15. Income Taxes

We did not record a tax provision for the years ended December 31, 2014, 2013 and 2012. The effective tax rate of our provision for income taxes differs from the federal statutory rate as follows:

	Year Ended December 31,
	2014			2013			2012
Federal statutory income tax rate		34.0	%		34.0	%		34.0	%
State income taxes, net of federal benefit		11.2			0.4			22.8
Federal and state research credits		2.7			3.4			0.8
Stock based compensation		(1.6	)		(0.2	)		0.4
Other		(0.1	)		(0.5	)		(0.1	)
Change in valuation allowance		(46.2	)		(37.1	)		(57.9	)
		0.0	%		0.0	%		0.0	%

In 2012, we did not record an income tax provision on pre-tax income because we incurred a current taxable loss for federal income tax purposes and had available tax credits to offset all state income tax. Tax credits were used in lieu of net operating losses because in 2012 state law suspended their use. Our valuation allowance at December 31, 2014 and 2013 appropriately considers the balances of both net operating losses and deferred revenue.

Significant components of our deferred tax assets are as follows (in thousands):

	December 31,
	2014			2013
Deferred tax assets:
Federal and state net operating loss carryforwards	$	146,725		$	102,478
Federal and state research tax credit carryforwards		15,337			10,750
Deferred revenue		12,523			1,755
Stock options		3,776			2,895
Capitalized acquisition costs		1,322			1,295
Other		3,589			654
Total deferred tax assets		183,272			119,827
Valuation allowance		(183,272	)		(119,827	)
Net deferred tax assets	$	–		$	–

Realization of the deferred tax assets is dependent upon the generation of future taxable income, if any, the amount and timing of which are uncertain. Based on available objective evidence, including the fact that we have incurred significant losses in almost every year since our inception, management believes it is more likely than not that our deferred tax assets are not recognizable. Accordingly, deferred tax assets have been fully offset by a valuation allowance. The valuation allowance increased by $63.5 million for the year ended December 31, 2014. The valuation allowance increased by $30.7 million for the year ended December 31, 2013.

As of December 31, 2014, we had net operating loss carryforwards for federal income tax purposes of approximately $364.4 million and federal research tax credits of approximately $15.2 million, which expire at various dates in the period from 2024 to 2034. We also have California net operating loss carry forwards of approximately $449.6 million which expire at various dates in the period from 2018 to 2034 and California research tax credits of $3.8 million. Utilization of the net operating loss carryforwards and credits will be subject to an annual limitation due to the ownership change limitations provided by the Internal Revenue Code of 1986, as amended and similar state provisions. The annual limitation may result in the expiration of net operating losses and credits before utilization.

Uncertain Tax Positions

We have not been audited by the Internal Revenue Service or any state tax authority. We are subject to taxation in the United States. Because of the net operating loss and research credit carryforwards, substantially all of our tax years, from 2003 through 2013, remain open to U.S. federal and California state tax examinations.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):

	Year Ended December 31,
	2014		2013			2012
Unrecognized tax benefits, beginning of period	$	2,048	$	1,435		$	1,344
Gross increases - current period tax positions		858		619			91
Gross decreases - tax position in prior period		–		(6	)		–
Unrecognized tax benefits, end of period	$	2,906	$	2,048		$	1,435

The amount of unrecognized income tax benefits that, if recognized, would affect our effective tax rate was $365,000 as of December 31, 2014 and 2013. If the $2.9 million and $2.0 million of unrecognized income tax benefits as of December 31, 2014 and 2013, respectively, is recognized, there would be no impact to the effective tax rate as any change will fully offset the valuation allowance. We believe that it is reasonably possible that a decrease of $365,000 in unrecognized tax benefits related to state exposures is necessary within the coming year as a result of a lapse of the state statute of limitations.