tax law. Changes include, but are not limited to, a U.S. federal corporate tax rate decrease from 34% to 21% for years beginning after December 31, 2017, limitation on the utilization of NOLs arising after December 31, 2017, and imposing a one-time mandatory deemed repatriation tax on accumulated earnings of foreign subsidiaries for the year ended December 31, 2017. The reduction in the U.S. federal corporate tax rate decreased the Company’s net deferred tax balances by $14.4 million which was fully offset by a corresponding decrease to its deferred tax valuation allowance. The Company does not expect to pay U.S. federal cash taxes due to an accumulated deficit in foreign earnings for tax purposes related to the one-time mandatory deemed repatriation tax on foreign earnings. The Company recorded its provision for income taxes in accordance with the 2017 Tax Act and guidance available as of the date of this filing.

The components of loss from continuing operations before provision for income taxes consist of the following (in thousands):

	Years ended December 31,
	2015			2016			2017
United States	$	(573	)	$	(83,920	)	$	(6,022	)
Foreign		3			(92	)		(23	)
Loss from continuing operations before provision for income taxes	$	(570	)	$	(84,012	)	$	(6,045	)

The provision for income taxes from continuing operations for the Company consists of the following (in thousands):

	Years ended December 31,
	2015			2016			2017
Current provision
State		27			54			42
Deferred provision (benefit)
Federal		1,187			(9,830	)		14,638
Valuation allowance		(1,187	)		9,830			(14,638	)
Total income tax expense	$	27		$	54		$	42

Income tax expense from continuing operations differed from the amounts computed by applying the U.S. federal statutory rate to loss before provision for income taxes as a result of the following (in thousands):

	Years ended December 31,
	2015			2016			2017
Income tax benefit at U.S. statutory rate	$	(194	)	$	(28,564	)	$	(2,055	)
State taxes, net of valuation allowance		17			35			28
Stock-based compensation (1)		802			489			2,396
Non-deductible goodwill		—			16,917			—
Impact of 2017 Tax Act		—			—			14,413
Valuation allowance		(1,187	)		9,830			(14,638	)
Research tax credits		(510	)		(541	)		(156	)
Other expenses		1,099			1,888			54
Total income tax expense	$	27		$	54		$	42

(1)

Includes non-deductible stock-based compensation and beginning in 2017, excess tax benefits and shortfalls from stock-based compensation.

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities are presented below and reflects the 34% and 21% U.S. federal statutory rate for 2016 and 2017, respectively (in thousands):

	As of December 31,
	2016			2017
Deferred tax assets:
Accrued liabilities not currently deductible	$	1,323		$	721
Intangible assets-excess of financial statement over tax amortization		2,045			939
Goodwill recognized on financial statements in excess of tax amortization		8,683			3,750
Stock-based compensation		4,181			1,680
Federal net operating losses		17,619			15,887
State and city net operating loss carryforwards		6,330			5,403
Research & experimental tax credit carryforwards		3,676			3,832
Other		665			456
Gross deferred tax assets		44,522			32,668
Valuation allowance		(44,522	)		(32,668	)
Net deferred tax assets	$	—		$	—

On January 1, 2017, the Company adopted ASU 2016-09 and recorded previously unrecognized tax benefits of $3.7 million to accumulated deficit with a corresponding increase to the valuation allowance on deferred tax assets. ASU 2016-09 requires excess tax benefits and shortfalls to be recognized as a component of income tax expense.

As of December 31, 2017, the Company’s federal NOL carryforwards were approximately $75.4 million and federal research and development credit carryforwards of $5.0 million for income tax purposes, which are potentially available to offset future tax liabilities. As of December 31, 2017, the Company’s state, city, and other foreign jurisdiction NOL carryforwards were approximately $5.5 million, which begin to expire in 2025.

In addition, at December 31, 2016 and 2017, the Company had certain federal NOL carryforwards of approximately $1.7 million which prior to the 2017 Tax Act were set to begin to expire in 2019. The Tax Reform Act of 1986 limits the use of NOL and tax credit carryforwards in certain situations where changes occur in the stock ownership of a company. The Company believes that such a change has occurred related to these specific NOL carryforwards, and that the utilization of the approximately $1.7 million in carryforwards is limited such that substantially all of these NOL carryforwards will likely never be utilized. Accordingly, the Company has not included these federal NOL carryforwards in its deferred tax assets.

The Company has recorded a deferred tax asset for stock-based compensation recorded on unexercised non-qualified stock options and certain restricted shares and restricted share units. The ultimate realization of this asset is dependent upon the fair value of the Company’s stock when the options are exercised and when restricted shares or restricted share units vest, and generation of sufficient taxable income to realize the benefit of the related tax deduction.

At December 31, 2015, 2016 and 2017, the Company recorded a valuation allowance of $34.5 million, $44.5 million, and $32.7 million, respectively, against its federal, state, city and foreign net deferred tax assets, as it believes it is more likely than not that these benefits will not be realized. The net change in the total valuation allowance for each of the years ended December 31, 2016 and 2017 was $10.0 million and $(12.1) million, respectively. The decrease in the valuation allowance in 2017 was primarily a result of the 2017 Tax Act which reduced the U.S. federal corporate tax rate from 34% to 21%. This resulted in a decrease in the Company’s deferred tax balances of $14.4 million with a corresponding decrease in the valuation allowance.

The Company regularly reviews deferred tax assets to assess whether it is more likely than not that the deferred tax assets will be realized and, if necessary, establishes a valuation allowance for portions of such assets to reduce the carrying value. In assessing whether it is more likely than not that the Company’s deferred tax assets will be realized, factors considered included: historical taxable income, historical trends related to advertiser usage rates, projected revenues and expenses, macroeconomic conditions, issues facing the industry, existing contracts, the Company’s ability to project future results and any appreciation of its other assets. The Company incurred taxable losses in 2015, 2016, and 2017. Based on the level of historical taxable losses and the uncertainty of projections for future taxable income over the periods for which the deferred tax assets are deductible, the Company concluded that it is not more likely than not that the gross deferred tax assets will be realized.

From time to time, various state, federal and other jurisdictional tax authorities undertake audits of the Company and its filings. In evaluating the exposure associated with various tax filing positions, the Company on occasion accrues charges for uncertain positions. Resolution of uncertain tax positions will impact the Company’s effective tax rate when settled. The Company does not have any significant interest or penalty accruals. The provision for income taxes includes the impact of contingency provisions and changes to contingencies that are considered appropriate. The following table summarizes activity related to tax contingencies from January 1, 2015 to December 31, 2017 which are recorded as an offset to deferred tax assets (in thousands):

Gross tax contingencies—January 1, 2015	$	717
Gross increases to tax positions associated with prior periods	$	—
Gross increases to current period tax positions	$	171
Gross decreases to tax positions associated with prior periods	$	—
Settlements	$	—
Lapse of statute of limitations	$	—
Gross tax contingencies—December 31, 2015	$	888
Gross increases to tax positions associated with prior periods	$	—
Gross increases to current period tax positions	$	182
Gross decreases to tax positions associated with prior periods	$	—
Settlements	$	—
Lapse of statute of limitations	$	—
Gross tax contingencies—December 31, 2016	$	1,070
Gross increases to tax positions associated with prior periods	$	—
Gross increases to current period tax positions	$	52
Gross decreases to tax positions associated with prior periods	$	—
Settlements	$	—
Lapse of statute of limitations	$	—
Gross tax contingencies—December 31, 2017	$	1,122

The Company files U.S. federal, certain U.S. states, and certain foreign tax returns. Generally, U.S. federal, U.S. state, and foreign tax returns filed for years after 2012 are within the statute of limitations and are under examination or may be subject to examination.