13. Income Taxes

The Company’s benefit from income taxes is as follows:

	December 31,
	2017			2016			2015
Current:
Federal	$	—		$	—		$	—
State		(204	)		(468	)		(397	)
		(204	)		(468	)		(397	)
Deferred:
Federal	—			—			—
State	—			—			—
	—			—			—
Benefit from income taxes	$	(204	)	$	(468	)	$	(397	)

The Company’s tax benefits relate to state R&D tax credits exchanged for cash. The State of Connecticut provides companies with the opportunity to exchange certain R&D credit carryforwards for cash in exchange for foregoing the carryforward of the R&D credit. The program provides for such exchange of the R&D credits at a rate of 65% of the annual R&D credit, as defined.

A reconciliation of income taxes computed using the U.S. federal statutory rate to that reflected in operations is as follows:

	December 31,
	2017			2016			2015
Income taxes using U.S. federal statutory rate		34.00	%		34.00	%		34.00	%
State income taxes, net of federal benefit		5.33	%		5.44	%		5.95	%
Tax Cuts and Jobs Act		-44.43	%		0.00	%		0.00	%
Impact of R&D tax credit on effective tax rate		3.25	%		3.24	%		3.14	%
Stock option shortfalls and cancellations		0.21	%		-0.07	%		-0.03	%
Permanent items and other		-0.56	%		-0.64	%		-0.41	%
Change in valuation allowance		2.55	%		-41.17	%		-41.07	%
		0.35	%		0.80	%		1.58	%

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

	December 31,
	2017			2016
Deferred tax assets:
Net operating loss carryforwards	$	54,831		$	57,887
Federal and state tax credits		8,401			6,221
Accelerated depreciation		-			259
Stock-based compensation expense		2,382			1,783
Other		582			641
		66,196			66,791
Deferred tax liabilities:
Accelerated depreciation		(23	)		-
Valuation allowance		(66,173	)		(66,791	)
Net deferred tax asset	$	—		$	—

A 100% valuation allowance has been recorded on the deferred tax asset as of December 31, 2017 and 2016 because management believes it is more likely than not that the asset will not be realized. The change in the valuation allowance during 2017 and 2016 was $618 and $23,758, respectively.

The Company has a tax benefit of approximately $840 related to the exercise of non-qualified stock options and the disqualified disposition of incentive stock options. As a result of the adoption of ASU 2016-09 on January 1, 2017, the tax benefit related to the exercise of stock options was recognized as a deferred tax asset with a corresponding cumulative adjustment to retained earnings, that is offset by a valuation allowance against retained earnings.

The Company applies the provisions of ASC 740, Income Taxes, which prescribes a comprehensive model for how a company should recognize, measure, present, and disclose in its financial statements uncertain tax positions that the Company has taken or expects to take on a tax return. The financial statements reflect expected future tax consequences of such positions presuming the taxing authorities possess full knowledge of the position and all relevant facts. As of December 31, 2017 and 2016, the Company had no unrecognized tax benefits or related interest and penalties accrued. In the event the Company determines that accrual of interest or penalties are necessary in the future, the amount will be presented as a component of interest expense.

At December 31, 2017, the Company had federal and state net operating loss carryforwards of approximately $205,135 and $198,350, respectively. The federal and state tax loss carryforwards will begin to expire in 2026 and 2027, respectively, unless previously utilized. The losses may also be subject to limitation pursuant to Internal Revenue Code section 382. The Company also had federal and state R&D tax credit carryforwards of approximately $7,378 and $1,033, respectively. The federal credits will begin expiring in 2025 unless previously utilized. The Connecticut credit carryforwards have no expiration period. Because of the net operating loss and research credit carryforwards, tax years 2006 through 2017 remain open to U.S. federal and state tax examinations.

On December 22, 2017, the United States enacted the Tax Cuts and Jobs Act (the “Act”). The Act, which is also commonly referred to as “U.S. tax reform”, significantly changes U.S. corporate income tax laws by, among other provisions, reducing the maximum U.S. corporate income tax rate from 35% to 21% starting in 2018. During the year ended December 31, 2017, the Company reduced deferred tax assets by $25,913, offset by a corresponding reduction to its valuation allowance, as a result of the re-measurement of deferred tax assets and liabilities from its 34% effective rate under existing law to the new lower statutory rate of 21%. On December 31, 2017, the Company did not have any foreign subsidiaries and the international aspects of the Act are not applicable.

On December 22, 2017, Staff Accounting Bulletin 118, or SAB 118, was issued by the SEC due to the complexities involved in accounting for the Act. SAB 118 requires the Company to include in its financial statements a reasonable estimate of the impact of the Act on earnings to the extent such estimate has been determined. Accordingly, the U.S. provision for income tax for 2017 is based on the reasonable estimate guidance provided by SAB 118. The Company is continuing to assess the impact from the Act and will record adjustments in 2018, if necessary.