11. Income Taxes

Loss before provision for income taxes on the accompanying statements of operations and comprehensive loss included the following components (in thousands):

	Years Ended June 30,

	2013			2012			2011
Domestic	$	(103,964	)	$	(75,391	)	$	(28,167	)
Foreign		10,176			6,636			2,626

Total worldwide	$	(93,788	)	$	(68,755	)	$	(25,541	)

The provision for income taxes consisted of the following (in thousands):

	Years Ended June 30,

	2013			2012			2011
Current:
Federal	$	—		$	—		$	—
State		(21	)		(7	)		114
Foreign		2,647			2,107			939

Total current		2,626			2,100			1,053
Deferred:
Federal		—			—			—
State		—			—			—
Foreign		947			495			63

Total deferred		947			495			63

Total provision for income taxes	$	3,573		$	2,595		$	1,116

Income tax payable was $1.2 million and $1.1 million at June 30, 2013 and 2012 respectively. A reconciliation of income taxes at the statutory federal income tax rate to the provision for income taxes included in the accompanying consolidated statements of operations and comprehensive loss is as follows (in thousands):

	Years Ended June 30,

	2013			2012			2011
U.S. federal taxes (benefit):
At federal statutory rate	$	(32,826	)	$	(24,064	)	$	(8,939	)
State tax, net of federal benefit		(21	)		(7	)		114
Stock-based compensation expense		4,061			3,645			33
Change in valuation allowance		33,454			24,796			8,883
Credits		(1,272	)		(846	)		(1,373	)
Meals and entertainment		246			335			214
Acquisition costs		—			89			2,451
Other		(177	)		(1,669	)		(273	)
Foreign taxes		108			316			6

Total	$	3,573		$	2,595		$	1,116

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. Significant components of the Company's net deferred tax assets are as follows (in thousands):

	June 30,

	2013			2012
Deferred tax assets:
Federal and state net operating losses	$	105,110		$	80,834
Accrued vacation and bonus		1,503			1,973
Deferred revenue		1,913			1,125
Deferred rent		710			1,165
Credits		16,636			13,985
Share-based compensation expense		10,691			13,103
Reserves not deductible for tax purposes		(76	)		4,085
Unicap		1,540			1,347
Other		623			689

Total deferred tax assets		138,650			118,306
Deferred tax liabilities:
Fixed assets/intangibles		(11,740	)		(15,198	)
Foreign currency differences		(1,697	)		(594	)

Total deferred tax liabilities		(13,437	)		(15,792	)
Valuation allowance		(124,781	)		(102,142	)

Net deferred tax assets	$	432		$	372

The Company has not provided for U.S. income taxes on undistributed earnings of its foreign subsidiaries because it intends to permanently re-invest these earnings outside the U.S. The cumulative amount of such undistributed earnings upon which no U.S. income taxes have been provided as of June 30, 2013 was $9.8 million. It is not practicable to determine the income tax liability that might be incurred if these earnings were to be repatriated to the U.S.

As of June 30, 2013 the Company had approximately $288.1 million and $114.5 million in federal and state net operating loss carryforwards, respectively. The federal and state carryforwards expire in varying amounts beginning in 2019 for federal and 2015 for state purposes. Such net operating loss carryforwards includes excess tax benefits from employee stock option exercises which, in accordance with guidance for income tax accounting, have not been recorded within the Company's deferred tax asset balances. The Company will record approximately $3.4 million as a credit to additional paid-in capital as and when such excess benefits are ultimately realized.

In addition, as of June 30, 2013, the Company had federal and state research and development tax credits of approximately $9.8 million and $6.8 million, respectively. The federal research credits will begin to expire in 2019, the California research credits have no expiration date, and the other state research credits will begin to expire in 2014.

Utilization of the Company's net operating loss and credit carryforwards is subject to annual limitation due to the ownership change limitations provided by Section 382 of the Internal Revenue Code and similar state provisions. The acquisition of TomoTherapy and the resulting Section 382 limitation should not result in the expiration of net operating losses or credits due to the Section 382 limitation.

Based on the available objective evidence and history of losses, the Company has established a 100% valuation allowance against the combined domestic net deferred tax assets of Accuray and TomoTherapy due to uncertainty surrounding the realization of such deferred tax assets.

The aggregate changes in the balance of gross unrecognized tax benefits were as follows (in thousands):

	Years Ended June 30,

	2013			2012			2011
Balance at beginning of year	$	15,147		$	14,158		$	3,669
Tax positions related to current year:
Additions		1,781			1,129			10,468
Tax positions related to prior years:
Additions		564			40			58
Reductions		(743	)		(180	)		(37	)

Balance at end of year	$	16,749		$	15,147		$	14,158

The calculation of unrecognized tax benefits involves dealing with uncertainties in the application of complex global tax regulations. Management regularly assesses the Company's tax positions in respect to legislative, bilateral tax treaty, regulatory and judicial developments in the countries in which the Company does business. The reduction in prior years tax positions primarily relates to lapses of applicable statutes of limitations. The Company anticipates that except for $0.3 million in uncertain tax positions that may be reduced related to the lapse of various statutes of limitation, there will be no material changes in uncertain tax positions in the next 12 months. As of June 30, 2013, the amount of gross unrecognized tax benefits was $16.7 million of which $3.6 million would affect the Company's effective tax rate if realized.

The Company's practice is to recognize interest and/or penalties related to income tax matters in income tax expense. As of June 30, 2013 and 2012, respectively, the Company had approximately $0.7 million and $0.6 million of accrued interest and penalties related to uncertain tax positions.

The Company files income tax returns in the United States federal, various states and foreign jurisdictions. Due to attributes being carried forward and utilized during open years, the statute of limitations remains open for the U.S. federal jurisdiction and domestic states for tax years from 1999 and forward. The material foreign jurisdictions are France, Switzerland, and Japan, whose tax years remain open from 2011, 2006, and 2006, respectively.

The Company is also subject to the periodic examination of our income tax returns by the Internal Revenue Service (IRS) and other tax authorities, and in some cases we have received additional tax assessments. Currently, certain tax years are under audit by the relevant tax authorities, including an examination of our state tax returns for New York and Tennessee. Both audits are in the information gathering stage.