10. Income Taxes

The components of loss before income tax is as follows (in thousands):


	December 31,
	2019		2018		2017
Domestic	$	(46,672)	$	(47,096)	$	(28,253)
Foreign		—		157		(27,410)
	$	(46,672)	$	(46,939)	$	(55,663)

During the years ended December 31, 2019, 2018 and 2017, the Company recorded no income tax benefits for the net operating losses (NOLs) incurred due to the uncertainty of realizing a benefit from those items.

A reconciliation of the Company’s effective tax rate to the U.S. Federal statutory rate is as follows:


	December 31,
	2019		2018		2017
Federal tax benefit at statutory rate	21	%	21	%	34	%
State tax, net of Federal benefit	6	%	9	%	7	%
Foreign rate differential	—		—	%	(17)	%
Federal rate change impact	—		—	%	(9)
Change in valuation allowance	(28)	%	(41)	%	(16)	%
Research and development tax credits	3	%	2	%	2	%
Prior year federal true-up	—	%	10	%	(3)	%
Other	(2)	%	(1)	%	2
Effective income tax rate	0	%	0	%	0	%

The effective tax rate is different from the federal statutory tax rate primarily due to a foreign rate differential and a valuation allowance against deferred tax assets as a result of the Company’s history of losses.

The principal components of the Company’s net deferred tax assets are as follows (in thousands)


	December 31,
	2019		2018		2017
Deferred tax assets
Net operating loss carryforwards	$	42,486	$	31,533	$	15,438
Tax credit carryforwards		6,990		6,441		4,351
Capitalized tax assets		(3)		138		131
Accruals		152		188		183
Stock compensation		4,317		2,879		1,730
Operating lease liability		892		—		—
Other		40		58		52
Total deferred tax assets	$	54,874	$	41,237	$	21,885
Deferred tax liabilities
Operating lease right-of-use asset	$	(651)	$	—	$	—
Valuation allowance		(54,223)		(41,237)		(21,885)
Net deferred tax assets	$	—	$	—	$	—

The Company recorded a valuation allowance against its deferred tax assets at December 31, 2019 and 2018 because Company management believed that it was more likely than not that these assets would not be fully realized in the future. The valuation allowance increased by approximately $13.0 million and $19.4 million for the years ended December 31, 2019 and 2018, respectively. Changes in the valuation allowance for deferred tax assets relate primarily to the increase in the Company’s net operating loss carryforward.

As of December 31, 2019, the Company had federal NOL carryforwards of approximately $144.5 million and state NOL carryforwards of approximately $173.9 million which are available to reduce future taxable income. The NOLs will begin to expire in 2034, if not utilized. Utilization of the net operating loss carryforwards are subject to various limitations due to the ownership change limitations provided by Internal Revenue Code (IRC) Section 382 and similar state provisions.

As of December 31, 2019, the Company also had $6.1 million of federal and $3.3 million of state research and development tax credit carryforwards available to reduce future income taxes. The federal research and development tax credits will begin to expire 2035, if not utilized. The state research and development tax credits have no expiration date.

As of December 31, 2019, the Company had unrecognized tax benefits (“UTBs”) of approximately $1.9 million. All of the deferred tax assets associated with these UTBs are fully offset by a valuation allowance. The following table summarizes the activity related to UTBs:


	December 31,
	2019		2018		2017
Unrecognized tax benefits beginning of the period	$	1,804	$	1,219	$	604
Decrease related to the prior year		(365)		—		(51)
Increased related to the current year		446		585		666
Unrecognized tax benefits, end of the period	$	1,885	$	1,804	$	1,219

The Company follows the provisions of ASC 740, Accounting for Income Taxes, and the accounting guidance related to accounting for uncertainty in income taxes. The Company determines its uncertain tax positions based on a determination of whether and how much of a tax benefit taken by the Company in its tax filings or positions is more likely than not to be sustained upon examination by the relevant income tax authorities. None of the Company’s unrecognized tax benefits that, if recognized, would affect its effective tax rate. The Company does not anticipate the total amounts of unrecognized tax benefits will significantly increase or decrease in the next 12 months. The Company will recognize both accrued interest and penalties related to unrecognized benefits in income tax expense. Management determined that no accrual for interest or penalties was required as of December 31, 2019, 2018 and 2017. The Company currently has no federal or state tax examinations in progress nor has it had any federal or state examinations since inception. As a result of the Company’s net operating loss carryforwards, all of its tax years are subject to federal and state tax examinations.