Income Taxes

12 Months Ended

Dec. 31, 2019

NOTE 17. INCOME TAXES

The components of the pretax loss from operations for the years ended December 31 are as follows (in thousands):



	2019			2018			2017
U.S. Domestic	$	(70,452	)	$	(67,508	)	$	(46,849	)
Foreign	(13,964		)	(20,607		)	(16,686		)
Net loss before income taxes	$	(84,416	)	$	(88,115	)	$	(63,535	)

The components of the provision for income taxes for the years ended December 31 is presented in the following table:



	2019			2018		2017
Current:
Federal	$	—		$	—	$	—
State	8			14		—
Foreign	(119		)	197		493
Total current provision	(111		)	211		493
Deferred:
Federal	—			—		—
State	—			—		—
Foreign	—			—		—
Total deferred provision	—			—		—
Total (benefit) provision	$	(111	)	$	211	$	493

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s net deferred income taxes for the years ended December 31 are as follows (in thousands):



	2019			2018
Deferred tax assets:
Net operating loss carryforward	$	66,319		$	53,189
Property & equipment	403			648
Inventory	397			395
Stock options	13,217			11,473
Intangible assets, definite-lived	38			40
General business credit	11,306			9,300
Operating Lease Liability - ASC 842	908			—
Other	59			47
Total deferred income tax assets	92,647			75,092
Valuation allowance	(81,946		)	(63,060		)
Deferred tax assets	$	10,701		$	12,032

Deferred income tax liabilities:
Debt amortization	$	(9,793	)	$	(12,032	)
Right of use asset	$	(908	)	$	—
Total deferred income tax liabilities	$	(10,701	)	$	(12,032	)

Net deferred income taxes	$	—		$	—

As of December 31, 2019, the Company generated regular tax federal net operating losses of approximately $273.9 million. The Company's ability to realize tax benefit from the net operating loss is subject to annual limitation under Internal Revenue Code Section 382. The Company will never get the benefit of $4.2 million of the net operating losses generated prior to June 26, 2012. The deferred tax asset has been adjusted to reflect the Section 382 limitation. The net operating losses available for future use are approximately $269.8 million. As a result of the Tax Act, for U.S. income tax purposes, net operating losses generated prior to December 31, 2017 can still be carried forward for up to 20 years, but net operating losses generated after December 31, 2018 carry forward indefinitely, but are limited to 80% utilization against taxable income. Of our total federal net operating loss of $273.9 million, $170.6 million will begin to expire in 2023 and $103.3 million will not expire but will only offset 80 percent of future taxable income.

As of December 31, 2019, the Company has generated state net operating losses of approximately $253.9 million. The Company's state net operating losses will begin to expire in 2033.

The net deferred tax asset valuation allowance is $81.9 million as of December 31, 2019, compared to $63.1 million as of December 31, 2018. The valuation allowance is based on management’s assessment that it is more likely than not that the Company will not have taxable income in the foreseeable future. Due to the Company's consolidated loss position, the Company maintains a valuation allowance against its net deferred tax assets.

During 2018, the Company recognized $14.0 million of the initial deferred tax liability related to the 2018 convertible debt with an adjustment to equity in accordance with ASC 740. The establishment of the deferred tax liability resulted in the reduction of the Company's valuation allowance on existing deferred tax assets. The Company recorded the reduction of the valuation allowance as an offsetting adjustment in equity. As a result, no net entry to equity was recorded for the 2018 convertible debt in 2018. Subsequent changes in the deferred tax liability related to the convertible debt are recorded as a component of income tax expense or benefits.

The Company began commercialization of its products in Europe in 2016 and has subsidiaries in the Netherlands, France, Germany, Italy, Spain, Russia, and the United Kingdom. The Company intends to treat earnings from its foreign subsidiaries as permanently reinvested.

The difference between the U.S. federal statutory income tax rate and the Company’s effective tax rate for years ending December 31 is as follows:



	2019		2018		2017
U.S. federal statutory income tax rate	(21.00	)%	(21.00	)%	(34.00	)%
State taxes, net of federal tax benefit	(3.83	)	(3.07	)	(2.62	)
Permanent and other differences	(0.25	)	(0.26	)	(2.31	)
Change in tax rates	0.16		(0.41	)	(1.02	)
Tax rate differential	3.28		4.92		8.99
Tax cuts and jobs act	—		—		38.46
Unrecognized tax benefits	0.79		0.81		1.20
Nondeductible equity and other compensation	1.12		(0.17	)	(4.31	)
Credit for increased research activities	(2.80	)	(3.12	)	(4.42	)
Change in Valuation allowance	22.40		22.54		0.81
	(0.13	)%	0.24	%	0.78	%

The Company's uncertain tax positions at December 31 as follows (in thousands):



	2019			2018			2017
Balance at beginning of year	$	2,983		$	2,141		$	1,101
Increases for prior positions	7			70			97
Increases for current year positions	724			775			943
Other increases	—			—			—
Decreases due to settlements	—			—			—
Expiration of the statute of limitations for the assessment of taxes	—			—			—
Other decreases	(2		)	(3		)	—
Balance at end of year	$	3,712		$	2,983		$	2,141

These uncertain positions are not expected to change within the next twelve months. Of the $3.7 million of uncertain tax positions, $0.1 million would impact the effective tax rate, if reversed. The Company accounts for interest on uncertain tax positions within tax expense. The Company's foreign subsidiaries are subject to applicable jurisdiction examination for all years of operations. The Company did not accrue interest or penalties for these uncertain tax positions as of December 31, 2019.

The Company incurred net operating losses since inception that are subject to adjustment under IRS and state examination. The Company has not experienced any adjustments to date and is not currently subject to audit in any jurisdiction.