(13) INCOME TAXES

The Company is subject to taxation in the U.S. and various state jurisdictions. All of the Company’s tax years are subject to examination by the U.S. and state tax authorities due to the carryforward of unutilized net operating losses.

Under financial accounting standards, deferred tax assets or liabilities are computed based on the differences between the financial statement and income tax bases of assets and liabilities using the enacted tax rates. Deferred income tax expense or benefit represents the change in the deferred tax assets or liabilities from period to period. At December 31, 2016, the Company had federal net operating loss, state net operating loss, and foreign net operating loss carryforwards of approximately $725.1 million, $291.9 million, and $1.4 million, respectively for financial reporting purposes, which may be used to offset future taxable income. The Company also had federal and state research tax credit carryforwards of $8.5 million and $16.4 million, respectively which may be used to offset future income tax liability. The federal and state carryforwards expire beginning 2017 through 2036 and are subject to review and possible adjustment by the Internal Revenue Service and state tax jurisdictions. In the event of a change of ownership, the federal and state net operating loss and research and development tax credit carryforwards may be subject to annual limitations provided by the Internal Revenue Code and similar state provisions.

As of December 31, 2016 and 2015, the Company had $62.7 million and $45.5 million, respectively, in excess tax benefit stock option deductions. Historically, the excess tax benefit arising from these deductions is credited to additional paid in capital as the benefit is realized. In March 2016, the Financial Accounting Standards Board issued Accounting Standards Update No. 2016-09, “Compensation —Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting” as part of its Simplification Initiative which among other things changed the accounting for excess tax benefit stock option deductions. If in the future, the Company is able to utilize its deferred tax assets to offset taxes payable, excess tax benefit stock option deductions or deficiencies will now be reflected in the consolidated statements of operations as a component of the provision for income taxes. The Company will adopt Update 2016-09 in the first quarter of 2017.

The components of the net deferred tax asset with the approximate income tax effect of each type of carryforward, credit and temporary differences are as follows:


	December 31,
(In thousands)	2016		2015
Deferred tax assets:
Operating loss carryforwards	$	244,465	$	189,007
Tax credit carryforwards		19,271		17,947
Other temporary differences		14,176		8,146
Tax assets before valuation allowance		277,912		215,100
Less—Valuation allowance		(277,912)		(215,100)
Net deferred taxes	$	—	$	—

A valuation allowance to reduce the deferred tax assets is reported if, based on the weight of the evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. The Company has incurred significant losses since its inception and due to the uncertainty of the amount and timing of future taxable income, management has determined that a valuation allowance of $277.9 million and $215.1 million at December 31, 2016 and 2015, respectively, is necessary to reduce the tax assets to the amount that is more likely than not to be realized. The change in valuation allowance for December 31, 2016 and 2015 was $62.8 million and $53.2 million, respectively. Due to the existence of the valuation allowance, future changes in our unrecognized tax benefits will not impact the Company’s effective tax rate.

The effective tax rate differs from the statutory tax rate due to the following:


	December 31,
	2016		2015		2014
U.S. Federal statutory rate	35.0	%	35.0	%	34.0	%
State taxes	2.4		2.1		5.5
Federal and state tax rate changes	0.6		(1.7)		—
Foreign tax rate differential	(0.4)		—		—
Research and development tax credits	0.9		0.9		(1.1)
Stock-based compensation expense	(0.6)		(0.6)		(0.5)
Other adjustments	(0.3)		(0.9)		(0.8)
Valuation allowance	(37.6)		(34.8)		(37.1)
Effective tax rate	0.0	%	0.0	%	0.0	%

There are no unrecognized tax benefits as of December 2016, 2015 and 2014, nor are there any tax positions where it is reasonably possible that the total amounts of unrecognized tax benefits will significantly increase or decrease within the 12 months following December 31, 2016.

As of December 31, 2016, due to the carryforward of unutilized net operating losses and research and development credits, the Company is subject to U.S. Federal and state income tax examinations for the tax years 1996 through 2016, and to state income tax examinations for the tax years 1996 through 2016. There were no interest or penalties related to income taxes that have been accrued or recognized as of and for the years ended December 31, 2016, 2015 and 2014.