Income Tax Expense

Net loss before income tax benefit attributable to United States and international operations, consists of the following:



	Year Ended December 31,
	2016			2015			2014
United States	$	(135,925	)	$	(44,114	)	$	(9,799	)
Foreign	(18,254		)	(15,647		)	(22,681		)
Net loss before income tax	$	(154,179	)	$	(59,761	)	$	(32,480	)

Income tax (benefit) expense consists of the following:



	Year Ended December 31,
	2016			2015			2014
Current:
Federal	$	(50	)	$	50		$	(20	)
State	90			100			181
Foreign	458			148			24
Total current	$	498		$	298		$	185
Deferred:
Federal	$	—		$	(8,621	)	$	(10	)
State	—			(1,008		)	—
Foreign	—			(6		)	(237		)
Total deferred	$	—		$	(9,635	)	$	(247	)
Total:
Federal	$	(50	)	$	(8,571	)	$	(30	)
State	90			(908		)	181
Foreign	458			142			(213		)
Income tax expense (benefit)	$	498		$	(9,337	)	$	(62	)

Income tax benefit was computed by applying the United States federal statutory rate of 34% to net loss before taxes as follows:



	Year Ended December 31,
	2016			2015			2014
Income tax benefit at federal statutory rate	$	(52,418	)	$	(20,315	)	$	(11,043	)
State income tax expense (benefit), net of federal benefit	(2,323		)	(937		)	(1,097		)
Meals and entertainment	445			328			279
Research and development credits	(2,041		)	(1,756		)	(4,897		)
Stock-based compensation	2,604			1,633			1,161
Derivative gain/loss	14,903			—			—
Contingent consideration	(850		)	34			(2,696		)
Foreign tax rate differential	1,394			1,013			1,418
Net change in valuation allowance	35,678			10,052			8,930
Return to provision true-up	1,981			583			593
Unrecognized tax benefits	971			928			6,444
Other, net	154			(900		)	846
Income tax benefit	$	498		$	(9,337	)	$	(62	)

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



	Year Ended December 31,
	2016			2015
Deferred tax assets:
Net operating loss carryforwards	$	124,881		$	66,280
Accrued expenses	6,582			4,391
Tax credits	11,314			8,438
Bad debt	91			81
Inventory	4,424			2,307
Capitalized research and development	21,374			8,948
Deferred compensation	3,596			3,075
Other	964			1,659
Deferred tax asset	173,226			95,179
Valuation allowance	(133,784		)	(67,172		)
Total deferred tax assets	39,442			28,007
Deferred tax liabilities:
Developed technology and trademark	(14,218		)	(14,645		)
Trademarks and tradenames	(1,027		)	(1,002		)
Depreciation and amortization	(15,316		)	(1,183		)
Convertible debt	(9,760		)	(12,056		)
Other	—			—
Total deferred tax liabilities	(40,321		)	(28,886		)
Net deferred tax liability	$	(879	)	$	(879	)

The Company has evaluated the available evidence supporting the realization of its gross deferred tax assets, including the amount and timing of future taxable income, and has determined that it is more likely than not that the domestic and foreign deferred tax assets will not be realized. Due to such uncertainties surrounding the realization of the domestic and foreign deferred tax assets, the Company maintains a valuation allowance of $133.8 million against a substantial portion of its deferred tax assets as of December 31, 2016. For the year ended December 31, 2016, the total change in valuation allowance was $66.6 million, of which $35.7 million was recorded against the current year change in net deferred tax assets and $30.9 million was recorded against the net deferred tax assets recorded through purchase accounting in connection with the acquisition of TriVascular. Realization of the deferred tax assets will be primarily be dependent upon the Company's ability to generate sufficient taxable income prior to the expiration of its net operating losses.

At December 31, 2016, the Company had net operating loss carryforwards for federal and state income tax purposes of approximately $300.4 million and $185.2 million, respectively.

Federal and state net operating loss carryforwards began expiring in 2016 and will continue to expire through 2036. The majority of the state net operating losses are attributable to California. In addition, the Company had research and development credits for federal and state income tax purposes of approximately $9.0 million and $13.4 million, respectively, which will begin to expire in 2020. The California research and development credits do not expire.

The table of deferred tax assets and liabilities shown above does not include certain deferred tax assets at December 31, 2016 and 2015 that arose directly from (or the use of which was postponed by) tax deductions related to equity compensation in excess of compensation recognized under GAAP. Those deferred tax assets include federal and state net operating losses. The Company utilizes the with-and-without approach in determining if and when such excess tax benefits are realized, and under this approach excess tax benefits of $10.3 million related to stock based compensation are the last to be realized.

Under Section 382 of the Internal Revenue Code of 1986, as amended, or the IRC, substantial changes in our ownership may limit the amount of net operating loss and research and development income tax credit carryforwards that could be utilized annually in the future to offset taxable income. Specifically, this limitation may arise in the event of a cumulative change in ownership of our company of more than 50% within a three-year period. Any such annual limitation may significantly reduce the utilization of the net operating loss carryforwards before they expire.

Since the Company's formation, the Company has raised capital through the issuance of capital stock on several occasions which, combined with the purchasing stockholders' subsequent disposition of those shares, may have resulted in such an ownership change, or could result in an ownership change in the future upon subsequent disposition. The Company intends to complete a study in the future to assess whether an ownership change has occurred or whether there have been multiple ownership changes since the Company's formation.

The Company completed an analysis under IRC Sections 382 and 383 to determine if the acquired TriVascular Technologies, Inc.'s net operating loss carryforwards and research and development credits are limited due to a change in ownership. The Company concluded that TriVascular Technologies, Inc. had an ownership change as of February 3, 2016. As a result of the ownership change, the Company reduced the acquired federal and state net operating loss carryforwards by $230.3 million and $210.6 million, respectively, and federal research and development credits by $3.1 million.

The following is a tabular reconciliation of the total amounts of unrecognized tax benefits (in thousands):



	Year Ended December 31, 2016			Year Ended December 31, 2015
Balance at January 1, 2016	$	8,928		$	7,808
Additions for tax positions related to prior periods	1,654			50
Decreases related to prior year tax positions	(95		)	—
Lapse of statute of limitations	—			—
Additions for tax positions related to current period	1,267			1,070
Balance at December 31, 2016	$	11,754		$	8,928

Our unrecognized gross tax benefits presented above would not reduce our annual effective tax rate if recognized because we have recorded a full valuation allowance on the deferred tax assets. We do not foresee any material changes to our gross unrecognized tax benefit within the next twelve months. We recognize interests and/or penalties related to income tax matters in income tax expense. We did not recognize any accrued interest and penalties related to gross unrecognized tax benefits related to the year ended December 31, 2016.

The undistributed earnings of the Company's foreign subsidiaries are considered to be indefinitely reinvested. Accordingly, no provision for U.S. federal and state income taxes or foreign withholding taxes have been provided on such undistributed earnings. As of December 31, 2016, the cumulative amount of earnings upon which U.S. income taxes have not been provided is approximately $0.1 million. Determination of the potential amount of unrecognized deferred U.S. income tax liability and foreign withholding taxes is not practicable because of the complexities associated with its hypothetical calculation; however, net operating losses and unrecognized foreign tax credits would be available to reduce some portion of the U.S. liability.

In general, the Company is no longer subject to United States federal, state, local, or foreign examinations by taxing authorities for years before 2011, however, net operating loss and other tax attribute carryforwards utilized in subsequent years continue to be subject to examination by the tax authorities until the year to which the net operating loss and/or other tax attributes are carried forward is no longer subject to examination.

For the twelve months ended December 31, 2016, our provision for income taxes was $0.5 million expense and our effective tax rate was (0.32%) for the year ended December 31, 2016. During the twelve months ended December 31, 2016, we had operating legal entities in the United States, Italy, New Zealand, Singapore, Poland and the Netherlands (plus registered sales branches of our Dutch entity in certain countries in Europe).