Income Taxes

12 Months Ended

Dec. 31, 2019

The components of loss from continuing operations before income taxes are presented below:



	Year Ended December 31,
	2019			2018			2017
Domestic	$	(205,413	)	$	(428,410	)	$	(24,965	)
Foreign	(3,274		)	(1,332		)	(53,402		)
Loss from continuing operations before income taxes	$	(208,687	)	$	(429,742	)	$	(78,367	)

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



	Year Ended December 31,
	2019			2018			2017
United States federal income taxes:
Current	$	—		$	(31	)	$	27
Deferred	(561		)	(11,855		)	(523		)
Foreign income taxes:
Current	34			68			(4		)
Deferred	(230		)	635			2,308
State income taxes:
Current	—			113			—
Deferred	(173		)	(4,355		)	264
Income tax expense (benefit) from continuing operations	$	(930	)	$	(15,425	)	$	2,072

Income tax expense (benefit) from continuing operations for the years ended December 31, 2019, 2018 and 2017 differed from amounts computed by applying the applicable United States federal corporate income tax rate of 21% for 2019 and 2018, and 34% for 2017, to loss before income taxes as a result of the following:



	2019			2018			2017
Computed statutory income tax benefit from continuing operations	$	(43,824	)	$	(90,246	)	$	(26,645	)
State and provincial income tax benefit, net of federal income taxes	(7,298		)	(23,347		)	(1,888		)
Nondeductible stock based compensation	10,303			4,696			3,391
Nondeductible officer compensation	595			294			476
Gain on dividend distribution of AquaBounty common stock	—			—			3,965
Impairment of goodwill	273			—			4,700
Research and development tax incentives	(1,772		)	(185		)	(359		)
Acquisition and internal restructuring transaction costs	260			52			354
Provisional impact of the Tax Act	—			—			85,288
Enacted changes in foreign tax rates and foreign tax reforms	—			—			2,021
Reacquired in-process research and development	—			2,696			—
Change in deferred state tax rate	—			8,666			—
United States-foreign rate differential	(76		)	215			410
Other, net	(72		)	(3,517		)	(189		)
	(41,611		)	(100,676		)	71,524
Change in valuation allowance for deferred tax assets	40,681			85,251			(69,452		)
Total income tax expense (benefit) from continuing operations	$	(930	)	$	(15,425	)	$	2,072

The tax effects of temporary differences that comprise the deferred tax assets and liabilities included in continuing operations as of December 31, 2019 and 2018, are as follows:



	2019			2018
Deferred tax assets
Allowance for doubtful accounts	$	2,140		$	1,490
Inventory	415			614
Equity securities and investments in affiliates	11,933			30,241
Property, plant and equipment	1,830			—
Intangible assets	85,308			78,858
Accrued liabilities	3,385			4,412
Lease liabilities	10,035			—
Stock-based compensation	19,389			28,885
Deferred revenue	14,876			16,297
Research and development tax credits	9,686			10,558
Investments in subsidiaries included in discontinued operations	8,592			—
Net operating and capital loss carryforwards	196,663			129,291
Total deferred tax assets	364,252			300,646
Less: Valuation allowance	349,008			292,217
Net deferred tax assets	15,244			8,429
Deferred tax liabilities
Property, plant and equipment	—			149
Right-of-use assets	8,091			—
Intangible assets	—			—
Long-term debt	9,987			12,136
Total deferred tax liabilities	18,078			12,285
Net deferred tax liabilities included in continuing operations	$	(2,834	)	$	(3,856	)

Activity within the valuation allowance for deferred tax assets included in continuing operations during the years ended December 31, 2019, 2018 and 2017 was as follows:



	2019			2018			2017
Valuation allowance at beginning of year	$	292,217		$	211,078		$	253,549
Increase (decrease) in valuation allowance as a result of
Mergers and acquisitions, net	—			418			—
Deconsolidation of AquaBounty	(3,504		)	—			—
Establishment of deferred taxes for subsidiaries included in discontinued operations	8,592			—			—
Current year continuing operations	40,681			107,284			17,735
Discontinued operations treated as asset sales	10,585			3,832			6,940
Adoption of ASC 842	512			—			—
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	—			—			1,494
Foreign currency translation adjustment	(75		)	(885		)	990
Valuation allowance at end of year	$	349,008		$	292,217		$	211,078

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, 2019, all such limited losses applicable to Precigen, other than losses inherited via acquisition, have been fully utilized. As of December 31, 2019, approximately $42,100 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, 2019, the Company has net operating loss carryforwards for United States federal income tax purposes of approximately $568,800 available to offset future taxable income, including approximately $316,100 generated after 2017, United States capital loss carryforwards of approximately $111,600, and federal and state research and development tax credits of approximately $9,600, prior to consideration of annual limitations that may be imposed under Section 382. Net operating loss carryforwards generated prior to 2018 will begin to expire in 2022, and capital loss carryforwards will expire if unutilized by 2024. The Company's foreign subsidiaries included in continuing operations have foreign loss carryforwards of approximately $72,800, most of which do not expire.

As of December 31, 2019, the Company's direct foreign subsidiaries included in continuing operations had accumulated deficits of approximately $14,900. Future distributions of accumulated earnings of the Company's direct foreign subsidiaries may be subject to United States income and foreign withholding taxes.

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, 2019. 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 and capital losses and research and development tax credits.