Income Taxes

12 Months Ended

Dec. 31, 2019

Our deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The following table represents the significant components of our deferred tax assets and liabilities for the periods presented:



	December 31,
	2019			2018
Deferred tax assets
Net operating loss carryforwards	$	49,211		$	31,311
Credit carryforwards	8,638			6,655
Stock-based compensation	5,142			4,073
Compensation accruals	2,297			1,873
Lease liability	18,404			—
Accruals and reserves	795			3,223
Gross deferred tax assets	84,487			47,135
Valuation allowance	(62,274		)	(38,010		)
Total deferred tax assets, net of valuation allowance	22,213			9,125
Deferred tax liabilities
Intangible assets	(605		)	(734		)
Prepaid expenses	(1,688		)	(1,503		)
Convertible senior notes	(5,359		)	(6,888		)
Right-of-use assets	(13,579		)	—
Fixed assets	(982		)	—
Total deferred tax liabilities	(22,213		)	(9,125		)
Net deferred tax assets and liabilities	$	—		$	—

The valuation allowance increased by $24,264 during the year ended December 31, 2019, increased by $8,192 during the year ended December 31, 2018, and decreased by $8,489 during the year ended December 31, 2017.

The following table represents our net operating loss ("NOL") carryforwards as of December 31, 2019 and 2018:



	December 31,
	2019		2018
Federal	$	195,133	$	125,850
Various states	10,421		6,180
Foreign	1,212		—

Federal NOL carryforwards are available to offset federal taxable income and begin to expire in 2025, with NOL carryforwards of $109,484 generated after 2017 available to offset future U.S. federal taxable income over an indefinite period. State NOL carryforwards are available to offset future taxable income and begin to expire in 2019. NOL carryforward periods for the various states jurisdictions generally range from 5 to 20 years. Foreign NOL carryforward periods for foreign federal and provincial jurisdictions are generally 20 years. Additionally, net research and development credit carryforwards of $8,638 and $6,655 are available as of December 31, 2019 and 2018, respectively, to reduce future tax liabilities. The research and development credit carryforwards begin to expire in 2026.

Current tax laws impose substantial restrictions on the utilization of research and development credits and NOL carryforwards in the event of an ownership change, as defined by Internal Revenue Code Sections 382 and 383. Such an event may significantly limit our ability to utilize its net NOLs and research and development tax credit carryforwards. During 2017, we completed a Section 382 study. The study determined that we underwent an ownership change in 2006. Due to the Section 382 limitation determined on the date of the change in control in 2006, the NOL and research and development credit carryforwards have been reduced by $1,506 and $32, respectively.

The components of loss before benefit for income taxes for the years ended December 31, 2019, 2018, and 2017 were $(80,805), $(41,978), and $(15,002), respectively.

The following table is a reconciliation of the U.S. federal income tax at statutory rate to our effective income tax rate:



	December 31,
	2019		2018		2017
U.S. federal income tax at statutory rate	21.00	%	21.00	%	34.00	%
State taxes (net of federal benefit)	4.71		5.67		2.40
Stock-based compensation	1.20		7.51		(14.74	)
Permanent differences	(0.97	)	(0.57	)	(0.29	)
Federal research and development credit	2.45		4.26		7.08
Change in valuation allowance	(29.73	)	(37.33	)	(27.79	)
Other	1.34		(0.54	)	(0.66	)
Change in valuation allowance for Tax Act impact	—		—		84.37
Change in deferred balance before valuation allowance for Tax Reform impact	—		—		(84.37	)
Effective income tax rate	—	%	—	%	—	%

We did not record any tax benefits for the years ended December 31, 2019, 2018, and 2017. The difference between the U.S. federal income tax at statutory rate of 21% for the years ended December 31, 2019 and 2018, 34% for the year ended December 31, 2017, and our effective tax rate in all periods is primarily due to a full valuation allowance related to our U.S. deferred tax assets and the change in corporate tax rate effective for tax years beginning after December 31, 2017.

We account for uncertainty in income taxes in accordance with ASC 740. We evaluate our tax positions in a two-step process, whereby we first determine whether it is more likely than not that a tax position will be sustained upon examination by the tax authority, including resolutions of any related appeals or litigation processes, based on technical merit. If a tax position meets the more-likely-than-not recognition threshold it is then measured to determine the amount of benefit to recognize in the financial statements. The tax position is measured as the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement.

The following table summarizes the activity related to unrecognized tax benefits:



	December 31,
	2019			2018
Unrecognized benefit—beginning of year	$	1,663		$	1,057
Gross decreases—prior year tax positions	(127		)	—
Gross increases—current year tax positions	623			606
Unrecognized benefit—end of year	$	2,159		$	1,663

All of the unrecognized tax benefits as of December 31, 2019 and 2018 are accounted for as a reduction in our deferred tax assets. Due to our valuation allowance, none of the $2,159 and $1,663 of unrecognized tax benefits would affect our effective tax rate, if recognized. We do not believe it is reasonably possible that our unrecognized tax benefits will significantly change in the next twelve months.

We recognize interest and penalties related to unrecognized tax benefits as income tax expense. There was no interest or penalties accrued related to unrecognized tax benefits for each year ended December 31, 2019 and 2018 and no liability for accrued interest or penalties related to unrecognized tax benefits as of December 31, 2019.

Our material income tax jurisdiction is the United States (federal). As a result of NOL carryforwards, we are subject to audit for all tax years for federal purposes. All tax years remain subject to examination in various other jurisdictions that are not material to our consolidated financial statements.