11. Income Taxes

The Company has no income tax provision for the year ended December 31, 2019 and $0.1 million of income tax benefit for the year ended December 31, 2018.

The provision (benefit) for income taxes (all current) consists of the following (in thousands):

 

 

Reconciliation between the tax provision computed at the federal statutory income tax rate and the Company’s actual effective income tax rate is as follows:

 

 

The significant components of net deferred tax assets at December 31, 2019 and 2018 were as follows (in thousands):

 

 

The net (decrease) increase in the valuation allowance was $(2.0) million and $5.8 million, for the years ended December 31, 2019 and 2018, respectively.

Accounting standards provide for the recognition of deferred tax assets if realization of such assets is more likely than not. Based upon the weight of available evidence, which includes the Company’s four sources of taxable income including historical operating performance and the repeal of net operating loss carryback, the Company has determined that total deferred tax assets should be fully offset by a valuation allowance.

Based on an analysis under Section 382 of the Internal Revenue Code (which subjects the amount of pre-change Net Operating Losses ("NOLs") and certain other pre-change tax attributes that can be utilized to annual limitations), the Company experienced an ownership change in February 2017 which substantially limits the future use of its pre-change NOLs and certain other pre-change tax attributes per year. The Company has excluded the related tax attributes that will expire as a result of the annual limitations in the deferred tax assets as of December 31, 2019 and December 31, 2018. To the extent that the Company does not utilize its carry-forwards within the applicable statutory carryforward periods, either because of Section 382 limitations or the lack of sufficient taxable income, the carryforwards will expire unused.

As of December 31, 2019, the Company had federal net operating loss carry-forwards of approximately $73.4 million and state net operating loss carry-forwards of approximately $41.0 million to offset future taxable income. The net operating loss carryforwards begin to expire in 2036 for federal and 2033 for state purposes. The Company had federal orphan credit of $1.2 million which if not utilized will expire in 2037. The Company also had $19.8 million of California research and development tax credits which have no expiration date.

Under the US tax legislation enacted in December 2017, although the treatment of tax losses generated in taxable years ending before December 31, 2017 has generally not changed, tax losses generated in taxable years beginning after December 31, 2017 can be carried forward indefinitely but may only be utilized to offset 80% of taxable income annually.

The Company files income tax returns in the U.S. federal jurisdiction and various states. The Company’s federal income tax returns for tax years 2016 and beyond remain subject to examination by the Internal Revenue Service. The Company’s state income tax returns for tax years 2015 and beyond remain subject to examination by state tax authorities. In addition, all of the net operating losses and research and development credit carry-forwards that may be used in future years are still subject to adjustment.

The following table summarizes the Company’s activity related to its unrecognized tax benefits (in thousands):

 

 

As of December 31, 2019, the Company had a total of $5.5 million of gross unrecognized tax benefits, none of which would affect the effective tax rate upon realization. The Company currently has a full valuation allowance against its U.S. net deferred tax assets which would impact the timing of the effective tax rate benefit should any of these uncertain tax positions be favorably settled in the future.

The Company does not expect its unrecognized tax benefits to change significantly over the next twelve months. The Company will recognize interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense. Through December 31, 2019, the Company has not accrued interest or penalties related to uncertain tax positions.