Income Taxes

The components of income tax benefit (expense) from continuing operations for the years ended December 31, 2017 and 2016 were as follows:



	2017			2016
	(in thousands)
Current:
Federal	$	—		$	(125	)
State	17			50
Total current income tax benefit (expense)	17			(75		)
Deferred:
Federal	1,958			—
State	(60		)	—
Total deferred income tax benefit (expense)	1,898			—
Total income tax benefit (expense)	$	1,915		$	(75	)

Deferred tax assets and liabilities as of December 31, 2017 and 2016, consisted of the following:



	2017			2016
	(in thousands)
Deferred tax assets:
Reserves and accrued expenses	$	1,969		$	2,497
Share based compensation	2,381			2,636
Intangible assets	1,564			3,679
Credit carryforwards	2,486			2,148
Net operating loss and capital loss carryforwards	16,701			21,117
Total deferred tax assets	25,101			32,077
Valuation allowance	(23,714		)	(30,746		)
Net deferred tax assets	1,387			1,331
Deferred tax liabilities:
Prepaid expenses	(444		)	(2,017		)
Property, plant, and equipment	(950		)	(1,219		)
Total deferred tax liabilities	(1,394		)	(3,236		)
Net deferred tax liabilities	$	(7	)	$	(1,905	)

We continue to provide for a valuation allowance on our net deferred tax assets after our evaluation of all significant positive and negative evidence including, but not limited to, our three-year cumulative loss, as adjusted for permanent items; insufficient sources of taxable income in prior carryback periods in order to utilize all of the existing definite-lived net deferred tax assets; unavailability of prudent and feasible tax-planning strategies; the amount of our projected taxable income; and scheduling of the future reversals of existing temporary differences. The remaining deferred tax liability at December 31, 2017 decreased from 2016 in accordance with the provisions in the Tax Cuts and Jobs Act of 2017 ("Tax Act") described below.

The amount of deferred tax assets considered realizable as of December 31, 2017 could be adjusted if facts and circumstances in future reporting periods change, including, but not limited to, generating sufficient future taxable income in the carryforward periods.

Below is a summary of our estimated loss and tax credit carryforwards. Utilization of federal and state net operating losses could be subject to limitations under Section 382 of the Internal Revenue Code and applicable state law. If certain substantial changes in the entity’s ownership were to occur, there would be an annual limitation on the amount of the carryforwards that can be utilized in the future.



	Tax Effected		Expiration
	(in thousands)
Federal net operating loss carryforward	$	10,586	2037
Federal general business credits	$	2,486	2034 - 2037
Federal capital loss carryforwards	$	2,153	2019 - 2020
State net operating loss carryforwards	$	3,364	2018 - 2037
State capital loss carryforwards	$	599	2019 - 2020

The reconciliation of the statutory U.S. federal tax rate of 35% to our effective tax rate is as follows:



	December 31,
	2017		2016
Income tax benefit at federal statutory rate	35.0	%	35.0	%
State income tax benefit, net of federal benefit	2.0	%	54.4	%
Nondeductible executive compensation	-5.6	%	-5.2	%
Tax Cuts and Jobs Act of 2017	-55.6	%	0.0	%
Change in valuation allowances	42.6	%	-72.2	%
Discrete adjustments for stock based compensation	-3.7	%	0.0	%
General business credit	2.5	%	19.6	%
Federal return to provision	0.0	%	-6.1	%
Other	-3.2	%	-27.7	%
Net income tax benefit (expense)	14.0	%	-2.2	%

Our consolidated effective tax rate for the year ended December 31, 2017 was 14.0% compared to (2.2)% for the year ended December 31, 2016. The increase in the effective tax rate is primarily due to estimated impacts of the broad and complex changes in the Tax Act, which was enacted in 2017 and resulted in the reduction of the valuation allowance on our deferred tax assets, which will become indefinite-lived under the future net operating loss carryforward rules, and the repeal of the corporate alternative minimum tax. While we continue to evaluate the effects of the Tax Act, we have recorded an estimated net tax benefit of $1.9 million in 2017. In the absence of guidance on various uncertainties and ambiguities in the application of certain provisions of the Tax Act, we have used what we believe are reasonable interpretations and assumptions in applying the Tax Act. Given the complexity of the changes in tax law resulting from the Tax Act, we have not finalized the accounting for the income tax effects of the Tax Act, including any of the provisional amounts described above. During the one-year measurement period allowed under Staff Accounting Bulletin No. 118, we may make adjustments that differ from our initial assumptions based on new interpretations and regulatory changes from the Internal Revenue Service and state tax jurisdictions, the SEC and the Financial Accounting Standards Board. Amounts will be recorded as discrete items in the provision for income taxes in the period in which those adjustments become final. We will complete our analysis no later than December 31, 2018. It is possible that future adjustments may have a material adverse effect on our cash tax liabilities, results of operations, or financial condition.

The following table summarizes the activity related to our unrecognized tax benefits, including penalties but excluding interest, for the years ended December 31, 2017 and 2016 (in thousands):



	December 31,
	2017			2016
Unrecognized tax benefit, beginning of period	$	1,960		$	1,774
Gross increases, tax positions in current period	98			185
Gross increases, tax positions in prior period	—			1
Gross decreases, tax positions in prior period	(3		)	—
Unrecognized tax benefit, end of period	$	2,055		$	1,960

During the year ended December 31, 2017, we increased our gross unrecognized tax benefits primarily related to a portion of an estimated current year general business credit. The majority of the balance of the unrecognized tax benefits as of December 31, 2017, if recognized, would have an impact on our consolidated effective tax rate. We did not have gross decreases related to settlements with taxing authorities during the years ended December 31, 2017 or 2016.

In the years ended December 31, 2017 or 2016, we incurred interest expense of $88 thousand and $74 thousand, respectively. In the years ended December 31, 2017 or 2016, we did not have any decreases to interest expense related to our unrecognized tax benefits.

The Company is subject to taxation in the U.S. and various state jurisdictions. As of December 31, 2017, we were subject to examination in the U.S. federal tax jurisdiction beginning in the 2010 tax year and in various state jurisdictions for the 2006 through 2016 tax years. We are currently under federal examination for tax years 2010 through 2015 related to general business credits claimed. As of December 31, 2017, we were not aware of any proposed tax adjustments and we have not made changes to the measurement or amount of uncertain tax benefits previously recorded. Subsequent to December 31, 2017, we reviewed and agreed to the IRS revenue agent’s proposed adjustments to our credits claimed in tax years 2010 and 2011. We do not believe the outcome of the IRS audit will have a material impact to our consolidated financial statements.

We believe it is reasonably possible we could reduce our unrecognized tax benefits by up to $1.2 million within the next twelve months, primarily related to the settlement of general business credits refunded under audit, which would also reduce the income tax receivable and the income tax provision in our consolidated financial statements.