|12 Months Ended|
Dec. 31, 2016
11. Income Taxes
Income (loss) before income tax provision was generated in the following jurisdictions:
The components of the income tax provision charged to operations are summarized as follows:
Net deferred tax assets (liabilities) consist of the following:
The valuation allowance for net deferred tax assets as of December 31, 2016 and 2015 was $29,610 and $3,493, respectively. The valuation allowance as of December 31, 2016 was related to state/federal net operating losses and foreign tax credits. In assessing the realizability of deferred tax assets (“DTAs”), management considers whether it is more-likely-than-not that some or all of the deferred tax assets will be realized.
Management assesses the available positive and negative evidence to estimate if sufficient future taxable income will be generated to use the existing DTAs. A significant piece of objective negative evidence is the cumulative loss incurred over the three-year period ended December 31, 2016. The Company has scheduled out its temporary differences to determine if the Company would have taxable income due to the reversal of temporary differences to support the realization of the deferred tax assets. The Company’s analysis shows that the DTAs will continue to grow for the foreseeable future even with net operating losses (“NOLs”) starting to expire in 2022. Most of the Company’s deferred tax liabilities (“DTLs”) will reverse or expire before the expiration period of the Company’s significant DTAs, mainly NOLs and credits.
On the basis of this evaluation, as of December 31, 2016, a valuation allowance of $29,610 has been recorded to adjust DTAs to an amount that is more likely than not to be realized. The amount of the DTA considered realizable, however, could be adjusted if estimates of future taxable income during the carryforward period are reduced or increased or if objective negative in the form of cumulative losses is no longer present and additional weight may be given to subjective evidence such as our projections for growth.
Upon the exercise of stock options and vesting of restricted stock awards, the Company recognizes any difference between GAAP compensation expense and compensation expense for income tax purposes as a tax windfall or shortfall. The difference is charged to equity in the case of a windfall. When the exercise results in a windfall and the windfall results in a NOL, or the windfall increases an NOL carryforward, no windfall is recognized until the deduction reduces income taxes payable. For GAAP purposes, the Company has recognized all previously suspended windfall tax benefits because they were utilized on the Company’s 2012 and 2013 tax return to reduce taxes payable. The benefits for the recognized windfall tax benefit were recorded in stockholders’ equity, and as such, do not impact the Company’s effective tax rate.
The expected tax provision calculated at the statutory federal rate differs from the actual provision as follows:
At December 31, 2016, the Company has NOL carryforwards (before any uncertain tax position reserves) for federal income tax purposes of $261,475, which are available to offset future federal taxable income, if any, and expire through 2035. In addition, as of December 31, 2016, we have NOL carryforwards for state income tax purposes of $164,397, which are available to reduce future income subject to income taxes. The state NOL carryforwards expire through 2035.
In addition, the Company has alternative minimum tax credit carryforwards of approximately $1,174 for federal and $22 for California, which are available to reduce future federal income taxes, if any, over an indefinite period. The Company also has R&D credit carryforwards of approximately $8,393 for federal and $6,948 for California. The Company also has foreign tax credits of $2,326.
A reconciliation of the beginning and ending amount of unrecognized tax benefit is as follows:
At December 31, 2016, the amount of unrecognized tax benefits that would benefit the Company’s effective tax rate, if recognized, was $16,476. The Company estimates it is reasonably possible that there will not be a material change to the liability for unrecognized tax benefits in the next twelve months.
The Company recognizes potential interest and penalties related to unrecognized tax benefits in income tax expense. For the years ended December 31, 2016, 2015 and 2014, income tax expense includes $880, ($158) and ($41), respectively, of potential interest and penalties related to unrecognized tax benefits. The Company had accrued interest and penalties of $4,328, $3,488 and $594 as of December 31, 2016, 2015 and 2014, respectively.
The Company files a consolidated federal income tax return and separate tax returns with various states. Additionally, foreign subsidiaries of the Company file tax returns in foreign jurisdictions. The Company’s tax returns for the calendar years ended December 31, 2013 through 2015 remain open to examination by the Internal Revenue Service in their entirety. With respect to state taxing jurisdictions, the Company’s tax returns for calendar years ended December 31, 2011 through 2015 remain open to examination by various state revenue services.
Our Indian subsidiaries are currently under examination by the India Tax Authority for the fiscal years ended March 31, 2006 and forward. Based on the outcome of examinations of our subsidiary or the result of the expiration of statutes of limitations it is reasonably possible that the related unrecognized tax benefits could change from those recorded in the consolidated balance sheet. It is possible that one or more of these audits may be finalized within the next twelve months.
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://www.xbrl.org/2003/role/presentationRef