Note 11 — Income Taxes

As discussed in Note 1 – Background and Basis of Presentation, the Merger was accounted for as a reverse acquisition and recapitalization, with NextDecade LLC being treated as the accounting acquirer. As such, the historical Consolidated Financial Statements prior to July 24, 2017, relate to NextDecade LLC and its subsidiaries.

We are a C-Corporation and subject to income taxes in the U.S. NextDecade LLC is a limited liability company that was not subject to income taxes during the years ended December 31, 2018 and 2017, since it was a pass-through entity for tax purposes. As such, the income tax provision for the year ended December 31, 2017 represents the period from July 25, 2017 through December 31, 2017.

Due to our cumulative loss position, we have established a full valuation allowance against our deferred tax assets at December 31, 2018 and 2017. Due to NextDecade LLC’s previous pass-through status and our full valuation allowance, we have not recorded a provision for federal or state income taxes during the years ended December 31, 2018 or 2017.

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


	Year Ended
	December 31,
	2018		2017
U.S. federal statutory rate, beginning of year	21	%	35	%
NextDecade LLC pre-merger net loss	—		(5)
Officers' compensation	(5)		(12)
U.S. tax reform rate change	—		(7)
Other	(1)		—
Valuation allowance	(15)		(11)
Effective tax rate as reported	—	%	—	%

Significant components of our deferred tax assets and liabilities at December 31, 2018 and 2017 are as follows (in thousands):


	Year Ended
	December 31,
	2018		2017
Deferred tax assets
Net operating loss carryforwards and credits	$	5,302	$	1,694
Share-based compensation expense		3,548		2,203
Property, plant and equipment		1,399		3
Other		51		11
Less: valuation allowance		(10,300)		(3,911)
Total deferred tax assets		—		—

Deferred tax liabilities
Total deferred tax liabilities		—		—

Net deferred tax assets (liabilities)	$	—	$	—

The federal deferred tax assets presented above do not include the state tax benefits as our net deferred state tax assets are offset with a full valuation allowance.

At December 31, 2018, we had federal net operating loss (“NOL”) carryforwards of approximately $25.2 million. Approximately $7.8 million of these NOL carryforwards will expire between 2034 and 2037.

Due to our history of NOLs, current year NOLs and significant risk factors related to our ability to generate taxable income, we have established a valuation allowance to offset our deferred tax assets as of December 31, 2018 and 2017. We will continue to evaluate our ability to release the valuation allowance in the future. Deferred tax assets and deferred tax liabilities are classified as non-current in our Consolidated Balance Sheets.

The Tax Reform Act of 1986 (as amended) contains provisions that limit the utilization of NOL and tax credit carryforwards if there has been a change in ownership as described in Section 382 of the Internal Revenue Code (“Section 382”). Due to the Company’s initial public offering in 2015 and the Merger in 2017, substantial changes in the Company's ownership have occurred that may limit or reduce the amount of NOL carryforwards that the Company could utilize in the future to offset taxable income. The Company has not completed a detailed Section 382 study at this time to determine what impact, if any, that ownership changes may have had on its NOL carryforwards. In each period since its inception, the Company has recorded a valuation allowance for the full amount of its deferred tax assets, as the realization of the deferred tax asset is uncertain. As a result, the Company has not recognized any federal or state income tax benefit in its Consolidated Statement of Operations and Comprehensive Loss.

We remain subject to periodic audits and reviews by taxing authorities; however, we do not expect these audits will have a material effect on our tax provision. The federal tax returns for the years beginning 2014 remain open for examination.