Note 16. Income Taxes

U.S and foreign components of consolidated loss before income taxes for the years ended December 2015, 2014 and 2013, was as follows (in thousands):


	Year Ended December 31,
	2015			2014			2013
Loss before income taxes:
U.S.	$	(59,897	)	$	(38,928	)	$	(44,035	)
Foreign		358			368			916

Loss before income taxes	$	(59,539	)	$	(38,560	)	$	(43,119	)

The provision for income taxes for the years ended December 2015, 2014 and 2013, was as follows (in thousands):


	Year Ended December 31,
	2015			2014		2013
Provision for income taxes:
Current:
Foreign	$	147		$	168	$	191
Federal		—			—		—
State		—			1		—

Total Current		147			169		191
Deferred:
Foreign		—			—		—
Federal		(3,750	)		22		21
State		(68	)		4		6

Total Deferred		(3,818	)		26		27

(Benefit) provision for income taxes	$	(3,671	)	$	195	$	218

The difference between the provision for income taxes and the amount computed by applying the federal statutory income tax rate to loss before taxes for the years ended December 31, 2015, 2014 and 2013, was as follows (in thousands):


	Year Ended December 31,
	2015			2014			2013
Federal statutory tax	$	(20,243	)	$	(13,110	)	$	(14,661	)
Warrants		(3,565	)		(3,367	)		4,926
Expiration of federal loss carryovers		3,337			—			—
Change in valuation allowance		11,754			16,576			9,955
Change in state apportionment		4,085			—			—
Other		961			96			(2	)

(Benefit) provision for income taxes	$	(3,671	)	$	195		$	218

On December 31, 2015, the California Supreme Court issued a decision disallowing the use of an income apportionment method pursuant to the Multistate Tax Compact. Previously the Company had relied on lower court decisions allowing the use of this apportionment method to file its 2013 and 2014 tax returns and to determine its deferred tax balances. As the California Supreme Court decision serves as the current law as of December 31, 2015, this change has been reflected in the determination of deferred tax balances and the respective valuation allowance.

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes at the enacted rates. The significant components of the Company’s deferred tax assets and liabilities at December 31, 2015 and 2014, were as follows (in thousands):


	December 31,
	2015			2014
Deferred tax assets:
Net operating loss carryforwards	$	165,813		$	151,100
Research and development credit carryforwards		35,131			33,800
Capitalized research and development		17,916			15,500
Deferred compensation		5,908			5,800
Capital loss carryforwards		—			3,700
Other		3,911			3,200

Total deferred tax assets		228,679			213,100
Valuation allowance		(224,854	)		(213,100	)

Net deferred tax assets		3,825			—

Deferred tax liabilities:
Unrealized gain on investments		3,825			—
Amortization of goodwill		122			115

Total deferred tax liabilities	$	3,947		$	115

The valuation allowance increased by $11.8 million for the year ended December 31, 2015, compared to the increase of $14.1 million and $8.5 million for the years ended December 31, 2014 and 2013, respectively. The Company believes that, based on a number of factors, the available objective evidence creates sufficient uncertainty regarding the realizability of the deferred tax assets such that a valuation allowance has been recorded. These factors include the Company’s history of net losses since its inception, the need for regulatory approval of the Company’s products prior to commercialization, expected near-term future losses and the absence of taxable income in prior carryback years. The Company expects to maintain a valuation allowance until circumstances change.

Undistributed earnings of the Company’s foreign subsidiary, Cerus Europe B.V., amounted to approximately $4.8 million at December 31, 2015. The earnings are considered to be permanently reinvested and accordingly, no deferred U.S. income taxes have been provided thereon. Upon distribution of those earnings in the form of dividends or otherwise, the Company would be subject to U.S. income taxes. The unrecognized deferred tax liability for unrepatriated earnings at December 31, 2015, was approximately $1.6 million. In the event all foreign undistributed earnings were remitted to the U.S., the Company believes any incremental tax liability would be offset by the Company’s domestic net operating losses and credits.

For the year ended December 31, 2015, the Company reported pretax net losses of $59.5 million on its consolidated statement of operations and calculated taxable losses for both federal and state taxes. The difference between reported net loss and taxable loss are due to differences between book accounting and the respective tax laws.

At December 31, 2015, the Company had federal and state net operating loss carryforwards of approximately $466 million and $114 million, respectively. The net operating loss carryforwards for federal and state expire at various dates beginning in 2016 through 2035. The Company’s net operating losses do not include $2.3 million related to windfall tax deductions associated with stock based compensation. The stock based compensation windfall deductions, if utilized, would serve to reduce any income taxes payable with a corresponding credit to additional paid in capital.

At December 31, 2015, the Company had federal research and development credit carryforwards of approximately $23.3 million that expire in various years between 2018 and 2035. The state research and development credits are approximately $18.0 million as of December 31, 2015, and have an indefinite carryover period.

The utilization of net operating loss carryforwards, as well as research and development credit carryforwards, is limited by current tax regulations. These net operating loss carryforwards, as well as research and development credit carryforwards, will be utilized in future periods if sufficient income is generated. The Company believes it more likely than not that its tax positions would be recognized upon review by a taxing authority having full knowledge of all relevant information. The Company’s ability to utilize certain loss carryforwards and certain research credit carryforwards are subject to limitations pursuant to the ownership change rules in accordance with Section 382 of the Internal Revenue Code of 1986 and with Section 383 of the Internal Revenue Code of 1986, as well as similar state provisions.

The Company will recognize accrued interest and penalties related to unrecognized tax benefits in its income tax expense. To date, the Company has not recognized any interest and penalties in its consolidated statements of operations, nor has it accrued for or made payments for interest and penalties. The Company had no unrecognized tax benefits as of December 31, 2015 and 2014. The Company’s tax years through 2015 remain subject to examination by the taxing jurisdictions due to unutilized net operating losses and research credits. There was no income tax audit activity in 2015 nor has the Company been notified by any tax agency of any planned audits.