13. Income Taxes

The U.S. income tax provision (benefit) consists of the following (in thousands):

	Year Ended December 31,
	2015			2014
Current:
Federal	$	–		$	–
State		(365	)	–
		(365	)	–
Deferred:
Federal	$	–		$	–
State	–			–
	–			–
Total provision (benefit) for income taxes	$	(365	)	$	–

We recorded an income tax benefit of $365,000 for the year ended December 31, 2015. We did not record a tax provision for the years ended December 31, 2014 and 2013. The effective tax rate of our provision for income taxes differs from the federal statutory rate as follows:

	Year Ended December 31,
	2015			2014			2013
Federal statutory income tax rate		34.0	%		34.0	%		34.0	%
State income taxes, net of federal benefit		(6.6)			11.2			0.4
Federal and state research credits		2.5			2.7			3.4
Stock based compensation		0.0			(1.6	)		(0.2	)
FIN 48 release		0.2			0.0			0.0
Other		0.0			(0.1	)		(0.5	)
Change in valuation allowance		(29.9	)		(46.2	)		(37.1	)
Total tax benefit		0.2	%		0.0	%		0.0	%

The income tax benefit for the year ended December 31, 2015 is due to the release of uncertain tax positions reserve relating to state tax exposures, the statute of which expired during the current period.

The components of U.S. deferred tax assets and (liabilities) are as follows (in thousands):

	December 31,
	2015			2014
Deferred tax assets:
Federal and state net operating loss carryforwards	$	207,898		$	146,725
Federal and state research tax credit carryforwards		18,744			15,337
Deferred revenue		9,192			12,523
Stock options		10,197			3,776
Capitalized acquisition costs		974			1,322
Other		3,942			3,589
Net deferred tax assets before valuation allowance		250,947			183,272
Valuation allowance		(250,947	)		(183,272	)
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 approximately $67.0 million for the year ended December 31, 2015. The valuation allowance increased by approximately $64.0 million for the year ended December 31, 2014.

As of December 31, 2015, we had net operating loss carryforwards for federal income tax purposes of approximately $612.0 million and federal research tax credits of approximately $18.0 million, which expire at various dates in the period from 2024 to 2035. We also have California net operating loss carryforwards of approximately $223.0 million which expire at various dates in the period from 2017 to 2035 and California research tax credits of approximately $5.0 million. Our federal and state net operating loss carryforwards as of December 31, 2015 include amounts resulting from exercises and sales of stock option awards to employees and non-employees. When we realize the tax benefit associated with these stock option exercises as a reduction to taxable income in our returns, we will account for the tax benefit as a credit to stockholders’ equity rather than as a reduction of our income tax provision in our consolidated financial statements. Based upon our stock option exercise history, such amounts were not material as of December 31, 2015.

For the year ended December 31, 2015, the Company has written-off approximately $194.0 million of the 2013 and 2014 California net operating losses relating to the outcome of the California Supreme Court case of Gillette Company et al. v. Franchise Tax Board.

We performed an analysis on annual limitation as a result of ownership changes that may have occurred through December 2015. Our analysis indicates that a change occurred during 2013. As a result of this change, our net operating loss and tax credit carryforwards will not be subject to limitation in total, but we may be subject to a limitation as it relates to the timing of utilization. However, due to a lack of historical earnings and uncertainties surrounding our ability to generate future taxable income to realize these tax assets, a full valuation allowance has been established to offset our deferred tax assets. The annual limitation may result in the expiration of net operating losses and credits before utilization.

Uncertain Tax Positions

We are subject to taxation in the United States. We have not been audited by the Internal Revenue Service or any state tax authority. We are no longer subject to audit by the Internal Revenue Service for income tax returns filed before 2013, and by the material state and local tax authorities for tax returns filed before 2012. However, carryforward tax attributes that were generated prior to these years may still be adjusted upon examination by tax authorities.

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

	Year Ended December 31,
	2015			2014		2013
Unrecognized tax benefits, beginning of period	$	2,906		$	2,048	$	1,435
Increases due to current period positions		1,091			858		619
Decreases due to current period positions	–			–		–
Decreases due to prior period positions		(404	)	–			(6	)
Decreases due to the lapse of statutes of limitations		(365	)	–		–
Unrecognized tax benefits, end of period	$	3,228		$	2,906	$	2,048

The amount of unrecognized income tax benefits that, if recognized, would affect our effective tax rate was zero and $365,000 as of December 31, 2015 and December 31, 2014, respectively. If the $3.2 million and $2.9 million of unrecognized income tax benefits as of December 31, 2015 and 2014, respectively, is recognized, there would be no impact to the effective tax rate as any change will fully offset the valuation allowance.