The components of income (loss) from operations before income taxes are as follows:

 

The components of the income tax (benefit) provision from operations are as follows:

 

 

 

The income tax (benefit) provision for continuing operations computed using the federal statutory income tax rate differs from our effective tax rate primarily due to the following:

 

 

 

On December 22, 2017, the United States enacted the Tax Reform Act. The Tax Reform Act has resulted in significant changes in the U.S. corporate income tax system that affected our fiscal year ended January 31, 2018, including, but not limited to, the following:

On December 22, 2017, the SEC issued guidance under SAB 118, which allows us to record provisional amounts during a measurement period not to extend beyond one year of the enactment date. The measurement period is deemed to have ended when the registrant has obtained, prepared, and analyzed the information necessary to finalize its accounting.

SAB 118 summarizes a three-step process to be applied at each reporting period to account for and qualitatively disclose: (1) the effects of the change in tax law for which accounting is complete; (2) provisional amounts (or adjustments to provisional amounts) for the effects of the tax law where accounting is not complete, but that a reasonable estimate has been determined; and (3) a reasonable estimate cannot yet be made and therefore taxes are reflected in accordance with law prior to the enactment of the Tax Reform Act.

The Company is still evaluating the provisions of the Tax Reform Act and amounts reflected in the financial statements for the year ended January 31, 2018 are provisional. The ultimate impact may differ from these provisional amounts, due to, among other things, additional analysis, changes in interpretations and assumptions the Company has made, additional regulatory guidance that may be issued, and actions the Company may take as a result of the Tax Reform Act. The accounting is expected to be completed within the one-year measurement period.

The Tax Reform Act reduces the U.S. statutory tax rate from 35% to 21% for years after 2017. Accordingly, we have re-measured our U.S. deferred tax assets and liabilities as of January 31, 2018 to reflect the reduced rate that will apply in future periods when these deferred tax assets will reverse, resulting in a provisional reduction of our net deferred tax assets, by $17.1 million, which is offset by a corresponding reduction to our valuation allowance in the fourth quarter of fiscal 2018. As a result, there was no impact to the Company’s consolidated statements of operations and comprehensive income (loss) due to the reduction in the U.S. corporate tax rate.

The Transition Tax is a tax on previously untaxed accumulated and current earnings and profits of our foreign subsidiaries. To determine the amount of the Transition Tax, we must determine, in addition to other factors, the amount of post-1986 earnings and profits of the relevant subsidiaries, as well as the amount of non-U.S. income taxes paid on such earnings. We estimated a Transition Tax impact of approximately $3.9 million, which is offset by tax losses, resulting in no material impact to our consolidated financial statements. Our estimate represents a reasonable estimate of the Transition Tax; however, we are continuing to gather additional information to more precisely compute the amount of the Transition Tax and the impact to our federal and state deferred tax assets.

Other significant provisions that are not yet effective but may impact income taxes in future years include: an exemption from U.S. tax on dividends of future foreign earnings, limitations on the deductibility of certain executive compensation, deductions related to foreign derived intangible income, and a minimum tax on certain foreign earnings in excess of 10 percent of the foreign subsidiaries tangible assets (i.e., global intangible low-taxed income or “GILTI”). We are still evaluating whether to make a policy election to treat the GILTI tax as a period expense or to provide U.S. deferred taxes on foreign temporary differences that are expected to generate GILTI income when they reverse in future years.

The components of deferred income taxes are as follows:

 

 

At January 31, 2018, we had federal, state and foreign net operating loss carry forwards of $111.1 million, $148.7 million and $2.4 million respectively, which can be used to offset future tax liabilities and expire at various dates beginning in fiscal 2019. Utilization of these net operating loss carry forwards may be limited pursuant to provisions of the respective local jurisdiction. In addition, at January 31, 2018, we had federal and state research and development credit carry forwards of $3.8 million and $1.8 million respectively, and state investment tax credit carry forwards of $0.2 million. We have foreign tax credit carry forwards of $2.6 million, which are available to reduce future federal regular income taxes. These credits expire at various dates beginning in fiscal 2019, except for $0.2 million in credits that have an unlimited carryforward period.

As a result of the Tax Reform Act, the corporate AMT has been repealed for tax years beginning after December 31, 2017. Taxpayers with AMT credit carryforwards that are not used by fiscal 2019 may claim a partial refund beginning in fiscal 2019 and any remaining amount is refundable by fiscal 2022. For the fiscal year ended January 31, 2018, we have set up a tax receivable of $0.6 million and removed the credit from our deferred tax assets to reflect the future refund of our AMT credits.

We review the adequacy of the valuation allowance for deferred tax assets on a quarterly basis. We have evaluated the positive and negative evidence bearing upon the realizability of our deferred tax assets and have established a valuation allowance of $38.3 million for such assets, which are comprised principally of net operating loss carry forwards, research and development credits, deferred revenue, inventory and stock-based compensation. If we generate pre-tax income in the future, some portion or all of the valuation allowance could be reversed and a corresponding increase in net income would be reported in future periods. The valuation allowance decreased $19.8 million from $58.1 million at January 31, 2017.

Our foreign subsidiaries generate earnings that are not subject to U.S. income taxes so long as they are permanently reinvested in our operations outside the United States. Pursuant to ASC 740-30, undistributed earnings of foreign subsidiaries that are no longer permanently reinvested would become subject to deferred income taxes under U.S. tax law. Prior to the second quarter of fiscal 2017, we asserted that the undistributed earnings of all our foreign subsidiaries were permanently reinvested.

In the second quarter of fiscal 2017, following a review of our operations, liquidity and funding, and investment in our product roadmap, we determined that the ability to access certain amounts of foreign earnings would provide greater flexibility to meet the Company’s working capital needs. Accordingly, in the second quarter of fiscal 2017, we recognized a deferred tax liability of $14.7 million on $58.6 million of undistributed earnings generated by our Irish operations through July 2016. In the fourth quarter of fiscal 2018, we completed a restructuring of our foreign operations, wherein we centralized our European operations for greater efficiency and cost savings in the Netherlands. As part of that process, the residence of SEAC Ireland was moved to the Netherlands. In connection with the restructuring and change in tax status, we also obtained a step-up in tax basis of certain of our foreign subsidiaries. As a result, we re-measured the deferred tax liability related to the outside basis differences of our foreign subsidiaries and recorded a $14.7 million deferred tax benefit in connection to the reduction of the previously recorded deferred tax liability.

As of January 31, 2018, we maintain our assertion that all of our foreign earnings, except those related to our Irish operations are to be permanently reinvested outside the United States.

A reconciliation of the total amounts of gross unrecognized tax benefits, is as follows:

 

 

As of January 31, 2018, the amount of unrecognized tax benefits, if recognized, would reduce income tax expense by $0.6 million. We recognized interest and penalties related to unrecognized tax benefits in income tax (benefit) provision on our consolidated statements of operations and comprehensive income (loss). As of January 31, 2018 and 2017, total gross interest accrued was $0.1 million, respectively.