Income Taxes

12 Months Ended

Dec. 31, 2017

Income Tax Disclosure [Abstract]

Income Taxes

13. Income Taxes

U.S. Federal Income Tax Reform

On December 22, 2017, in response to the enactment of the 2017 Tax Act (see Note 2), the SEC staff issued SAB 118 that allows BioTime to record provisional amounts during a measurement period not to extend beyond one year of the enactment date. BioTime is currently analyzing the 2017 Tax Act, and in certain areas, has made reasonable estimates of the effects on its consolidated financial statements and tax disclosures, including the amount of the repatriation tax and changes to BioTime’s existing deferred tax balances, for the year ended December 31, 2017. The repatriation tax is based primarily on LifeMap Sciences Ltd, an Israeli subsidiary of LifeMap Sciences, accumulated foreign earnings and profits that BioTime previously excluded from U.S. income taxes. As a result, LifeMap Sciences included $227,000 in foreign earnings in federal income for the current year. The federal taxable income was offset by the LifeMap Sciences’ net operating loss carryforwards resulting in no federal income tax due.

In addition, BioTime remeasured certain deferred tax assets and liabilities based on the enacted tax rate at which they are expected to reverse in the future. The estimated tax effected amount related to the remeasurement of these balances was a reduction of BioTime’s net deferred tax assets by $8.9 million with a corresponding decrease in the valuation allowance by the same amount, recognized as of December 31, 2017, as discussed below. BioTime considers the key estimates on the repatriation tax, net deferred tax remeasurement and the impact on unrealized tax benefits, if any, to be incomplete due to its continuing analysis of final year-end data and tax positions. BioTime’s completion of this analysis could affect the measurement of these balances and give rise to new deferred tax assets and liabilities. Since the 2017 Tax Act was passed late in the fourth quarter of 2017, and further guidance and accounting interpretation is expected over the next twelve months, BioTime’s review is not complete and management expects to complete its analysis within the measurement period provided by SAB 118.

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. As of December 31, 2017, the federal portion of the deferred tax assets and liabilities for 2017 were re-rated from 34 percent to 21 percent pursuant to the 2017 Tax Act.

The primary components of the deferred tax assets and liabilities at December 31, 2017 and 2016 were as follows (in thousands):

Deferred tax assets/(liabilities):	2017		2016
Net operating loss carryforwards	$	55,608	$	78,116
Research and development and other credits		6,548		7,645
Patents and licenses		910		(67)
Equity method investments at fair value		(23,946)		(40,258)
Stock options		713		1,529
Other, net		812		2,248
Total		40,645		49,213
Valuation allowance		(40,645)		(49,213)
Net deferred tax assets	$	-	$	-

Income taxes differed from the amounts computed by applying the current U.S. federal income tax rate of 34% to pretax losses from operations as a result of the following:

	Year Ended December 31,
	2017		2016		2015
Computed tax benefit at federal statutory rate		34%		34%		34%
Research and development and other credits		2%		(3%)		2%
Re-rate of federal net deferred tax assets		(38%)		-		-
Permanent differences		(8%)		2%		(4%)
Change in valuation allowance		(32%)		(63%)		(34%)
Establish deferred tax liability for OncoCyte shares at deconsolidation		17%		-		-
State tax benefit, net of effect on federal income taxes		27%		24%		10%
Foreign rate differential		(2%)		6%		(1%)
		-%		-%		7%

As of December 31, 2017, BioTime has gross net operating loss carryforwards of approximately $162.6 million for federal purposes. Of this amount, $17.6 million is attributable to LifeMap Sciences, which includes LifeMap Solutions, as LifeMap Sciences files a separate federal income tax return and their respective net operating loss carryforwards may not be used to offset the taxable income of BioTime. As of December 31, 2017, BioTime’s subsidiaries have foreign gross net operating loss carryforwards of approximately $65.2 million which carryforward indefinitely.

As of December 31, 2017, BioTime has net operating losses of $95.0 million for state tax purposes. Historically, both LifeMap Sciences and OncoCyte have been included in the combined California tax return with BioTime. As a result of the OncoCyte Deconsolidation on February 17, 2017, (see Notes 3 and 4), OncoCyte will file a separate California return for tax year 2017. Accordingly, the California net operating loss carryforwards attributable to OncoCyte will not be available to BioTime or LifeMap Sciences. The federal and state net operating losses expire in varying amounts between 2018 and 2036.

As of December 31, 2017, BioTime has research tax credit carryforwards for federal and state tax purposes of $3.3 million and $3.3 million, respectively. The federal tax credits expire between 2018 and 2036, while the state tax credits have no expiration date.

Although the OncoCyte Deconsolidation on February 17, 2017 was not a taxable transaction to BioTime and did not result in a tax payment obligation, the $71.7 million unrealized gain on the OncoCyte Deconsolidation generated a deferred tax liability that was fully offset by BioTime’s net operating losses. Subsequent to the OncoCyte Deconsolidation, an unrealized loss of $2.9 million was recorded on the OncoCyte shares during the year ended December 31, 2017, which was fully offset by a corresponding increase in BioTime’s valuation allowance.

Similarly, the Asterias Deconsolidation on May 13, 2016 was not a taxable transaction to BioTime and did not result in a tax payment obligation, the $49.0 million gain on the Asterias Deconsolidation generated a deferred tax liability that was fully offset by BioTime’s net operating losses. Subsequent to the Asterias Deconsolidation, an unrealized gain of $34.3 million was recorded on the Asterias shares during the year ended December 31, 2016, which was fully offset by available net operating losses and the corresponding release of BioTime’s valuation allowance on deferred tax assets. An unrealized loss of $51.1 million was recorded on the Asterias shares during the year ended December 31, 2017 which was fully offset by a corresponding increase in BioTime’s valuation allowance.

In connection with the deconsolidation of OncoCyte and Asterias (see Note 3), the market value of the respective shares BioTime holds creates a deferred tax liability to BioTime based on the closing price of the security, less the tax basis of the security BioTime has in such shares. The deferred tax liability generated by OncoCyte and Asterias shares that BioTime holds as of December 31, 2017, is a source of future taxable income to BioTime, as prescribed by ASC 740-10-30-17, that will more likely than not result in the realization of its deferred tax assets to the extent of those deferred tax liabilities. This deferred tax liability is determined based on the closing price of those securities as of December 31, 2017.

On June 6, 2017, BioTime and LifeMap Sciences entered into a Debt Conversion Agreement whereby BioTime acquired additional stock in LifeMap Sciences (see Note 10) and other assets, including intellectual property in exchange for intercompany indebtedness of approximately $8.7 million owed to BioTime. This transaction had no financial reporting impact, except for transactions between noncontrolling interests of LifeMap Sciences discussed in Note 10. BioTime and LifeMap Sciences recorded the tax effect of the transactions in equity instead of the tax provision in accordance with ASC 740-20-45-11(g), which requires that the tax effects of all changes in tax bases of assets and liabilities caused by transactions among or with shareholders be included in equity. In connection with the June 2017 transactions, LifeMap Sciences utilized approximately $3.3 million in net operating loss carryforwards with a corresponding release of the valuation allowance recorded through equity in accordance with ASC 740-20-45-11(g).

For income tax purposes, the purchase by BioTime of LifeMap Sciences’ intellectual property and other assets resulted in a taxable gain to LifeMap Sciences of $3.7 million for the year ended December 31, 2017. Although LifeMap Sciences had sufficient current year operating losses and regular net operating loss carryforwards to offset the entire gain, it incurred a federal alternative minimum tax payable of $22,000 as of December 31, 2017. As previously noted under the 2017 Tax Act, corporations are no longer subject to the AMT, effective for taxable years beginning after December 31, 2017. To the extent a company has an AMT credit from a prior year, the company can carry the credit forward to offset regular tax. To the extent the company does not have a federal tax liability, a portion of the AMT credit is refundable each year starting in 2018, with any remaining balance fully refundable in 2021. As LifeMap Sciences will ultimately receive a full refund of the current AMT payable, fully offsetting the current provision, there is no tax provision or benefit recorded for the year ended December 31, 2017.

A valuation allowance is provided when it is more likely than not that all or some portion of the deferred tax assets will not be realized. BioTime established a full valuation allowance for all periods presented due to the uncertainty of realizing future tax benefits from its net operating loss carryforwards and other deferred tax assets, including foreign net operating losses generated by its subsidiaries.

No tax provision or benefit was recorded for income taxes for the year ended December 31, 2016. A deferred income tax benefit of $4.5 million was recorded for the year ended December 31, 2015, of which $4.8 million was related to the federal benefit and $290,000 was related to state tax expense.

Other Income Tax Matters

Internal Revenue Code Section 382 places a limitation (“Section 382 Limitation”) on the amount of taxable income that can be offset by net operating loss (“NOL”) 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 carryforwards in excess of the Section 382 Limitation. Due to these “change in ownership” provisions, utilization of the NOL and tax credit carryforwards may be subject to an annual limitation regarding their utilization against taxable income in future periods. As of December 31, 2017, no such change in control pursuant to Section 382 had occurred.

BioTime files a U.S. federal income tax return as well as various state and foreign income tax returns. In general, BioTime is no longer subject to tax examination by major taxing authorities for years before 2013. Although the statute is closed for purposes of assessing additional income and tax in these years, the taxing authorities may still make adjustments to the net operating loss and credit carryforwards used in open years. Therefore, the statute should be considered open as it relates to the net operating loss and credit carryforwards used in open years.

BioTime may be subject to potential examination by U.S. federal, U.S. states or foreign jurisdiction authorities in the areas of income taxes. These potential examinations may include questioning the timing and amount of deductions, the nexus of income among various tax jurisdictions and compliance with U.S. federal, U.S. state and foreign tax laws. BioTime’s management does not expect that the total amount of unrecognized tax benefits will materially change over the next twelve months.

BioTime’s practice is to recognize interest and penalties related to income tax matters in tax expense. As of December 31, 2017 and 2016, BioTime has no accrued interest and penalties.