|12 Months Ended|
Dec. 31, 2017
For the years ended December 31, 2017, 2016 and 2015, our loss before income taxes was from domestic operations. For the years ended December 31, 2017, 2016 and 2015, we did not record a provision for income taxes due to our net loss.
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 our deferred tax assets are as follows (in thousands):
The reconciliation of the statutory federal income tax rate to the effective tax rate was as follows:
On December 22, 2017, the Tax Act was signed into law making significant changes to the Internal Revenue Code. Changes include, but are not limited to, a corporate tax rate decrease from 34% to 21% effective for tax years beginning after December 31, 2017, the transition of U.S international taxation from a worldwide tax system to a territorial system, and a one-time transition tax on the mandatory deemed repatriation of cumulative foreign earnings as of December 31, 2017. In December 2017, the Staff Accounting Bulletin No. 118 (SAB 118) was issued to address the application of US GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Tax Act. In accordance with SAB 118, we have determined that $117.3 million of the deferred tax expense offset by a full valuation allowance) recorded in connection with the remeasurement of certain deferred tax assets and liabilities was a provisional amount and a reasonable estimate at December 31, 2017. This amount is subject to revisions as we complete our analysis of the Tax Act and interpret any additional guidance issued by the U.S. Treasury Department, IRS, FASB, and other standard-setting and regulatory bodies. Our accounting for the tax effects of the Tax Act will be completed during the measurement period. We do not expect any impact on recorded deferred tax balances as the remeasurement of net deferred tax assets will be fully offset by a change in valuation allowance.
In general, under Section 382 of the Internal Revenue Code (Section 382), a corporation that undergoes an ownership change is subject to limitations on its ability to utilize its pre‑change net operating loss carryovers and tax credits to offset future taxable income. Our existing net operating loss carryforwards and tax credits are subject to limitations arising from ownership changes which occurred in previous periods. We finalized our analysis of potential ownership changes and concluded our Section 382 owner shift analysis during the year ended December 31, 2012. We have updated our net operating loss carryforwards to reflect the results of the Section 382 owner shift analysis as of December 31, 2017. We did not experience any significant changes in ownership in 2017 and 2016. Future changes in our stock ownership, some of which are outside of our control, could result in an ownership change under Section 382 and result in additional limitations.
As of December 31, 2017, we had net operating loss carryforwards for federal income tax purposes of approximately $902.1 million, which expire beginning in the year 2019 and state net operating loss carryforwards of approximately $321.4 million, which expire beginning in the year 2028.
We have general business credits of approximately $37.1 million, which will expire beginning in 2023, if not utilized, and is comprised of research and development credits and orphan drug credits. We also have state research and development tax credits of approximately$26.9 million, which have no expiration date.
Realization of deferred tax assets is dependent upon future earnings, if any, the timing and amount of which are uncertain. Accordingly, the net deferred tax assets have been fully offset by a valuation allowance. The valuation allowance decreased by approximately $86.7 million and increased by approximately $25.9 million for the years ended December 31, 2017 and 2016, respectively.
The following table summarizes the activity related to our gross unrecognized tax benefits (in thousands):
Included in the balance of unrecognized tax benefits at December 31, 2017 and 2016, respectively, are $5.8 million and $5.4 million of tax benefits that, if recognized, would result in adjustments to other tax accounts, primarily deferred taxes. No income tax benefit would be realized due to our valuation allowance position. We do not anticipate a significant change to the unrecognized tax benefits over the next twelve months.
We are subject to taxation in the United States and in California. Because of net operating loss and research credit carryovers, substantially all of our tax years remain open to examination.
Our policy is that we recognize interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense. We currently have no tax positions that would be subject to interest or penalties.
No definition available.
The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.
Reference 1: http://www.xbrl.org/2003/role/presentationRef