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Note 10 - Income Taxes
12 Months Ended
Dec. 31, 2018
Notes to Financial Statements  
Income Tax Disclosure [Text Block]
10
.
Income Taxes
 
For the years ended
December 31, 2018,
2017
and
2016,
we did
not
record a provision for income taxes due to a full valuation allowance against our deferred tax assets.
 
The difference between the provision for income taxes and income taxes computed using the effective U.S. federal statutory rate is as follows (in thousands):
 
   
December 31,
 
   
2018
   
2017
   
2016
 
Tax at statutory federal rate
  $
(37,557
)   $
(67,145
)   $
(58,868
)
State tax, net of federal benefit
   
(6,527
)    
(6,203
)    
2,013
 
Research and development credits
   
(4,775
)    
(5,962
)    
(4,206
)
Stock-based compensation expense
   
(2,059
)    
3,151
     
2,694
 
Non-deductible compensation
   
901
     
     
1,864
 
Change in valuation allowance
   
50,834
     
3,241
     
55,173
 
Impact of the 2017 Tax Act
   
     
74,361
     
 
Other
   
(817
)    
(1,443
)    
1,330
 
Provision for income taxes
  $
    $
    $
 
 
Deferred income tax assets and liabilities arising from differences between accounting for financial statement purposes and tax purposes, less valuation allowance at year-end are as follows (in thousands):
 
   
December 31,
 
   
2018
   
2017
 
Deferred tax assets:
               
Net operating loss carryforward
  $
172,113
    $
134,659
 
Research and development credits
   
35,670
     
25,919
 
Stock-based compensation
   
11,905
     
8,633
 
Other
   
3,171
     
2,920
 
Total gross deferred tax assets
   
222,859
     
172,131
 
Valuation allowance
   
(222,859
)
   
(172,131
)
Net deferred tax assets
  $
    $
 
 
We have established a valuation allowance to offset net deferred tax assets as of
December 31, 2018
and
2017
due to the uncertainty of realizing future tax benefits from such assets.
 
As of
December 31, 2018,
we had federal, California and other state net operating loss (“NOL”) carryforwards of
$715.3
million,
$122.3
million and
$824.9
million, respectively. The federal NOL carryforwards consist of
$549.7
million generated before
January 1, 2018,
which will begin to expire in
2021
and
$165.6
million that will carryforward indefinitely but are subject to the
80%
taxable income limitation. The state NOL carryforwards will begin to expire in
2028.
 
As of
December 31, 2018,
we had federal and California state research and development credit carryforwards of
$27.2
million and
$13.3
million, respectively. The federal research and development credit carryforwards will begin to expire in
2022.
The California state credits can be carried forward indefinitely.
 
Internal Revenue Code (“IRC”) Section
382
and
383
places a limitation on the amount of taxable income that can be offset by NOL and credit carryforwards after a change in control (generally greater than
50%
change in ownership within a
three
-year period) of a loss corporation. California has similar rules. Generally, after a change in control, a loss corporation cannot deduct NOL and credit carryforwards in excess of the IRC Section
382
and
383
limitation. We have performed an IRC Section
382
and
383
analysis and determined there were ownership changes in
2007,
2011,
and
2013.
We are currently in the process of completing the IRC Section
382
and
383
analysis for
2018.
The limitation in the federal and state carryforwards associated with the NOL and credit carryforwards reduce the deferred tax assets, which are further offset by a full valuation allowance. The limitation can result in the expiration of the NOLs and credit carryforwards available as of
December 31, 2018.
 
 
We file U.S. and state income tax returns with varying statutes of limitations. The tax years from
1999
to
2018
remain open to examination due to the carryover of unused NOL carryforwards and tax credits.
 
The Tax Cuts and Jobs Act (
“2017
Tax Act”) was enacted in
December 2017.
The
2017
Tax Act, among other things, reduces the U.S. federal corporate tax rate from
35%
to
21%,
effective
January 1, 2018,
requires companies to pay a
one
-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred and creates new taxes on certain foreign earnings. We revalued our deferred tax assets as of
December 31, 2017
based on a U.S. federal tax rate of
21%,
which resulted in a reduction to our deferred tax assets of
$74.3
million fully offset by a reduction to the valuation allowance. We were
not
required to pay a
one
-time transition tax on earnings of our foreign subsidiary as the foreign subsidiary has an accumulated deficit. In addition, the Global Intangible Low-taxed Income provision is
not
applicable given the Company’s controlled foreign corporations incurred losses for the year ended
December 31, 2018.
 
In
December 2017,
the SEC staff issued Staff Accounting Bulletin
No.
 
118
(“SAB
118”
), which provides guidance for the tax effects of the
2017
Tax Act. SAB
118
provides a measurement period that should
not
extend beyond
one
year from the Tax Act’s enactment date for companies to complete the accounting under ASC
740.
In accordance with SAB
118,
we must reflect the income tax effects of those aspects of the Tax Act for which the accounting under ASC
740
is complete. To the extent that our accounting for certain income tax effects of the Tax Act is incomplete, but we are able to determine a reasonable estimate, we must record a provisional estimate in our financial statements. If we cannot determine a provisional estimate to be included in our financial statements, we should continue to apply ASC
740
on the basis of the provisions of the tax laws that were in effect immediately before the enactment of the Tax Act. We have completed our analysis of the Tax Act’s income tax effects. In accordance with SAB
118,
the Tax Act-related income tax effects that we initially reported as provisional estimates were refined as additional analysis was performed.  Our analysis was complete in the
fourth
quarter of
2018
and there was
no
material impact to our consolidated balance sheets or statements of operations and comprehensive loss.
 
A reconciliation of our unrecognized tax benefits is as follows (in thousands):
 
   
Year Ended December 31,
 
   
2018
   
2017
   
2016
 
Balance at beginning of year
  $
120
    $
120
    $
120
 
Additions for tax positions of prior years
   
     
     
 
Additions based on tax positions related to current year
   
2,265
     
     
 
Balance at end of year
  $
2,385
    $
120
    $
120
 
 
Due to our valuation allowance, the
$2.4
million of unrecognized tax benefits would
not
affect the effective tax rate, if recognized. It is the Company’s practice to recognize interest and penalties related to income tax matters in income tax expense. As of
December 31, 2018,
we had
no
accrued interest and penalties related to uncertain tax positions. We do
not
expect any material changes to the estimated amount of liability associated with our uncertain tax positions within the next
12
months.