Income Taxes

The Company did not record a provision for income taxes for the years ended December 2017, 2016 and 2015 due to a full valuation allowance against its deferred tax assets.

On December 22, 2017, the Tax Cuts and Jobs Act (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 U.S. corporate tax rate from 34% to 21%, for tax years beginning after December 31, 2017. The 2017 Tax Act also provides for the implementation of a territorial tax system, a one-time transition tax on certain foreign earnings, the acceleration of depreciation for certain assets placed into service after September 27, 2017 and other prospective changes beginning in 2018, including repeal of the domestic manufacturing deduction, acceleration of tax revenue recognition, capitalization of research and development expenditures, additional limitations on executive compensation and limitations on the deductibility of interest.

Pursuant to the SEC Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act, the Company has not finalized its accounting for the income tax effects of the 2017 Tax Act. This includes a provisional amount related to the re-measurement of deferred tax assets based on the rates at which they are expected to reverse in the future, which is generally 21% plus the applicable state tax rate, with a corresponding change to the valuation allowance as of December 31, 2017. The impact of the 2017 Tax Act may differ from this estimate during the one-year measurement period due to, among other things, further refinement of the Company’s calculation, changes in interpretations and assumptions the Company has made, additional guidance that may be issued and actions the Company may take as a result of the 2017 Tax Act.

Significant components of the Company’s deferred tax assets are as follows (in thousands):



	December 31,
	2017			2016			2015
Deferred tax assets:
Capitalized research and development and other	$	7,379		$	9,380		$	33,894
Valuation allowance	(7,379		)	(9,380		)	(33,894		)
Net 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,
	2017			2016			2015
Income tax benefit at statutory federal rate	$	(39,033	)	$	(26,583	)	$	(14,250	)
Research and development credits	(2,691		)	(1,240		)	1,128
Foreign rate differential	1,249			—			—
Expired tax attributes	2,228			(5		)	31
Impact of the 2017 Tax Act	71,199			—			—
Stock-based compensation	2,253			—			—
Change in valuation allowance	(35,246		)	25,091			12,042
Other permanent differences	41			2,737			1,049
Provision for income taxes	$	—		$	—		$	—

The Company has established a valuation allowance against its federal and state deferred tax assets due to the uncertainty surrounding the realization of such assets. Management periodically evaluates the recoverability of the deferred tax assets. At such time as it is determined that it is more likely than not that deferred assets are realizable, the valuation allowance will be reduced accordingly and recorded as a tax benefit.

Pursuant to Section 382 and 383 of the IRC, utilization of the Company’s federal net operating loss and research and development credit carryforwards may be subject to annual limitations in the event of any significant future changes in its ownership structure. These annual limitations may result in the expiration of net operating loss and research and development credit carryforwards prior to utilization. The Company has not completed an IRC Section 382 and 383 analysis regarding the limitation of net operating loss and research and development credit carryforwards. The Company does not presently plan to complete an IRC Section 382 and 383 analysis; and until this analysis has been completed, the Company has removed the deferred tax assets for net operating losses and research and development credits generated through 2017 from its deferred tax assets and has recorded a corresponding increase to its valuation allowance.

As of December 31, 2017, the Company has estimated federal and California net operating loss carryforwards of approximately $537.1 million and $323.5 million, respectively. The difference between the federal and California tax net operating loss carryforwards is primarily attributable to the capitalization of research and development expenses for California income tax purposes. In addition, the Company has estimated federal and California research and development tax credit carryforwards of approximately $21.0 million and $13.4 million, respectively. The federal net operating loss carryforwards, federal research tax credit carryforwards and California net operating loss carryforwards will begin to expire in 2018, if not utilized. California research and development credit carryforwards will carry forward indefinitely until utilized. The Company believes that, in May 2010 and February 2009, it experienced ownership changes at times when its enterprise value was minimal. As a result of the ownership changes and low enterprise values at such times, the Company’s federal and California net operating loss carryforwards and federal research and development credit carryforwards as of December 31, 2017 will likely be subject to annual limitations under IRC Section 382 and 383 and, more likely than not, will expire unused.

There were no unrecognized tax benefits as of the December 31, 2017 and 2016. The Company does not anticipate there will be a significant change in unrecognized tax benefits within the next 12 months.

The Company had no accrual for interest or penalties on the Company’s consolidated balance sheets as of December 31, 2017 or December 31, 2016, and has not recognized interest and/or penalties in the consolidated statements of operations for the years ended December 31, 2017, 2016 and 2015.

The Company is subject to taxation in the U.S. and various state jurisdictions. The Company’s tax returns since inception are subject to examination by the U.S. and various state tax authorities. The Company is not currently undergoing a tax audit in any federal or state jurisdiction.