Income Taxes

12 Months Ended

Dec. 31, 2018

Income Tax Disclosure [Abstract]

Income Taxes

Note 11

Income Taxes:

On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act of 2017 (the “Tax Act”). The Tax Act makes broad and complex changes to the U.S. tax code, including, but not limited to, reducing the U.S. federal corporate tax rate from 34% to 21%; eliminating the corporate alternative minimum tax (“AMT”) and changing how existing AMT credits can be realized; creating a new limitation on deductible interest expense; changing rules related to uses and limitations of net operating loss carryforwards created in tax years beginning after December 31, 2017; and changing limitations on the deductibility of certain executive compensation.

With regards to the Tax Act impact on the tax provision as it relates to the Company for the year-ended December 31, 2017, the Company has recognized the provisional impact of tax reform related to the revaluation of deferred tax assets and liabilities from 35% to 21% of $17.3 million tax expense, which was offset by a reduction in the valuation allowance.

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in operations in the period that includes the enactment date.

A valuation allowance is provided when it is more likely than not that some portion or all of a deferred tax asset will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income and the reversal of deferred tax liabilities during the period in which the related temporary difference becomes deductible. The benefit of tax positions taken or expected to be taken in the Company’s income tax returns are recognized in the consolidated financial statements if such positions are more likely than not of being sustained.

For the years ended December 31, 2018, and 2017, the following table summarizes the components of income before income taxes from continuing operations and the provision for income taxes:

	Year Ended December 31,
	2018			2017
Loss from continuing operations before income tax:
U.S.	$	(1,739	)	$	(16,261	)
Israel		(62	)		(453	)
UK		(113	)		(219	)
Loss from continuing operations before income taxes	$	(1,914	)	$	(16,933	)
Income tax expense (benefit):
United States - Federal tax:
Current	$	—		$	—
Deferred		—			—
United States - State tax:
Current		—			—
Deferred:		—			—
Israel:
Current		—			—
Deferred					—
UK:
Current		—			—
Deferred		—			—
Income tax expense (benefit)	$	—		$	—

For the years ended December 31, 2018 and 2017, the following table reconciles the federal statutory income tax rate to the effective income tax rate:

	Year Ended December 31,
	2018			2017
Federal Tax rate		21	%		34	%
Federal tax benefit at federal tax rate	$	(464	)	$	(5,758	)
State and local income tax, net of Federal benefit		171			(271	)
Foreign rate differential		(3	)		519
Increase in taxes from permanent differences in stock-based compensation		—			333
Return to provision and other adjustments		289			289
Federal Tax reform		(176	)		17,260
Change in valuation allowance		183			(12,372	)
Income tax expense (benefit)	$	—		$	—

As of December 31, 2018, the Company had approximately $124.9 million of Federal net operating loss carryforwards in the United States. A 100% valuation allowance has been recorded against these tax attributes and the net deferred tax assets of the U.S. group of companies. Based on current operating conditions and the availability of projected future sources of taxable income, the Company determined that it was not more likely than not that the net deferred tax assets of the U.S. companies would be realized in the future. The Federal NOLs expire generally from 2023 to 2037, except those generated in the year 2018 as they do not expire under the tax reform act.

After conversion to U.S. dollars, Photo Therapeutics Limited had approximately $12.9 million of net operating loss carryforwards in the U.K. A 100% valuation allowance has been applied against these loss carryforwards.

The following table summarizes the components of deferred income tax assets and (liabilities):

	December 31,
	2018			2017
Loss carryforwards	$	30,559		$	30,072
AMT credits		112			112
Foreign tax credits		12,308			12,308
Accrued employment expenses		31			11
Amortization and write-offs		875			875
Capitalized R&D costs		1,013			1,013
Depreciation		635			635
Tax on undistributed earnings		(517	)		(517	)
Other accruals and reserves		1,730			1,215
Gross deferred tax asset		46,746			45,725
Less: valuation allowance		(46,746	)		(45,725	)
Net deferred tax asset	$	—		$	—
Among other non-current liabilities	$	—		$	—

Taxes, which may apply in the event of a disposal of investments in subsidiaries, have not been included in computing the deferred taxes, as the Company anticipates it would liquidate those subsidiaries that can be closed on a tax free basis

The Company files corporate income tax returns in the United States, both in the Federal jurisdiction and in various State jurisdictions. The Company is subject to Federal income tax examination for calendar years 2015 through 2018 and is also generally subject to various State income tax examinations for calendar years 2015 through 2018. Photo Therapeutics Limited files in the United Kingdom. Radiancy (Israel) Limited files in Israel. The Israeli subsidiary is subject to tax examination for calendar years 2014 through 2018.

Change in Israel rates.

On January 4, 2016, the Israeli parliament passed the Law for Amendment of the Income Tax Ordinance No. 216, which, among other things reduced the standard Israeli corporate income tax rate from 26.5% to 25% effective as of January 2016. In December 2016, the Israeli parliament passed the Economic Efficiency Law (Legislative Amendments to Achieve Budget Targets for the 2017 and 2018 Budget), which set a further reduction of corporate tax from 25% to 23%. The provisions of the law included a Temporary Order stipulate that the corporate tax rate in 2017 will be 24%. As a result, the corporate tax rate that will apply in 2017 will be 24% and the corporate tax rate that will take effect from 2018 onwards will be 23%.

Change in U.K. rates. Effective for tax periods beginning on April 1, 2015, the United Kingdom tax rate was reduced to 20%. The rate further reduced to 19% effective April 1, 2017. These changes in rate will affect the tax provision with regard to the tax attributes of Photo Therapeutics Limited, the United Kingdom subsidiary.

Unrecognized Tax Benefits. The Company is subject to income taxation in the U.S., Israel, the U.K., and Colombia. Unrecognized tax benefits reflect the difference between positions taken or expected to be taken on income tax returns and the amounts recognized in the financial statements. Resolution of the related tax positions through negotiations with the relevant tax authorities or through litigation could take years to complete. It is difficult predict the timing of resolution for tax positions since such timing is not entirely within the control of the Company.

The Company and its subsidiaries file income tax returns in all of the countries listed above.

Management conducted an analysis of the facts and law surrounding the then existing income tax uncertainties, and found that such liability as may have arisen was of a much lesser magnitude and is able to be extinguished by loss carryforwards and carrybacks.

Reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:

Balance at December 31, 2016	$	1,921
Additions / Settlements due 2017		—
Balance at December 31, 2017	$	1,921
Additions / Settlements due 2018		(311	)
Balance at December 31, 2018	$	1,610