5. INCOME TAXES

Loss before income tax benefit (provision) consisted of the following (in thousands):


	Year Ended June 30,
	2019		2018
United States	$	2,904	$	(587)
Foreign		2,097		(1,590)
Income (loss) before income tax benefit (provision)	$	5,001	$	(2,177)

The following table reconciles the federal statutory tax rate to the effective tax rate of the income tax provision:


	Year Ended June 30,
	2019		2018

Federal statutory income tax rate	21.0	%	27.6	%
Current state taxes, net of federal benefit	2.6		(0.4)
Foreign rate differential	3.6		(23.7)
Research and development credits	(7.5)		26.5
Foreign withholding tax	0.5		(6.5)
Stock-based compensation	(12.1)		(11.5)
Other items	9.0		5.7
Net change in valuation allowance	(7.3)		1,283.2
Foreign income	6.9		—
Tax reform	—		(1,292.3)
Effective tax rate	16.7	%	8.6	%

The components of the income tax (benefit) provision are as follows (in thousands):


	Year Ended June 30,
	2019		2018
Current provision:
Foreign	$	454	$	368
Federal		(62)		—
State		84		10
Total current:		476		378
Deferred (benefit):
Federal		62		(124)
Foreign		295		(440)
Total deferred:		357		(564)
Income tax (benefit) provision	$	833	$	(186)

As of June 30, 2019, we had federal and state net operating loss carryforwards of approximately $204.4 million and $16.7 million, respectively. The net operating loss carryforwards will expire at various dates beginning in fiscal year ending June 30, 2020, if not utilized. We also had federal research and development credit carryforwards of approximately $3.4 million as of June 30, 2019, which will expire at various dates beginning in fiscal year ending June 30, 2020, if not utilized. The California research and development credit carryforwards are approximately $5.0 million as of June 30, 2019 and have an indefinite carryover period. We also have U.K. net operating loss carryforwards of approximately $900,000 as of June 30, 2019, which also have an indefinite carryover period.

As of June 30, 2019, we have not completed a 382 study to assess whether an ownership change has occurred or whether there have been multiple ownership changes since our company’s formation due to the complexity and cost associated with such a study, and the fact that an additional change in ownership can occur in future periods. If the Company has experienced an ownership change at any time since its formation, utilization of the NOL or tax credit carryforwards to offset future taxable income and taxes, respectively, would be subject to an annual limitation under the Internal Revenue Code of 1986 and similar state provisions. This is determined by multiplying the value of the Company’s stock at the time of the ownership change by the applicable long-term, tax-exempt rate, and then could be subject to additional adjustments such as a built in gain or loss, as required. Any limitation may result in expiration of all or a portion of our NOL and or tax credit carryforwards before utilization. Until a study is completed and limitations are known, no amounts of federal and state NOL and tax credit carryforwards are being considered as an uncertain tax position or disclosed as unrecognized tax benefits since no benefits have been realized to date. We maintain a full valuation allowance for other deferred tax assets due to our historical losses and uncertainties surrounding our ability to generate enough future taxable income to realize these assets. Due to our full valuation allowance, future changes in the Company’s unrecognized tax benefits and recognizable deferred tax benefits, after the completion of an ownership change analysis, are not expected to impact our effective tax rate.

Deferred tax assets and liabilities reflect the net tax effects of net operating loss and credit carryforwards and of temporary differences between the carrying amounts of assets and liabilities for financial reporting and the amounts used for income tax purposes.

Significant components of our deferred tax assets and liabilities for federal, state and foreign income taxes are as follows (in thousands):


	As of June 30,
	2019		2018
Deferred tax assets:
Net operating loss carryforwards	$	44,244	$	47,556
Research credits		7,353		7,139
Deferred revenue		1,596		1,590
Stock-based compensation		802		701
Accruals and reserves		1,044		1,022
Other		163		237
Gross deferred tax assets		55,202		58,245
Less valuation allowance		(54,445)		(57,127)
Net deferred tax assets *	$	757	$	1,118

*included in other assets on balance sheet

ASC 740, Income Taxes, provides for the recognition of deferred tax assets if realization of such assets is more likely than not. For the legacy eGain business in the United States, based upon the weight of available evidence, which includes our historical operating performance and the reported cumulative net losses in prior years, we have provided a full valuation allowance against our U.S. net deferred tax assets. With respect to our foreign operations, we expect to utilize the deferred tax assets and have not placed a valuation allowance against them. Our tax provision primarily relates to foreign activities as well as state income taxes. Our income tax rate differs from the statutory tax rates primarily due to the utilization of net operating loss carryforwards which had previously been valued against, change in valuation allowance, stock-based compensation, research and development credits, and our foreign operations.

The net valuation allowance decreased by $2.7 million and $26.6 million for the fiscal years ended June 30, 2019 and 2018, respectively.

We have not provided for taxes on $13.8 million of undistributed earnings of our foreign subsidiaries as of June 30, 2019. It is our intention to reinvest such undistributed earnings indefinitely in our foreign subsidiaries. If we distribute these earnings, in the form of dividends or otherwise, we would be subject to withholding taxes payable to the foreign jurisdiction.

Uncertain Tax Positions

The aggregate changes in the balance of our gross unrecognized tax benefits during fiscal years 2019 and 2018 were as follows (in thousands):


	Year Ended June 30,
	2019		2018
Beginning balance	$	1,578	$	1,465
Increases in balances related to tax positions taken during current periods		87		113
Ending balance	$	1,665	$	1,578

There is no amount of unrecognized tax benefit, if recognized currently, that would impact the Company’s effective tax rate as of June 30, 2019 and 2018, respectively. No accrued interest and penalties have been recognized in the tax benefit (provision) related to unrecognized tax benefits.

We do not anticipate the amount of existing unrecognized tax benefit to significantly increase or decrease during the next twelve months. Our policy is to record interest and penalties related to unrecognized tax benefits as income tax expense.

We file income tax returns in the United States as well as various state and foreign jurisdictions. In these jurisdictions, tax years between 2000 and 2018 remain subject to examination by the appropriate governmental agencies due to tax loss carryovers from those years.