Income Taxes

The domestic and foreign components of loss before income taxes were as follows:



	Year Ended
(In thousands)	December 29, 2018			December 30, 2017			December 31, 2016
Domestic	$	(8,274	)	$	(17,341	)	$	(33,962	)
Foreign	(15,695		)	(52,372		)	(10,220		)
Loss before taxes	$	(23,969	)	$	(69,713	)	$	(44,182	)

The components of the income tax expense are as follows:



	Year Ended
(In thousands)	December 29, 2018			December 30, 2017		December 31, 2016
Current:
Federal	$	536		$	508	$	1,896
State	38			30		13
Foreign	1,869			304		7,918
	2,443			842		9,827
Deferred:
Federal	—			—		—
State	—			—		—
Foreign	(90		)	7		90
	(90		)	7		90
Income tax expense	$	2,353		$	849	$	9,917

Income tax expense differs from the amount of income tax determined by applying the applicable U.S. statutory federal income tax rate to pretax income as a result of the following differences:



	Year Ended
	December 29, 2018	December 30, 2017	December 31, 2016
	%	%	%
Statutory federal rate	(21)	(35)	(35)
Adjustments for tax effects of:
State taxes, net	(6)	(7)	7
Research and development credits	(5)	(1)	(2)
Stock compensation	8	3	3
Foreign rate differential	20	28	15
Foreign dividends	—	1	—
Foreign withholding taxes	5	—	9
Other permanent	2	—	3
Other deferred tax asset adjustment	13	—	—
Valuation allowance	(11)	(73)	17
Change in uncertain tax benefit accrual	2	1	5
Stock compensation (ASU 2016-09) adoption	—	(8)	—
Tax rate change	—	93	—
Other	3	(1)	1
Effective income tax rate	10	1	23

ASC 740, “Income Taxes”, provides for the recognition of deferred tax assets if realization of these assets is more-likely-than-not. We evaluate both positive and negative evidence to determine if some or all of our deferred tax assets should be recognized on a quarterly basis.

Through December 29, 2018, we continued to evaluate the valuation allowance position in the United States and concluded we should maintain a valuation allowance against the net federal and state deferred tax assets. In making this evaluation, we exercised significant judgment and considered estimates about our ability to generate revenue and gross profits sufficient enough to offset expenditures in future periods within the United States.

We will continue to evaluate both positive and negative evidence in future periods to determine if we should recognize more deferred tax assets. We don't have a valuation allowance in any foreign jurisdictions as we have concluded it is more likely than not that we will realize the net deferred tax assets in future periods. The net decrease in the total valuation allowance affecting the effective tax rate for the year ended December 29, 2018 was approximately $2.6 million, mainly attributable to the write down of intangible assets which had no tax basis.

The components of our net deferred tax assets are as follows:



(In thousands)	December 29, 2018			December 30, 2017
Deferred tax assets:
Accrued expenses and reserves	$	3,714		$	3,096
Inventory	2			2
Deferred Revenue	—			228
Stock-based and deferred compensation	2,660			4,018
Interest expense disallowance	1,283			—
Intangible assets	14,649			19,576
Fixed assets	281			216
Net operating loss carry forwards	88,333			86,410
Tax credit carry forwards	92,208			90,530
Capital loss carry forwards	5,007			3,926
Other	1,130			2,323
Total deferred tax assets	209,267			210,325
Less: valuation allowance	(207,108		)	(209,691		)
Net deferred tax assets	2,159			634
Deferred tax liabilities:
Fixed assets	1,536			559
Deferred revenue	525			—
Other	(57		)	16
Total deferred tax liabilities	2,004			575
Net deferred tax assets	$	155		$	59

At December 29, 2018, we had U.S. federal net operating loss ("NOL") carryforwards (pretax) of approximately $365.3 million that expire at various dates between 2019 and 2037. We had state NOL carryforwards (pretax) of approximately $147.6 million that expire at various dates from 2019 through 2037. We also had federal and state credit carryforwards of $51.5 million and $61.2 million, respectively. Of the $61.2 million state credit carryforwards, $60.2 million do not expire. The federal and remaining state credits expire at various dates from 2019 through 2038.

Future utilization of federal and state net operating losses and tax credit carry forwards may be limited if cumulative changes to ownership exceed 50% within any three-year period. This has not occurred through fiscal 2018. If there is a significant change in ownership, future tax attribute utilization may be restricted (§382 limitation) and NOL carryforwards and/or R&D credits will be reduced to reflect the limitation.

U.S. tax reform required a deemed repatriation of deferred foreign earnings as of December 30, 2017 and no future U.S. taxes should be due on these earnings because of enactment of a 100% dividends received deduction. We had no impact from this transition tax due to utilization of NOL carryforwards. Foreign earnings may be subject to withholding taxes in local jurisdictions if they are distributed and repatriated in the United States.

At December 29, 2018, our unrecognized tax benefits associated with uncertain tax positions were $44.0 million, of which $42.0 million, if recognized, would affect the effective tax rate, subject to valuation allowance. As of December 29, 2018, interest and penalties associated with unrecognized tax benefits were $8.6 million.

Our liability for uncertain tax positions (including penalties and interest) was $26.3 million and $26.9 million at December 29, 2018 and December 30, 2017, respectively, and is recorded as a component of Other long-term liabilities on our Consolidated Balance Sheets. The remainder of our uncertain tax position exposure of $24.9 million is netted against deferred tax assets.

The following table summarizes the changes to unrecognized tax benefits for fiscal years 2018, 2017 and 2016:



(In thousands)	Amount
Balance at January 2, 2016	$	48,207
Additions based on tax positions related to the current year	2,573
Additions based on tax positions of prior years	530
Reduction for tax positions of prior years	(1,824		)
Reduction as a result of lapse of applicable statute of limitations	(1,863		)
Balance at December 31, 2016	47,623
Additions based on tax positions related to the current year	471
Additions based on tax positions of prior years	11
Reductions for tax positions of prior years	(1,226		)
Reduction as a result of lapse of applicable statute of limitations	(2,047		)
Balance at December 30, 2017	44,832
Additions based on tax positions related to the current year	389
Additions based on tax positions of prior years	19
Reductions for tax positions of prior years	(5		)
Reduction as a result of lapse of applicable statute of limitations	(1,235		)
Balance at December 29, 2018	$	44,000

At December 29, 2018, it is reasonably possible that $1.8 million of unrecognized tax benefits and $0.1 million of associated interest and penalties could be recognized during the next twelve months.

We are subject to federal and state income tax as well as income tax in the various foreign jurisdictions in which we operate. Additionally, the years that remain subject to examination are 2015 for federal income taxes, 2014 for state income taxes, and 2012 for foreign income taxes, including years ending thereafter. However, to the extent allowed by law, the tax authorities may have the right to examine prior periods where net operating losses or tax credits were generated and carried forward, and make adjustments up to the amount of the net operating losses or credit carryforward amount.

Our Philippines 2016 income tax return is currently under examination. We are not under examination in any other jurisdiction.

The Tax Cuts and Jobs Act (the "2017 Tax Act"), enacted December 22, 2017, contains provisions that affect us, but the impact will be absorbed by utilizing NOL carry forwards. Reduction of the corporate tax rate from 35% to 21% reduced the value of our domestic deferred tax assets and reduced our associated full valuation allowance on those assets, resulting in no net impact on our Consolidated Statements of Operation.

In March 2018, the FASB issued ASU 2018-05, Income Taxes (Topic 740): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118 ("SAB 118"). The SEC issued SAB 118 on December 22, 2017 to address the situation where an SEC reporting company did not have all the necessary information available or analyzed to complete their accounting for the income tax effects of the 2017 Tax Act in the period of enactment. Due to the lack of authoritative guidance issued, complexity, and enactment timing of the 2017 Tax Act, we made a reasonable estimate of the income tax effect of the deemed repatriation of deferred foreign earnings as part of the fiscal 2017 year-end tax provision. Changes to the provisional amount recorded at December 30, 2017 have been finalized in the fourth quarter of fiscal 2018 with the filing of our 2017 tax return. There was no net impact on our Consolidated Statements of Operations, as we adjusted our NOL and valuation allowance.

We are not currently paying U.S. federal income taxes and do not expect to pay such taxes until we fully utilize our tax NOL and credit carryforwards. We expect to pay a nominal amount of state income tax. We are paying foreign income and withholding taxes, which are reflected in income tax expense in our Consolidated Statements of Operations and are primarily related to the cost of operating offshore activities and subsidiaries. We accrue interest and penalties related to uncertain tax positions in income tax expense.