5. Income taxes

The components of the Company’s income before provision for income taxes are as follows:

The provision for income taxes consists of the following:

The components of deferred tax assets and liabilities consist of the following:

Reconciliation of the federal statutory income tax rate to the effective income tax rate for the last three years is as follows:

On December 22, 2017, TCJA was enacted into law, which significantly changes existing U.S. tax law and includes numerous provisions that affect the Company’s business. Changes include, but are not limited to, a corporate tax rate decrease from 34% to 21% effective for tax years beginning after December 31, 2017, expensing of capital expenditures, the transition of U.S. international taxation from a worldwide tax system to a territorial system, a one-time transition tax on the mandatory deemed repatriation of cumulative foreign earnings, and limitations on the deductibility of certain executive compensation and other deductions. The Company is required to recognize the effect of the tax law changes in the period of enactment, including the transition tax, re-measuring the Company’s U.S. deferred tax assets and liabilities, as well as reassessing the net realizability of the Company’s deferred tax assets and liabilities. During the fourth quarter of 2017, the Company recorded a provisional net charge of $7,578 related to the TCJA due to the remeasurement of its deferred tax assets.  The one-time transition tax on the mandatory deemed repatriation of foreign earnings did not have a material impact on the consolidated financial statements. As of December 31, 2018, the Company completed its evaluation and analysis of the TCJA and there was no additional adjustment to the provisional amount recorded in the fourth quarter of 2017.  

The Company operates in several taxing jurisdictions, including U.S. federal, multiple U.S. states and the Netherlands. The statute of limitations has expired for all tax years prior to 2015 for federal and 2014 to 2015 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, 2018, the Company had $67,088 and $27,661 of federal and state net operating loss carryforwards, respectively, that begin to expire in 2026 and 2028 for federal and state purposes, respectively, if not utilized. As of December 31, 2018, the Company had federal and California research and development credit carryforward of $2,743 and $2,800, respectively. The federal credit will begin to expire in 2022; the California credit has indefinite carryforward.

Utilization of the Company’s net operating loss and tax credit carryforwards may be subject to annual limitations arising from ownership change limitations provided by the Internal Revenue Code and similar state provisions.  Such annual limitations could result in the expiration of the net operating loss and tax credit carryforwards before their utilization.

The Company assess the available positive and negative evidence to estimate whether sufficient future taxable income will be generated to permit the use of deferred tax assets.  As of December 31, 2018, the Company determined that it is more likely than not that deferred tax assets are realizable due the increase in income before income tax expense (benefit).  Accordingly, the Company did not record a valuation allowance as of December 31, 2018. As of December 31, 2017, the Company released $767 of valuation allowance that had been established against deferred tax assets for California net operating losses that expired in 2017. As a result, the Company did not record a valuation allowance as of December 31, 2017.

The Company recognizes interest accrued and penalties related to unrecognized tax benefits as income tax expense. No interest or penalties were recognized during the periods presented.

Included in the balance of unrecognized tax benefits as of December 31, 2018, 2017 and 2016, were $1,294, $1,062 and $934, respectively, of tax benefits that, if recognized, would affect the effective tax rate.  The Company believes that there will be no significant increases or decreases to unrecognized tax benefits within the next 12 months.

A reconciliation of the beginning and ending amount of unrecognized tax benefit is as follows: