13. 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, 2015 and 2014 are as follows, in thousands:

	2015			2014
Deferred tax assets:
Federal and state net operating losses	$	115,583		$	80,549
Research credits		23,353			18,773
Deferred compensation		10,031			14,391
Deferred revenue		8,635			12,176
Accrued expenses		3,023			2,851
Intangibles		3,300			3,441
Depreciation		686			838
Unrealized loss on marketable securities		1			6

Total deferred tax assets		164,612			133,025
Valuation allowance		(164,612	)		(133,025	)

Net deferred tax assets	$	—		$	—

A reconciliation of the federal statutory income tax benefit to the Company's actual provision for the years ended December 31, 2015, 2014 and 2013 is as follows (in thousands):

	2015			2014			2013
Benefit at federal statutory tax rate	$	(28,323	)	$	(33,521	)	$	(36,856	)
State taxes, net of federal benefit		(4,398	)		(5,206	)		(5,724	)
Share-based compensation		3,634			2,411			2,106
Tax credits		(2,652	)		(5,529	)		(2,404	)
Other		42			23			15
Change in valuation allowance		31,697			41,822			42,863

Income tax provision	$	—		$	—		$	—

The Company generated U.S. taxable income during the years ended December 31, 2011 and 2010, and as a result, utilized $190.9 million and $26.3 million, respectively, of its historical available federal net operating loss carryforwards that were generated from 2001 to 2009 to offset this income.

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 full valuation allowance against the deferred tax assets as management believes the assets may not be realized. The Company reevaluates the positive and negative evidence on an annual basis. The valuation allowance increased by $31.6 million for the year ended December 31, 2015 due primarily to the current period net loss.

At December 31, 2015, the Company had federal and state net operating loss carryforwards of $313.6 million and $286.0 million, respectively, available to reduce future taxable income that will expire at various dates through 2035. Of this amount, approximately $15.6 million of federal and state net operating loss carryforwards relate to stock option deductions for which the related tax benefit will be recognized in equity when realized. At December 31, 2015, the Company had federal and state research and development and other credit carryforwards, including the orphan drug credit, of $21.6 million and $10.0 million, respectively, available to reduce future tax liabilities that expire at various dates through 2035. Ownership changes, as defined in the Internal Revenue Code, may limit the amount of net operating loss that can be utilized to offset future taxable income or tax liability.

A reconciliation of the beginning and ending amount of unrecognized tax benefits for the years ended December 31, 2015 and 2014 is as follows (in thousands):

	2015			2014
Balance, beginning of year	$	4,064		$	4,465
Additions for tax positions related to the current year		1,395			940
Reductions of tax positions of prior years		(343	)		(1,341	)

Balance, end of year	$	5,116		$	4,064

As of December 31, 2015 and 2014, the Company had $5.1 million and $4.1 million of gross unrecognized tax benefits, respectively, of which $4.9 million and $3.9 million, respectively, if recognized, would not impact the Company's effective tax rate as there is a full valuation allowance on these credits.

The Company's policy is to recognize both accrued interest and penalties related to unrecognized tax benefits in income tax expense. The Company has not recognized any interest and penalties.

The Company does not anticipate that it is reasonably possible that the uncertain tax positions will significantly increase or decrease within the next twelve months.

The Company files income tax returns in the United States federal jurisdiction and in the Massachusetts jurisdiction. The Company is no longer subject to any tax assessment from an income tax examination for years before 2012, except to the extent that in the future it utilizes net operating losses or tax credit carryforwards that originated before 2012.

In March 2012, the Company entered into a Tax Incentive Agreement with the Massachusetts Life Sciences Center, or MLSC, under the MLSC's Life Sciences Tax Incentive Program, or the Program, to expand life sciences-related employment opportunities, promote health-related innovations and stimulate research and development, manufacturing and commercialization in the life sciences in the Commonwealth of Massachusetts. The Program was established in 2008 in order to incentivize life sciences companies to create new sustained jobs in Massachusetts. Under the Tax Incentive Agreement, companies receive an award from the MLSC upon attaining job creation commitment. Jobs must be maintained for at least five years, 2012 - 2016, during which time a portion of the grant proceeds can be recovered by the Massachusetts Department of Revenue if the Company does not maintain its job creation commitments. As the Company attained its job creation commitment in 2012 and has maintained it since then, it recognized one-fifth of the $1.1 million job creation tax award, or $0.2 million, as other income in each year beginning 2012 to 2015. The unearned portion of the award is included in other liabilities in the consolidated balance sheet. The Company will continue to recognize an equal portion of the award as other income over the five year period it must maintain its job creation commitments.