|12 Months Ended|
Dec. 31, 2016
|Income Tax Disclosure [Abstract]|
6. Income taxes
The provision for income taxes consists of the following:
The components of deferred tax assets and liabilities consist of the following:
In the fourth quarter of 2016, Inogen elected to early adopt ASU 2016-09, Improvements to Employee Share-Based Payment Accounting, where income tax effects of share-based payment awards are recognized as income tax expense or benefit in the income statement when the awards vests or are settled. The tax effects of exercised or vested awards are treated as discrete items in the interim reporting period in which they occur. Any adjustments as a result of the early adoption are reflected as of the beginning of the year of adoption. Upon adoption date, the Company recognized previously unrecognized excess tax benefits which resulted in cumulative-effect increase of $12,226 to deferred tax assets and retained earnings. Further, as of December 31, 2016, the Company recognized $6,042 in discrete tax benefits related to share-based payment accounting.
Reconciliation of the federal statutory income tax rate to the effective income tax rate for the last three years is as follows:
The Company operates in multiple states. The statute of limitations has expired for all tax years prior to 2013 for federal and 2012 to 2013 for various state tax purposes. However, the net operating loss generated on the Company’s federal and state tax returns in prior years may be subject to adjustments by the federal and state tax authorities.
As of December 31, 2016, the Company had $36,925 and $20,174 of federal and state net operating loss carryforwards, respectively, that begin to expire in 2026 and 2017 for federal and state purposes, respectively, if not utilized. As of December 31, 2016, the Company had federal and California research and development credit carryforward of $1,849 and $1,885, respectively. The federal credit will begin to expire in 2022; the California credit has indefinite carryforward.
The Company’s existing net operating losses (NOLs) and credit carryforwards are subject to limitations arising from ownership changes subject to the provisions of Section 382 and 383 of the Internal Revenue Code of 1986, as amended, and if the Company undergoes one or more future ownership changes, the Company’s ability to utilize its NOLs and credit carryforwards could be further limited.
The Company assesses the available positive and negative evidence to estimate whether sufficient future taxable income will be generated to permit the use of deferred tax assets. During the year ended December 31, 2016, the Company released $968 of the valuation allowance that had been established against California net operating losses that expired during the year.
As of December 31, 2016 and 2015, the Company was able to determine that, based upon future projections of income, it is more likely than not that all of its federal NOLs will be utilized before they expire. However, the Company determined that some of its California NOLs will expire unused and therefore has a valuation allowance of $767 relating to these NOLs as of December 31, 2016. In the current period, the Company released (or reversed) $968 of the California NOLs valuation allowance due to expiration of California NOLs and changes in estimates of future projections of income, resulting in a determination that is more likely than not that $7,035 ($410 tax effected) of the California NOLs will be utilized.
The Company recognizes interest accrued and penalties related to unrecognized tax benefits as income tax expense. No significant interest or penalties were recognized during the periods presented.
Included in the balance of unrecognized tax benefits as of December 31, 2016, 2015 and 2014, are $934, $773 and $577, respectively, of tax benefits that, if recognized, would affect the effective tax rate.
A reconciliation of the beginning and ending amount of unrecognized tax benefit is as follows:
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