9.	INCOME TAXES

Deferred income taxes reflect the tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting and income tax purposes. The Company establishes a valuation allowance when uncertainty exists as to whether all or a portion of the net deferred tax assets will be realized. Components of the net deferred tax (liability) asset at December 31, 2012 and 2011 are as follows, in thousands:


	2012			2011
Deferred tax assets:
Net operating loss carryforwards	$	102,819		$	46,230
Research and development credits		17,443			12,405
AMT credits		788			788
Foreign tax credits		3,196			3,196
Capitalized research and development and start-up costs		16,102			3,974
Deferred revenue		30,776			53,485
Deferred compensation		24,804			21,855
Intangible assets		2,540			4,302
Partnership interest		7,118			5,338
Other		4,173			2,850

Total deferred tax assets		209,759			154,423
Deferred tax liabilities:
Intangible assets		(38	)		(91	)
Unrealized gain on available-for-sale securities		(10,572	)		—
Gain on issuance of stock by Regulus		(6,466	)		—
Deferred tax asset valuation allowance		(192,721	)		(154,423	)

Net deferred tax liability	$	(38	)	$	(91	)

The (benefit from) provision for income taxes for the years ended December 31, 2012, 2011 and 2010 are as follows, in thousands:


	2012			2011			2010
U.S.:
Current	$	52		$	52		$	(9,928	)
Deferred		(10,572	)		—			10,494

Total U.S.		(10,520	)		52			566

Foreign:
Current		—			—			—
Deferred		(52	)		(52	)		(52	)

Total Foreign		(52	)		(52	)		(52	)

Provision for income taxes	$	(10,572	)	$	—		$	514

The Company’s effective income tax rate differs from the statutory federal income tax rate as follows for the years ended December 31, 2012, 2011 and 2010:


	2012			2011			2010
At U.S. federal statutory rate		35.0	%		35.0	%		35.0	%
State taxes, net of federal effect		4.9			4.6			4.2
Stock compensation		(0.7	)		(3.3	)		(5.0	)
Other permanent items		(1.6	)		(0.2	)		1.3
Valuation allowance		(28.5	)		(36.1	)		(36.7	)

Effective income tax rate		9.1	%		—	%		(1.2	)%

The Company has evaluated the positive and negative evidence bearing upon the realizability of its deferred tax assets. The Company has concluded, in accordance with the applicable accounting standards, that it is more likely than not that the Company may not realize the benefit of all of its deferred tax assets. Accordingly, the Company has recorded a valuation allowance against the deferred tax assets that management believes will not be realized. The Company reevaluates the positive and negative evidence on a quarterly basis. The valuation allowance increased by $38.3 million, $23.0 million and $15.2 million for the years ended December 31, 2012, 2011 and 2010 respectively, due primarily to additional operating losses. Increases to the valuation allowance were partially offset by decreases related to the recognition of deferred revenue.

For the year ended December 31, 2012, the Company recorded a tax benefit of $10.6 million. For the years ended December 31, 2011 and 2010, the Company recorded a provision for income taxes of zero and $0.5 million, respectively. For the year ended December 31, 2012, the Company recorded unrealized gains on its investments in available-for-sale securities in other comprehensive income. The benefit of $10.6 million for the year ended December 31, 2012 is due to the recognition of corresponding income tax expense associated with the increase in the value of the Company’s investment in Regulus that the Company carried at fair market value during the same period. The corresponding income tax expense has been recorded in other comprehensive income. Intraperiod tax allocation rules require the Company to allocate its provision for income taxes between continuing operations and other categories of earnings, such as other comprehensive income. In periods in which the Company has a year-to-date pre-tax loss from continuing operations and pre-tax income in other categories of earnings, such as other comprehensive income, the Company must allocate the tax provision to the other categories of earnings. The Company then records a related tax benefit in continuing operations.

The deferred tax assets above exclude $10.1 million of net operating losses and $0.5 million of federal and state research and development credits related to tax deductions from the exercise of stock options subsequent to the adoption of the 2006 accounting standard on stock-based compensation. This amount represents an excess tax benefit and has not been included in the gross deferred tax assets.

At December 31, 2012, the Company had federal and state net operating loss carryforwards of $272.7 million and $337.8 million, respectively, to reduce future taxable income that will expire at various dates through 2032. At December 31, 2012, federal and state research and development credit carryforwards were $15.3 million and $5.6 million, respectively, available to reduce future tax liabilities that expire at various dates through 2032. At December 31, 2012, foreign tax credit carryforwards were $3.2 million available to reduce future tax liabilities that expire in 2017. At December 31, 2012, alternative minimum tax credits of $0.8 million are available to reduce future regular tax liabilities to the extent such regular tax less other non-refundable credits exceeds the tentative minimum tax. Ownership changes, as defined in the Internal Revenue Code, including those resulting from the issuance of common stock in connection with the Company’s public offerings, may limit the amount of net operating loss that can be utilized to offset future taxable income or tax liability. The Company has determined that based on the value of the Company, in the event there was an annual limitation under Section 382, all net operating loss and tax credit carryforwards would still be available to offset taxable income.

At December 31, 2012, the Company had no unrecognized tax benefits that, if recognized, would favorably impact the Company’s effective income tax rate in future periods. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows, in thousands:


Balance at December 31, 2010	$	428
Subtractions for tax positions related to the prior years		(300	)

Balance at December 31, 2011		128
Subtractions for tax positions related to the prior years		(128	)

Balance at December 31, 2012	$	—

The tax years 2010 through 2012 remain open to examination by major taxing jurisdictions to which the Company is subject, which are primarily in the United States, as carryforward attributes generated in years past may still be adjusted upon examination by the Internal Revenue Service or state tax authorities if they have or will be used in a future period. In July 2011, the Internal Revenue Service completed its audits of the Company’s 2008 and 2009 tax years. The Company did not record any tax expense related to these audits. The Company has not recorded any interest and penalties on any unrecognized tax benefits since its inception.