|12 Months Ended|
Dec. 31, 2018
|Income Tax Disclosure [Abstract]|
|Income Taxes||Income Taxes
The provision for income taxes consists of the following components (in thousands):
The following summarizes activity related to the Company’s valuation allowance (in thousands):
The principal components of the Company’s deferred tax assets and liabilities consist of the following (in thousands):
The Company has incurred net operating losses since inception. As of December 31, 2018, the Company had total federal operating loss carry forwards of approximately $15.1 million. Of this, $6.1 million will expire commencing in 2037,
with the rest having no set expiration date. The value of these carryforwards depends on the Company’s ability to generate taxable income. Additionally, because federal tax laws limit the time during which the net operating loss carryforwards may be applied against future taxes, if the Company fails to generate taxable income prior to the expiration dates of the carry forwards the Company may not be able to fully utilize the net operating loss carryforwards to reduce future income taxes. Under the new tax laws, net operating loss carry forwards will not expire beginning for losses generated in the 2018 tax year. However, these net operating losses will only be able to offset 80% of future taxable income. Finally, the Company has not undertaken a detailed analysis of the application of IRC Section 382 with respect to limitations on the utilization of net operating loss carryforwards and other deferred tax assets. However, the Company believes that this matter is not material to the overall tax position within the financial statements due to the full valuation allowance against the net operating losses and the lack of utilization of the net operating losses during tax years open under statute.
The Company conducts business in various locations and, as a result, files income tax returns in the United States Federal jurisdiction and in multiple state jurisdictions. As of December 31, 2018, the Company had state operating losses of approximately $13.3 million which expire commencing in 2038. Since the Company is in a loss carryforward position, the Company is generally subject to examination by the U.S. federal, state and local income tax authorities for all tax years in which a loss carryforward is available.
Management has evaluated the positive and negative evidence bearing upon the realizability of its deferred tax assets. The Company has cumulative losses and there is no assurance of future taxable income, therefore, valuation allowances have been recorded to fully offset the deferred tax asset at December 31, 2018. Management has determined that it is more likely than not that the Company will not recognize the benefits of its federal and state deferred tax assets, and as a result, a valuation allowance of $5.9 million and $2.56 million has been established at December 31, 2018 and 2017, respectively. The change in the valuation allowance for the year ended December 31, 2018 was primarily due to additional operating losses and capitalized research costs. The Company may be eligible to claim research and development tax credits in the future, but has not conducted a study to date.
The Company participates in significant Research and Development Activities, and expects to receive a benefit from both a federal and foreign Research and Development Tax Credit. Currently, we have not recognized the tax credit for the 2018 tax year and will wait for completion of the full study for the federal credit. The company has recognized the federal Research and Development tax credit claimed on the 2017 tax return, for approximately $0.2 million. While the company is fully reserved, we expect a reserve of 20% for this credit claimed.
The company has a liability for unrecognized tax benefits of $38,000 (excluding accrued interest and penalties) as of December 31, 2018. A reconciliation of the beginning and ending unrecognized tax benefits excluding interest and penalties is as follows (in thousands):
The Company also participates in significant research and development activities in Australia. The Australian government provides a refundable tax credit based on whether the business and the activities it is conducting are eligible. While the Company was not pre-approved for this credit, approval for the year ended December 31, 2018 is expected. The amount of benefit is estimated to be around A$0.4 million. This will not be booked until approval has been received.
Although the Company believes its recorded assets and liabilities are reasonable, tax regulations are subject to interpretation and tax litigation is inherently uncertain; therefore, the Company’s assessments can involve both a series of complex judgments about future events and rely heavily on estimates and assumptions. Although the Company believes that the estimates and assumptions supporting its assessments are reasonable, the final determination of tax audit settlements and any related litigation could be materially different from that which is reflected in historical income tax provisions and recorded assets and liabilities. If the Company were to settle an audit or a matter under litigation, it could have a material effect on the
income tax provision, net income, or cash flows in the period or periods for which that determination is made. Any accruals for tax contingencies are provided for in accordance with U.S. GAAP.
The Company does not believe that its tax positions will significantly change due to any settlement and/or expiration of statutes of limitations prior to December 31, 2018.
On December 22, 2017, Staff Accounting Bulletin No. 118 ("SAB 118") was issued to address the application of US GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Tax Act. The deferred tax expense recorded in connection with the remeasurement of deferred tax assets was a provisional amount and a reasonable estimate at December 31, 2017 based upon the best information that was available. The accounting with respect to the implementation of the Tax Act is now complete with no change from the amounts reported at December 31, 2017.On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (the “Tax Act”) was signed into law making significant changes to the Internal Revenue Code. Changes include, but are not limited to, a federal corporate tax rate decrease from 35% to 21% for tax years beginning after December 31, 2017, the transition of U.S international taxation from a worldwide tax system to a territorial system, and a one-time transition tax on the mandatory deemed repatriation of foreign earnings. The Company remeasured its deferred taxes based upon the new tax rates as of December 31, 2017 but, as a result of the full valuation allowance against its net deferred tax assets, there was no related impact on the Company's income tax expense.
The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.
Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef