INCOME TAXES

The (benefit) provision for income taxes consists of the following (in thousands):



	Year ended December 31,
	2019			2018		2017
Current:
Federal	$	(1,231	)	$	896	$	384
State	1,715			171		(1,813		)
Total current taxes	$	484		$	1,067	$	(1,429	)
Deferred:
Federal	$	(5,767	)	$	—	$	—
State	—			—		—
Total deferred taxes	(5,767		)	—		—
Total (benefit) provision for income taxes	$	(5,283	)	$	1,067	$	(1,429	)

A reconciliation of income taxes at the statutory federal income tax rate to the actual tax rate included in the Statements of Comprehensive Income is as follows (in thousands):



	Year ended December 31,
	2019			2018			2017
Tax at federal statutory rate	$	(46,722	)	$	7,975		$	(36,374	)
State tax, net of federal benefit	(3,845		)	3,280			(3,395		)
Research credit	(138		)	(41		)	(41		)
Stock based compensation	2,038			1,259			159
Non-deductible meals and entertainment	129			223			973
Non-deductible other expense	5,837			308			6,508
Change in valuation allowance	48,943			(12,321		)	4,792
Uncertain tax provisions	(5,758		)	384			(1,611		)
Intraperiod tax allocations	(5,767		)	—			—
Tax rate changes	—			—			27,560
Total tax (benefit) expense	$	(5,283	)	$	1,067		$	(1,429	)

During 2019, the Company recorded income tax benefit of approximately $5.3 million, principally due to the release of FIN 48 liabilities based on lapsing of statute of limitation, and tax benefits being recorded as a result of intraperiod tax allocation from the Convertible Note Exchange.

During 2018, the Company recognized a tax expense of approximately $1.1 million, principally due to the increase in book income from Purdue litigation settlement.

During 2017, the Company recorded income tax benefit of approximately $1.4 million, principally due to release of liability and accrued interest and penalties associated with uncertain tax.

On December 22, 2017, the U.S. government enacted the Tax Cuts and Jobs Act (the Tax Act). The Tax Act included significant changes to the U.S. corporate income tax system including, but not limited to, a federal corporate rate reduction from 35% to 21% and limitations on the deductibility of interest expense and executive compensation. In order to calculate the effects of the new corporate tax rate on deferred tax balances, ASC 740 Income Taxes (ASC 740) required the re-measurement of deferred tax balances as of the enactment date of the Tax Act, based on the rates at which the balances were expected to reverse in the future. Due to the Company’s full valuation allowance position, there was no change to the presentation of the deferred tax balances on the financial statements, except for the re-measurement of these deferred tax balances in the income tax footnote. The re-measurement resulted in a one-time reduction in federal and state deferred tax assets of approximately $25.5 million, which was fully offset by a corresponding change to the Company’s valuation allowance. The Company completed accounting for all tax effects related to the Tax Act in 2019, and there were no material adjustments recorded during 2018 to the previously recorded provisional amounts reflected in the 2017 financial statements.

As of December 31, 2019, the Company had net operating loss carry forwards for federal income tax purposes of approximately $3.7 million, which begin to expire in 2021. Net operating loss carryforwards for state income tax purposes were approximately $74.9 million, which began to expire in 2019. The Company had California state research and development credit carryforwards of $2.4 million, which have no expiration.

Utilization of the Company’s net operating loss and credit carryforwards may be subject to a substantial annual limitation due to ownership change limitations provided by the Internal Revenue Code of 1986 and similar state provisions. The annual limitation may result in the expiration of net operating losses and credits before utilization.

Deferred income taxes reflect the 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 deferred tax assets are as follows (in thousands):



	December 31,
	2019			2018
Deferred tax assets:
Net operating losses	$	5,885		$	6,618
Tax credit carryforwards	1,411			1,096
Intangibles	82,582			33,604
Stock-based compensation	1,907			2,286
Operating lease liabilities	1,577
Reserves and other accruals not currently deductible	10,447			10,706
Total deferred tax assets	103,809			54,310
Valuation allowance for deferred tax assets	(90,820		)	(41,905		)
	$	12,989		$	12,405
Deferred tax liabilities:
Convertible debt	$	(12,247	)	$	(12,213	)
Fixed Assets	(109		)	(192		)
Operating lease right-of-use assets	(633		)	—
Net deferred tax asset (liability)	$	—		$	—

In 2019, the Company recorded a valuation allowance of $90.8 million to offset, in full, the benefit related to its net deferred tax assets as of December 31, 2019 because realization of the future benefits is uncertain. The Company reviewed both positive evidence such as, but not limited to, the projected availability of future taxable income and negative evidence such as the history of cumulative losses in recent years. The Company will continue to assess the realizability of its deferred tax assets on a quarterly basis, and assess whether an additional reserve or a release of the valuation allowance is required in future periods.

The valuation allowance increased by $48.9 million, decreased by $12.3 million, and increased by $9.0 million during the years ended December 31, 2019, 2018 and 2017, respectively.

The Company files income tax returns in the U.S. federal jurisdiction and in various states, and the tax returns filed for the years 1997 through 2018 and the applicable statutes of limitation have not expired with respect to those returns. Because of net operating losses and unutilized R&D credits, substantially all of the Company’s tax years remain open to examination.

Interest and penalties, if any, related to unrecognized tax benefits would be recognized as income tax expense by the Company. At December 31, 2019, the Company had approximately $0.4 million of accrued interest and penalties associated with any unrecognized tax benefits.

The following table summarizes the activity related to the Company’s unrecognized tax benefits for the three years ended December 31, 2019 (in thousands):



Unrecognized tax benefits—January 1, 2017	$	14,687
Increases related to current year tax positions	3,423
Changes in prior year tax positions	(30		)
Decreases related to lapse of statutes	(936		)
Unrecognized tax benefits—December 31, 2017	17,144
Increases related to current year tax positions	611
Changes in prior year tax positions	(1,623		)
Decreases related to lapse of statutes	(68		)
Unrecognized tax benefits—December 31, 2018	16,064
Increases related to current year tax positions	212
Changes in prior year tax positions	(232		)
Decreases related to lapse of statutes	(12,011		)
Unrecognized tax benefits—December 31, 2019	$	4,033

The total amount of unrecognized tax benefit that would affect the effective tax rate is approximately $4.0 million as of December 31, 2019 and $16.1 million as of December 31, 2018.

The Company does not expect a significant change to its unrecognized tax benefits over the next twelve months. The unrecognized tax benefits may increase or change during the next year for items that arise in the ordinary course of business.