15.	Income Taxes

On December 22, 2017, the Tax Cuts and Jobs Act (the “2017 Tax Act”) was enacted. The 2017 Tax Act includes a number of changes to existing U.S. tax laws that impact the Company, most notably a reduction of the top U.S. corporate income tax rate from 35 percent to 21 percent for tax years beginning after December 31, 2017.

The Company recognized the income tax effects of the 2017 Tax Act in its 2017 financial statements in accordance with SEC Staff Accounting Bulletin No. 118 (“SAB 118”), which provides guidance for the application of ASC Topic 740, Income Taxes, in the reporting period in which the 2017 Tax Act was signed into law. As such, the Company’s financial results reflect the income tax effects of the 2017 Tax Act for which the accounting under ASC Topic 740 is complete and provisional amounts for those specific income tax effects of the 2017 Tax Act for which the accounting under ASC Topic 740 is incomplete but a reasonable estimate could be determined. Upon completion of our 2017 U.S. income tax return in 2018 we may identify additional remeasurement adjustments to our recorded deferred tax assets. We will continue to assess our provision for income taxes as future guidance is issued, but do not currently anticipate significant revisions will be necessary. Any such revisions will be treated in accordance with the measurement period guidance outlined in SAB 118.

The changes to existing U.S. tax laws as a result of the 2017 Tax Act, which we believe have the most significant impact on the Company’s federal income taxes are as follows:

Reduction of the U.S. Corporate Income Tax Rate

The Company measures deferred tax assets and liabilities using enacted tax rates that will apply in the years in which the temporary differences are expected to be recovered or paid. Accordingly, the Company’s deferred tax assets and liabilities were remeasured to reflect the reduction in the U.S. corporate income tax rate from 35 percent to 21 percent. This resulted in a $38.7 million decrease in net deferred tax assets and a corresponding $38.7 million decrease to the valuation allowance as of December 31, 2017.

Income Tax Expense

The following reconciles the differences between income taxes computed at the federal income tax rate and the provision for income taxes:

	Year Ended December 31,
	2017				2016				2015
Expected income tax benefit at the federal statutory rate		34.0		%		34.0		%		34.0		%
State taxes, net of federal benefit		0.0				0.0				(0.8	)
Change in effective tax rate		(54.1	)			0.0				(0.9	)
Non-deductible items and other		0.5				(0.7	)			(0.5	)
Federal and state credits		0.5				0.6				(0.7	)
Change in valuation allowance		19.1				(33.9	)			(31.1	)
Total		0.0		%		0.0		%		0.0		%

Deferred income taxes reflect the net effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The principal components of the Company’s net deferred tax assets consisted of the following at December 31, 2017 and 2016 (in thousands):

	Year Ended December 31,
	2017			2016
Net operating loss carryforwards	$	61,049		$	75,036
Research and development tax credits		3,731			2,131
Reserves and accruals		1,168			1,791
Other		6,611			4,594
Total deferred tax assets		72,559			83,552
Valuation allowance		(72,559	)		(83,552	)
Net deferred tax assets	$	—		$	—

The Company maintains a valuation allowance related to its deferred tax asset position when management believes it is more likely than not that the net deferred tax assets will not be realized in the future. The Company’s valuation allowance decreased by $11.0 million and increased by $17.4 million during the year ended December 31, 2017 and 2016.

At December 31, 2017, the Company had federal net operating loss carryforwards of $266.3 million, which begin to expire in the year ending December 31, 2024, and $144.8 million related to state net operating loss carryforwards, which begin to expire in the year ending December 31, 2019. The Company had federal research and development tax credit carryforwards of $3.8 million, and state carryforwards of $1.3 million at the year ended December 31, 2017. These credits begin to expire in the year ending December 31, 2024.

Under the provisions of the Internal Revenue Code, or IRC, net operating loss and credit carryforwards and other tax attributes may be subject to limitation if there has been a significant change in ownership of the Company, as defined by the IRC. The Company believes it has experienced at least one ownership change in the past. The Company is currently analyzing the tax impact of such ownership change on its federal net operating loss and credit carryforwards. Future change in the Company’s ownership could result in limitations on net operating loss and credit carryforwards.

Because of the net operating loss and credit carryforwards, all of the Company’s federal tax returns and state returns since the year ended December 31, 2004 remain subject to federal and California examination.

The Company accounts for uncertain tax positions using a “more-likely-than-not” threshold. The evaluation of uncertain tax positions is based on factors including, but not limited to, changes in tax law, the measurement of tax positions taken or expected to be taken in tax returns, the effective settlement of matters subject to audit, new audit activity and changes in facts or circumstances related to a tax position. The Company evaluates these tax positions on an annual basis. In addition, the Company also accrues for potential interest and penalties related to unrecognized tax benefits in income tax expense.

At December 31, 2017 and 2016, the Company’s unrecognized tax benefits consist of the following:

	Year Ended December 31,
	2017			2016
Unrecognized tax benefit, beginning of period	$	940		$	742
Gross increases — current year tax positions		327			198
Gross increases — prior year tax positions		73			—
Gross decreases — prior year tax positions		(205	)		—
Unrecognized tax benefit, end of period	$	1,135		$	940