11. Income Taxes

A reconciliation of the expected income tax benefit (expense) computed using the federal statutory income tax rate to the Company’s effective income tax rate is as follows for the years ended December 31, 2014, 2015, and 2016:


	December 31,
	2014		2015		2016
Income tax computed at federal statutory tax rate	34.0	%	34.0	%	34.0	%
State taxes, net of federal benefit	6.3	%	3.2	%	3.3	%
State taxes rate change, net of federal benefit	30.4	%	—		—
International operations	6.6	%	(4.8)	%	(0.7)	%
Research and development credits	(22.6)	%	3.8	%	4.0	%
Orphan drug credits	(57.4)	%	0.9	%	0.6	%
Equity compensation	16.6	%	(2.0)	%	(3.7)	%
Other	(2.1)	%	—		—
Change in valuation allowance	(11.8)	%	(35.1)	%	(37.5)	%
Total	—		—		—

At December 31, 2016, the Company had net operating loss carryforwards totaling approximately $212,363,000 and $273,989,000 for federal and state income taxes, respectively, that may be used to offset future taxable income. If not used, the net operating loss carryforwards and research and development credits will begin expiring in the year 2021. The Company has determined that it experienced a change in ownership as defined under Section 382 of the U.S. Internal Revenue Code (the “Code”), as a result of the public offering in August 2011. As a result, the future use of its net operating losses, after giving effect to net unrealized built-in gains, will be limited to approximately $201,900,000 for 2016 and $16,800,000 for 2017. Any available but unused amounts will become available for use in all successive years, subject to certain limitations. Utilization of these net operating loss carryforwards would require the Company to generate future taxable income prior to their expiration. Furthermore, the utilization of the net operating loss carryforwards could be limited beyond the Company's generation of taxable income if a change in the underlying ownership of the Company's common stock has occurred, resulting in a limitation on the amounts that could be utilized in any given period under Section 382 of the Code.

Net deferred tax assets and liabilities are comprised of the following:


	December 31,
	2015		2016
Deferred tax assets
Net operating loss carryforwards	$	73,678,000	$	78,021,000
Research and development credit carryforwards		12,398,000		14,143,000
Orphan drug credit		6,815,000		7,235,000
Stock options		5,568,000		7,105,000
Other		235,000		562,000
Deferred tax assets		98,694,000		107,066,000
Deferred tax liabilities
Deferred revenue		(8,049,000)		—
Property and equipment		(361,000)		(337,000)
Deferred tax liabilities	$	(8,410,000)	$	(337,000)
Net deferred tax asset before valuation allowance	$	90,284,000	$	106,729,000
Less valuation allowance		(90,284,000)		(106,729,000)
Net deferred tax assets	$	—	$	—

For the year ended December 31, 2016, net operating loss carryforwards in the table above have been reduced by $3.4 million of uncertain tax liabilities. A reconciliation of the beginning and ending amount of the unrecognized tax positions is as follows:



	Unrecognized Tax Positions
Balance at January 1, 2016	$	—
Additions based on tax positions related to the current year		3,405,000
Additions for tax positions of prior years		—
Reductions for tax positions of prior years		—
Settlements		—
Balance at December 31, 2016	$	3,405,000
Balance at December 31, 2016	$	3,405,000

At December 31, 2016 there were no uncertain tax liabilities that if recognized would affect the annual effective tax rate. The Company does not recognize interest accrued related to unrecognized tax liabilities.