Income Taxes

Our loss before provision for income taxes was as follows (in thousands):



	Year Ended December 31,
	2018			2017			2016
United States	$	(10,653	)	$	(22,994	)	$	(8,174	)
Foreign	(262		)	79			(424		)
Loss before provision for income taxes	$	(10,915	)	$	(22,915	)	$	(8,598	)

The tax provision (benefit from) for the years ended December 31, 2018, 2017 and 2016 consists primarily of taxes attributable to foreign operations. The components of the provision for income taxes are as follows (in thousands):



	Year Ended December 31,
	2018			2017		2016
Current provision (benefit):
Federal	$	—		$	—	$	—
State	5			5		5
Foreign	(13		)	64		(14		)
Total current provision (benefit)	(8		)	69		(9		)
Deferred provision (benefit):
Federal	—			—		—
State	—			—		—
Foreign	(29		)	12		(31		)
Total deferred provision (benefit)	(29		)	12		(31		)
Provision for (benefit from) income taxes	$	(37	)	$	81	$	(40	)

Reconciliation of the provision for income taxes calculated at the statutory rate to our provision for (benefit from) income taxes is as follows (in thousands):



	Year Ended December 31,
	2018			2017			2016
Tax benefit at federal statutory rate	$	(2,292	)	$	(7,791	)	$	(2,924	)
State taxes	222			48			127
Research and development credits	(499		)	(399		)	(161		)
Foreign operations taxed at different rates	(17		)	(2		)	30
Stock-based compensation	(2,587		)	(216		)	327
Other nondeductible items	(3		)	326			405
Executive compensation	838			73			255
Change in valuation allowance	4,301			(26,058		)	1,901
Change in statutory tax rate	—			34,100			—
Provision for (benefit from) income taxes	$	(37	)	$	81		$	(40	)

Deferred income taxes reflect the net tax effects of (a) temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, and (b) operating losses and tax credit carryforwards.

Significant components of our deferred tax assets and liabilities are as follows (in thousands):



	December 31,
	2018			2017
Deferred tax assets:
Net operating losses	$	60,455		$	53,901
Credits	7,174			6,221
Deferred revenues	1,879			3,334
Stock-based compensation	2,967			2,872
Reserves and accruals	1,876			2,028
Depreciation	1,376			1,573
Intangible assets	2,557			3,172
Capital losses	576			576
Unrealized gain/loss	297			295
Other assets	83			78
Total deferred tax assets:	79,240			74,050
Deferred tax liabilities:
Other	(64		)	(115		)
Total deferred tax liabilities:	(64		)	(115		)
Valuation allowance	(79,222		)	(74,010		)
Net deferred tax liabilities	$	(46	)	$	(75	)

ASC Topic 740 requires that the tax benefit of NOLs, temporary differences and credit carryforwards be recorded as an asset to the extent that management assesses that realization is “more likely than not.” Realization of the future tax benefits is dependent on our ability to generate sufficient taxable income within the carryforward period. Because of our history of operating losses, management believes that recognition of the deferred tax assets arising from the above-mentioned future tax benefits is currently not more likely than not to be realized and, accordingly, has provided a valuation allowance against our deferred tax assets. Accordingly, the net deferred tax assets in all our jurisdictions have been fully reserved by a valuation allowance. The change in valuation allowance differs from the amount included the rate reconciliation table due to the deferred tax impact of the adoption of ASC 606, which resulted in a $0.9 million adjustment to opening accumulated deficit before the offsetting change in valuation allowance. The net valuation allowance increased by $5.2 million during the year ended December 31, 2018; and decreased by $20.4 million during the year ended December 31, 2017; and increased by $1.9 million during the year ended December 31, 2016, respectively. At such time as it is determined that it is more likely than not that the deferred tax assets are realizable, the valuation allowance will be reduced.

The following table sets forth our federal, state and foreign NOL carryforwards and federal research and development tax credits as of December 31, 2018 (in thousands):



	December 31, 2018
	Amount		Expiration Years
Net operating losses, federal	$	254,208	2022-2038
Net operating losses, state	115,420		2018-2038
Tax credits, federal	7,430		2022-2038
Tax credits, state	9,121		Do not expire
Net operating losses, foreign	383		Various

Current U.S. federal and California tax laws include substantial restrictions on the utilization of NOLs and tax credit carryforwards in the event of an ownership change of a corporation. Accordingly, the Company's ability to utilize NOLs and tax credit carryforwards may be limited as a result of such ownership changes. We performed an analysis in 2018 and determined that there was not a limitation that would result in the expiration of carryforwards before they are utilized.

Income tax expense or benefit from continuing operations is generally determined without regard to other categories of earnings, such as discontinued operations and other comprehensive income. An exception is provided in ASC Topic 740 when there is aggregate income from categories other than continuing operations and a loss from continuing operations in the current year. In this case, the tax benefit allocated to continuing operations is the amount by which the loss from continuing operations reduces the tax expenses recorded with respect to the other categories of earnings, even when a valuation allowance has been established against the deferred tax assets. In instances where a valuation allowance is established against current year losses, income from other sources, including gain from available-for-sale securities recorded as a component of other comprehensive income, is considered when determining whether sufficient future taxable income exists to realize the deferred tax assets. For the year ended December 31, 2018, we did not record a tax expense in other comprehensive income related to available-for-sale securities.

In 2014, we determined that the undistributed earnings of our India subsidiary will be repatriated to the United States, and accordingly, we have provided a deferred tax liability totaling $0.1 million as of December 31, 2018, for local taxes that would be incurred upon repatriation. We have not provided for U.S. federal and state income taxes on all of the remaining non-U.S. subsidiaries’ undistributed earnings as of December 31, 2018 as the remaining foreign jurisdictions are in an accumulative loss position.

We apply the provisions of ASC Topic 740 to account for uncertainty in income taxes. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):



	Rollforward Table (at Gross): As of
	December 31,
	2018			2017			2016
Balance at beginning of year	$	9,422		$	8,566		$	8,152
Additions based on tax positions related to current year	1,087			880			459
Reductions to tax provision of prior years	(529		)	(24		)	(45		)
Balance at end of year	$	9,980		$	9,422		$	8,566

We recognize interest and penalties as a component of our income tax expense. Total interest and penalties recognized in the consolidated statement of operations was $37 thousand, $31 thousand and $35 thousand, respectively, in 2018, 2017 and 2016. Total penalties and interest recognized in the balance sheet was $0.4 million and $0.3 million, respectively, in 2018 and 2017. The total unrecognized tax benefits that, if recognized currently, would impact our company’s effective tax rate were $0.3 million and $0.4 million as of December 31, 2018 and 2017, respectively. We do not expect any material changes to our uncertain tax positions within the next 12 months. We are not subject to examination by United States federal or state tax authorities for years prior to 2002 and foreign tax authorities for years prior to 2012.

On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (the “Act”) was signed into law making significant changes to the Internal Revenue Code. The Act made broad and complex changes to the U.S. tax code, including, but not limited to, (i) reducing the U.S. federal statutory tax rate from 35% to 21%; (ii) requiring companies to pay a one-time transition tax on certain un-repatriated earnings of foreign subsidiaries; (iii) generally eliminating U.S federal income taxes on dividends from foreign subsidiaries; (iv) requiring a current inclusion in U.S. federal taxable income of certain earnings of controlled foreign corporations; (v) eliminating the corporate alternative minimum tax (AMT) and changing how existing AMT credits can be realized; (vi) creating the base erosion anti-abuse tax (BEAT), a new minimum tax; (vii) creating a tax on global intangible low-taxed income (GILTI) of foreign subsidiaries; (viii) creating a new limitation on deductible interest expense; (ix) changing rules related to uses and limitations of net operating loss carryforwards created in tax years beginning after December 31, 2017; and (x) modifying the officer’s compensation limitation.

In December 2017, the SEC issued Staff Accounting Bulletin No. 118 ("SAB 118"), which provided a measurement period of up to one year from the enactment date of the Tax Act for companies to complete the accounting for the Tax Act and its related impacts. In 2018, we completed our accounting for the Tax Act. The income tax effects of the Tax Act for which the accounting is now completed include: the impact of the transition tax, the revaluation of deferred tax assets and liabilities to reflect the 21% corporate tax rate, and the impact to the aforementioned items on state income taxes. We have completed our accounting for the income tax effects under the Tax Act that are relevant to us and required to be recorded and disclosed pursuant to FASB ASC 740, Income Taxes. Accordingly, any and all provisional amounts previously recorded in accordance with SEC Staff Accounting Bulletin No. 118 have been adjusted to reflect their final amounts.

Beginning in 2018, the GILTI provisions in the Tax Act require us to include, in our U.S. income tax return, foreign subsidiary earnings in excess of an allowable return on the foreign subsidiary’s tangible assets. Per guidance issued by the FASB, companies can either account for deferred taxes related to GILTI or treat tax arising from GILTI as a period cost. Both are acceptable methods subject to an accounting policy election. On December 31, 2018, we finalized our policy and have elected to use the period cost method for GILTI. In 2018, we did not incur any GILTI inclusion as our foreign subsidiaries generated losses.

The BEAT provisions in the Tax Act eliminate the deduction of certain base-erosion payments made to related foreign corporations, and impose a minimum base erosion anti-abuse tax if greater than regular tax. In 2018, our company was not subject to BEAT as it did not meet the requirements to be subject to BEAT.