Income Taxes

Loss before income tax expense (benefit) less loss attributable to non-controlling interest was $(153.2) million, $(150.2) million and $(2.2) million for the years ended December 31, 2017, 2016 and 2015, respectively. Income tax expense (benefit) consisted of the following for the periods shown below:



Year Ended December 31,	2017		2016			2015
Current:
Federal	$	498	$	(515	)	$	—
State	134		(267		)	720
Total current tax expense (benefit)	$	632	$	(782	)	$	720

Deferred:
Federal	$	—	$	(2,589	)	$	1,405
State	—		(857		)	708
Total deferred tax (benefit) expense	$	—	$	(3,446	)	$	2,113
Income tax expense (benefit)	$	632	$	(4,228	)	$	2,833

Income tax expense for the year ended December 31, 2017 was primarily attributable to the tax effects of unrealized gains credited to other comprehensive income associated with the Company’s available for sale portfolio. Income tax benefit for the year ended December 31, 2016 was primarily attributable to the tax effects of the impairment of tax-deductible goodwill from the acquisition of Springstone, which previously gave rise to an indefinite-lived deferred tax liability, and the tax effects of unrealized gains credited to other comprehensive income associated with the Company’s available for sale portfolio. Income tax expense for the year ended December 31, 2015 was primarily attributable to the amortization of tax deductible goodwill from the acquisition of Springstone, which gave rise to an indefinite-lived deferred tax liability, and the realization of excess tax benefits related to stock-based compensation.

A reconciliation of the income taxes expected at the statutory federal income tax rate and Income tax expense (benefit) for the years ended December 31, 2017, 2016 and 2015, is as follows:



Year Ended December 31,	2017			2016				2015
Tax at federal statutory rate	$	(52,089	)	$	(51,072	)		$	(738	)
State tax, net of federal tax benefit	42			(1,028		)		1,277
Stock-based compensation expense	3,171			3,509				549
Research and development tax credits	(5,022		)	(688		)		(1,068		)
Change in valuation allowance	(3,532		)	42,714				2,686
Change in unrecognized tax benefit	2,922			2,817				(62		)
Tax rate change	53,048			—			44,026,000	—
Other	2,092			(480		)		189
Income tax expense (benefit)	$	632		$	(4,228	)		$	2,833

The significant components of the Company’s deferred tax assets and liabilities as of December 31, 2017 and 2016 were:



December 31,	2017			2016
Deferred tax assets:
Net operating loss carryforwards	$	95,611		$	47,451
Stock-based compensation	18,117			26,838
Reserves and accruals	56,111			18,409
Goodwill	5,666			9,855
Intangible assets	3,364			3,978
Tax credit carryforwards	7,499			2,483
Other	637			82
Total deferred tax assets	187,005			109,096
Valuation allowance	(140,623		)	(75,308		)
Deferred tax assets – net of valuation allowance	$	46,382		$	33,788

Deferred tax liabilities:
Internally developed software	$	(19,340	)	$	(21,436	)
Accrued receivables	(13,838		)	—
Servicing fees	(8,630		)	(6,445		)
Depreciation and amortization	(3,047		)	(5,907		)
Other	(1,527		)	—
Total deferred tax liabilities	$	(46,382	)	$	(33,788	)
Deferred tax asset (liability) – net	$	—		$	—

The table of deferred tax assets and liabilities does not include certain deferred tax assets as of December 31, 2016, related to tax deductions for equity-based compensation greater than the compensation recognized for financial reporting excess tax benefits. During the first quarter of 2017, the Company adopted ASU 2016-09 relating to accounting for excess tax benefits associated with stock-based compensation. As a result of the adoption of ASU 2016-09, the Company increased its deferred tax assets by $56.7 million for previously unrecognized excess tax benefits relating to stock-based compensation, fully offset by a $56.7 million increase in the valuation allowance against its deferred tax assets.

On December 22, 2017, the Tax Cuts and Jobs Act (Tax Reform) was signed into law. Some of the provisions of the Tax Reform affecting corporations include, but are not limited to, a reduction of the federal corporate income tax rate from 35% to 21%, certain limitations on interest expense deduction and executive compensation, and expensing of cost of acquired qualified property. The Company evaluated the impact of the new tax law on its financial condition and results of operations. The impact of the federal corporate income tax rate reduction to 21%, which is effective on January 1, 2018, resulted in the reduction in the Company’s deferred tax assets as of December 31, 2017 by $53.0 million, fully offset by a $53.0 million reduction in the valuation allowance against its deferred tax assets.

The Company continues to recognize a full valuation allowance against net deferred tax assets. This determination was based on the assessment of the available positive and negative evidence to estimate if sufficient future taxable income will be generated to utilize the existing deferred tax assets. As of December 31, 2017 and 2016, the valuation allowance was $140.6 million and $75.3 million, respectively.

As of December 31, 2017, the Company had federal and state net operating loss (NOL) carryforwards of approximately $342.5 million and $323.8 million, respectively, to offset future taxable income. The federal and majority of state NOL carryforwards will expire beginning in 2026 and 2028, respectively. Additionally, as of December 31, 2017, the Company had federal and state research credit carryforwards of $6.2 million and $5.8 million, respectively. The federal research credit carryforwards will expire beginning in 2026 and the state research credits may be carried forward indefinitely. As of December 31, 2017, the Company also had other state tax credit carryforwards of $2.3 million which will expire beginning in 2020.

In general, a corporation’s ability to utilize its NOL and research and development carryforwards may be substantially limited due to the ownership change limitations as required by Section 382 and 383 of the Internal Revenue Code of 1986, as amended (Code), as well as similar state provisions. The federal and state Section 382 and 383 limitations may limit the use of a portion of the Company’s domestic NOL and tax credit carryforwards. Further, a portion of the carryforwards may expire before being applied to reduce future income tax liabilities.

A reconciliation of the beginning and ending balance of total unrecognized tax benefits for the years ended December 31, 2017, 2016 and 2015, is as follows:



Year Ended December 31,	2017		2016		2015
Beginning balance	$	3,246	$	429	$	491
Gross increase (decrease) for tax positions related to prior years	2,330		677		(310		)
Gross increase for tax positions related to the current year	2,208		2,140		248
Ending balance	$	7,784	$	3,246	$	429

If the unrecognized tax benefit as of December 31, 2017 is recognized, there will be no effect on the Company’s effective tax rate as the tax benefit would increase a deferred tax asset, which is currently offset with a full valuation allowance. The Company recognizes interest and penalties related to unrecognized tax benefits within income tax expense. As of December 31, 2017, the Company had no accrued interest and penalties related to unrecognized tax benefits. The Company does not expect any significant increases or decreases to its unrecognized benefits within the next twelve months.

The Company files income tax returns in the United States and various state jurisdictions. As of December 31, 2017, the Company’s federal tax returns for 2013 and earlier, and the state tax returns for 2012 and earlier were no longer subject to examination by the taxing authorities. However, tax periods closed in a prior period may be subject to audit and re-examination by tax authorities for which tax carryforwards are utilized in subsequent years.