Income Taxes

The components of loss before income taxes are presented below:



	Year Ended December 31,
	2018			2017			2016
Domestic	$	(443,337	)	$	(71,343	)	$	(157,067	)
Foreign	(92,897		)	(58,357		)	(37,084		)
Loss before income taxes	$	(536,234	)	$	(129,700	)	$	(194,151	)

The components of income tax expense (benefit) are presented below:



	Year Ended December 31,
	2018			2017			2016
United States federal income taxes:
Current	$	(31	)	$	27		$	(17	)
Deferred	(11,855		)	(523		)	1,396
Foreign income taxes:
Current	(332		)	(379		)	(393		)
Deferred	(5,068		)	(2,269		)	(5,177		)
State income taxes:
Current	113			—			—
Deferred	(4,355		)	264			314
Income tax benefit	$	(21,528	)	$	(2,880	)	$	(3,877	)

Income tax benefit for the years ended December 31, 2018, 2017 and 2016 differed from amounts computed by applying the applicable United States federal corporate income tax rate of 21% for 2018, and 34% for years prior to 2018, to loss before income taxes as a result of the following:



	2018			2017			2016
Computed statutory income tax benefit	$	(112,609	)	$	(44,098	)	$	(66,011	)
State and provincial income tax benefit, net of federal income taxes	(24,724		)	(3,294		)	(7,905		)
Nondeductible stock based compensation	1,834			4,147			3,321
Nondeductible officer compensation	294			476			—
Gain on dividend distribution of AquaBounty common stock	—			3,965			—
Impairment of goodwill	—			4,700			—
Research and development tax incentives	(1,088		)	(1,166		)	(6,350		)
Acquisition and internal restructuring transaction costs	52			354			571
Provisional impact of the Tax Act	—			85,288			—
Enacted changes in foreign tax rates and foreign tax reforms	—			2,138			—
Reacquired in-process research and development	2,696			—			—
Change in deferred state tax rate	8,666			—			—
United States-foreign rate differential	3,017			5,410			3,463
Other, net	(486		)	(64		)	1,485
	(122,348		)	57,856			(71,426		)
Change in valuation allowance for deferred tax assets	100,820			(60,736		)	67,549
Total income tax benefit	$	(21,528	)	$	(2,880	)	$	(3,877	)

The tax effects of temporary differences that comprise the deferred tax assets and liabilities as of December 31, 2018 and 2017, are as follows:



	2018			2017
Deferred tax assets
Allowance for doubtful accounts	$	1,490		$	1,300
Inventory	614			489
Equity securities and investments in affiliates	30,241			17,510
Intangible assets	71,205			—
Accrued liabilities	4,412			3,131
Stock-based compensation	29,297			26,936
Deferred revenue	16,297			61,785
Research and development tax credits	11,597			11,385
Net operating and capital loss carryforwards	148,411			111,453
Total deferred tax assets	313,564			233,989
Less: Valuation allowance	308,113			215,582
Net deferred tax assets	5,451			18,407
Deferred tax liabilities
Property, plant and equipment	528			237
Intangible assets	—			33,790
Long-term debt	12,136			—
Total deferred tax liabilities	12,664			34,027
Net deferred tax liabilities	$	(7,213	)	$	(15,620	)

Activity within the valuation allowance for deferred tax assets during the years ended December 31, 2018, 2017 and 2016 was as follows:



	2018			2017			2016
Valuation allowance at beginning of year	$	215,582		$	256,165		$	190,174
Increase (decrease) in valuation allowance as a result of
Mergers and acquisitions, net	418			—			(1,416		)
Current year operations	122,853			26,619			67,549
Adoption of ASC 606	(7,477		)	—			—
Adoption of ASU 2016-09	—			17,843			—
Provisional impact of the Tax Act	—			(87,473		)	—
Equity component of long-term debt	(13,367		)	—			—
Change in deferred state tax rate	(8,666		)	—			—
Changes in foreign tax rates and foreign tax reforms	—			1,327			—
Foreign currency translation adjustment	(1,230		)	1,101			(142		)
Valuation allowance at end of year	$	308,113		$	215,582		$	256,165

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. Due to the Company and its subsidiaries' histories of net losses incurred from inception, any corresponding net domestic and certain foreign deferred tax assets have been fully reserved as the Company and its subsidiaries cannot sufficiently be assured that these deferred tax assets will be realized. The components of the deferred tax assets and liabilities as of the date of the mergers and acquisitions by the Company prior to consideration of the valuation allowance are substantially similar to the components of deferred tax assets presented herein.

The Company's past issuances of stock and mergers and acquisitions have resulted in ownership changes as defined in Section 382 of the Internal Revenue Code of 1986, as amended ("Section 382"). As a result, utilization of portions of the net operating losses may be subject to annual limitations, however as of December 31, 2018, all such limited losses applicable to Intrexon, other than losses inherited via acquisition, have been fully utilized. As of December 31, 2018, approximately $41,909 of the Company's domestic net operating losses were inherited via acquisition, including $13,376 acquired via the acquisition of GenVec, and are limited based on the value of the target at the time of the transaction.

As of December 31, 2018, the Company has loss carryforwards for United States federal income tax purposes of approximately $369,102 available to offset future taxable income, including $116,600 generated after 2017, and federal and state research and development tax credits of $7,881, prior to consideration of annual limitations that may be imposed under Section 382. Carryforwards generated prior to 2018 will begin to expire in 2022. The Company's direct foreign subsidiaries have foreign loss carryforwards of approximately $159,811, most of which do not expire.

The Company does not record deferred taxes on the undistributed earnings of its direct foreign subsidiaries because it does not expect the temporary differences related to those unremitted earnings to reverse in the foreseeable future. As of December 31, 2018, the Company's direct foreign subsidiaries had accumulated deficits of approximately $150,409. Future distributions of accumulated earnings of the Company's direct foreign subsidiaries may be subject to United States income and foreign withholding taxes.

The Company does not file a consolidated income tax return with AquaBounty. As of December 31, 2018, AquaBounty has loss carryforwards for federal and foreign income tax purposes of approximately $37,807, including $9,370 generated after 2017, and $14,007, respectively, and foreign tax credits of approximately $2,628 available to offset future taxable income, prior to consideration of annual limitations that may be imposed under Section 382 or analogous foreign provisions. Carryforwards generated prior to 2018 began to expire in 2018. As a result of the Company's ownership in AquaBounty passing 50% in 2013, an annual Section 382 of approximately $900 per year will apply to domestic losses and credits carried forward by AquaBounty from prior years, which are also subject to prior Section 382 limitations.

In the year ended December 31, 2017, the Company recorded a net provisional income tax benefit of $2,185 upon enactment of the Tax Act, which is comprised of several items. Amounts related to the remeasurement of most of the Company's domestic deferred tax assets as a result of the United States corporate rate change to 21% as part of the Tax Act are $87,473, which was fully offset by a reduction in the Company's valuation allowance. The Company's net United States deferred tax liability that is not offset by a valuation allowance was similarly written down, and the Company recorded a provisional deferred tax benefit of $1,730. The Company also recorded a provisional current tax benefit of $455 related to the expected refundability of accumulated corporate alternative minimum tax credits. The Company provisionally estimated its transition tax exposure to be zero, as any accumulated earnings in foreign subsidiaries are offset by accumulated deficits in other foreign subsidiaries. The Company completed its accounting for the Tax Act in the fourth quarter of 2018, and there were no significant adjustments to the previously recorded provisional amounts.

Additionally, in December 2017, Belgium enacted significant tax reform measures, the most significant of which to the Company is the limitation on the utilization of accumulated losses in years after 2017. After that date, loss carryforwards can only be used to offset 70% of taxable income that exceeds a certain threshold. As a result, the Company recorded adjustments to its net deferred tax assets and valuation allowances. These adjustments resulted in a net deferred tax liability of $2,307, which was recorded as a component of deferred tax expense for the year ended December 31, 2017.

The Company and its subsidiaries do not have material unrecognized tax benefits as of December 31, 2018. The Company does not anticipate significant changes in the amount of unrecognized tax benefits in the next 12 months. The Company's tax returns for years 2004 and forward are subject to examination by federal or state tax authorities due to the carryforward of unutilized net operating losses and research and development tax credits.