The provision (benefit) for federal income taxes in 2018 and 2017 is as follows (in thousands):

	December 31,
	2018		2017
Current
Federal	$	—	$	(247	)
State		—		—
		—		(247	)
Deferred
Federal	$	—	$	—
State		—		—
Total deferred tax expense		—		—
Total income tax expense	$	—	$	(247	)

	December 31,
	2018			2017
United States	$	(76,256	)	$	(125,093	)
Foreign		(77	)		39,867
Net loss before provision for income taxes	$	(76,333	)	$	(85,226	)

Income tax expense (benefit) in 2018 and 2017 differed from the amount expected by applying the statutory federal tax rate to the income or loss before taxes as summarized below:

	December 31,
	2018			2017
Federal tax benefit at statutory rate		21	%		34	%
Change in valuation allowance		99	%		(7	)%
Research and development credits		—			16	%
Section 382 limitation		(109	)%		—
Other non-deductible expenses		(11	)%		(3	)%
Change in rate differential		—			(38	)%
Build-to-suit adjustments		—			(2	)%
Total		0	%		0	%

Deferred income taxes reflect the net tax effects of net operating loss and tax credit carryforwards and temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s net deferred tax assets at December 31, 2018 and 2017 are as follows (in thousands):

	December 31,
	2018			2017
Net operating loss carry forwards	$	2,335		$	69,281
Research and development tax credits		168			34,891
Stock based compensation and other		8,567			5,693
Total deferred tax assets		11,070			109,865
Less: Valuation allowance		(10,336	)		(108,782	)
Deferred tax liabilities		(734	)		(1,083	)
Net deferred tax assets	$	—		$	—

The Company’s accounting for deferred taxes involves the evaluation of a number of factors concerning the realizability of its net deferred tax assets. The Company primarily considered such factors as its history of operating losses, the nature of the Company’s deferred tax assets, and the timing, likelihood and amount, if any, of future taxable income during the periods in which those temporary differences and carryforwards become deductible. At present, the Company does not believe that it is more likely than not that the deferred tax assets will be realized; accordingly, a full valuation allowance has been established and no deferred tax asset is shown in the accompanying balance sheets.

The valuation allowance decreased by approximately $98.4 million and increased by approximately $60.8 million in 2018 and 2017, respectively.

At December 31, 2018, the Company has net operating loss carryforwards for federal income tax purposes of approximately $11.1 million, of which $4.3 million was generated post December 31, 2017 (after section 382 limitation) and will have no expiration date. The remaining $6.8 million of net operating loss carryforwards begin to expire in 2037. The Company also has federal research and development tax credits of approximately $0.2 million, which begin to expire in 2037.

As of December 31, 2018, the Company’s total gross deferred tax assets were $11.1 million. Due to the Company’s lack of earnings history and uncertainties surrounding our ability to generate future taxable income, the net deferred tax assets have been fully offset by a valuation allowance. The deferred tax assets were primarily comprised of federal tax net operating losses and tax credit carryforwards. Utilization of net operating losses and tax credit carryforwards may be limited by the “ownership change” rules, as defined in Section 382 of the Internal Revenue Code (any such limitation, a “Section 382 limitation”). Similar rules may apply under state tax laws. The Company has performed an analysis to determine whether an “ownership change” occurred from inception up to the Private Aravive's acquisition date. Based on this analysis, management determined that both Versartis, Inc. and Private Aravive did experience ownership changes, which resulted in a significant impairment of the net operating losses and credit carryforwards. As such, the net operating loss carryforwards have been reduced by $306 million. The tax credit carryforwards have been reduced by $39.5 million.

The Company follows the provisions of FASB Accounting Standards Codification 740-10 (ASC 740-10), Accounting for Uncertainty in Income Taxes. ASC 740-10 prescribes a comprehensive model for the recognition, measurement, presentation and disclosure in consolidated financial statements of uncertain tax positions that have been taken or expected to be taken on a tax return. No liability related to uncertain tax positions is recorded in the consolidated financial statements. At December 31, 2018 and 2017, the Company’s reserve for unrecognized tax benefits is approximately $72,000, and $3,934,000, respectively. Due to the above-mentioned Section 382 limitation and impairment of tax attributes, there was a decrease in prior year unrecognized tax benefits of $3.9 million. Due to the full valuation allowance at December 31, 2018, current adjustments to the unrecognized tax benefit will have no impact on the Company’s effective income tax rate; any adjustments made after the valuation allowance is released will have an impact on the tax rate. The Company does not anticipate any significant change in its uncertain tax positions within 12 months of this reporting date. The Company includes penalties and interest expense related to income taxes as a component of other expense and interest expense, respectively, as necessary.

Because the statute of limitations does not expire until after the net operating loss and credit carryforwards are actually used, the statute is effectively open for all tax years. However, due to the above-mentioned ownership change and impairment of net operating loss and credit carryforwards, only net operating loss and credit carryforwards post-January 14, 2017 are carried forward to future years for federal and state tax purposes.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):

	Amount
Balance at January 1, 2017	$	10,116
Gross increase/ (decrease) related to prior year tax positions¹		(7,776	)
Gross increase related to current year positions		1,594
Reductions to unrecognized tax benefits related to lapsing statute of limitations		—
Balance at December 31, 2017	$	3,934
Gross increase/ (decrease) related to prior year tax positions		(3,934	)
Gross increase related to current year positions		72
Reductions to unrecognized tax benefits related to lapsing statute of limitations		—
Balance at December 31, 2018	$	72

¹During 2017, the Company received new information related to its Orphan Drug Credit which provides clarification regarding tax positions previously taken. As a result of this new information, Management re-assessed its Orphan Drug Credit uncertain tax position and made its best estimate to account for the higher level of certainty. The change in unrecognized tax benefit is fully offset by a corresponding change in valuation allowance and therefore has no impact on the income statement.

The Tax Cuts and Jobs Act ("the Act") was enacted on December 22, 2017. The Act reduces the U.S. federal corporate tax rate from 35% to 21%, requires companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred and creates new taxes on certain foreign sourced earnings. The Company is required to recognize the effect of the tax law changes in the period of enactment, such as determining the estimated transition tax, remeasuring our U.S. deferred tax assets and liabilities at a 21% rate as well as reassessing the net realizability of our deferred tax assets and liabilities.

Accordingly, the Company remeasured certain deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future. The provisional amount related to the re-measurement of our deferred tax balance is a reduction of approximately $33 million. Due to the corresponding valuation allowance fully offsetting deferred taxes, there is no income statement impact.

In December 2017, the SEC staff issued Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act (SAB 118) which allows companies to record provisional amounts during a measurement period not to extend beyond one year of the enactment date. In Q4 2018, the Company completed its analysis within the measurement period in accordance with SAB 118, and found no change to the provisional amount on 2017 tax provision.