Note 6: Income Taxes

The Company's effective tax rate differs from the statutory rate as follows (in thousands):

		Year ended December 31, 2014		Year ended December 31, 2013			Year ended December 31, 2012
Tax benefit computed at the federal statutory rate	$	(6,156	)	$	(5,643	)	$	(3,630	)
State tax, net of federal provision (benefit)		(577	)		262			100
Research Credits		(150	)		(186	)		--
Unrecognized tax benefits		412			298			248
Permanent items & others		146			(77	)		230
Income tax benefit	$	(6,325	)	$	(5,346	)	$	(3,052	)

The Company's tax provision (benefit) is as follows (in thousands):

		Year ended December 31, 2014		Year ended December 31, 2013			Year ended December 31, 2012
Current tax expense (benefit):
Federal	$	1,889		$	(633	)	$	(1,948	)
State		(2	)		41			(51	)
Foreign		3			12			21
Total current		1,890			(580	)		(1,978	)
Deferred tax benefit:
Federal		(8,215	)		(4,766	)		(1,074	)
State		--			--			--
Total deferred		(8,215	)		(4,766	)		(1,074	)
Income tax benefit	$	(6,325	)	$	(5,346	)	$	(3,052	)

The Company establishes a valuation allowance for deferred tax assets, when it is unable to conclude that it is more likely than not that such deferred tax assets will be realized. In making this determination the Company evaluates both positive and negative evidence. The state deferred tax assets exceed the reversal of taxable temporary differences. Without other significant positive evidence, the Company has determined that the state deferred tax assets are not more likely than not to be realized.

Significant components of the Company's deferred tax assets and liabilities from federal and state income taxes are as follows (in thousands):

		December 31, 2014		December 31, 2013
Deferred tax assets - current:
Net operating loss carryforwards	$	938		$	2,026
Employees benefits and compensation		1,452			1,520
Debt discount		1,253			--
Accruals, reserves and others		3,105			1,757
Total deferred tax assets		6,748			5,303
Valuation allowance		(1,797	)		(1,457	)
Total current deferred tax assets	$	4,951		$	3,846

Deferred tax assets- long-term:
Deferred tax assets
Net operating loss carry forward	$	12,218		$	10,751
Employees benefits and compensation		2,249			2,829
Other		(1	)		--
		14,466			13,580
Valuation allowance		(5,223	)		(4,983	)
		9,243			8,597
Deferred tax asset (liability) - property, plant and equipment		2,137			(1,230	)
Intangible assets		(6,318	)		(7,253	)
Debt discount		(4,200	)		(884	)
Other		(557	)		(1,659	)
Total deferred tax assets (liabilities)		305			(2,429	)
Total deferred taxes	$	5,256		$	1,417

The future utilization of the Company's net operating loss carry forwards to offset future taxable income is subject to an annual limitation as a result of ownership changes that have occurred. Additional limitations could apply if ownership changes occur in the future. The Company has had two “change in ownership” events that limit the utilization of net operating loss carry forwards. The first “change in ownership” event occurred in February 2007 upon our acquisition of Jazz Semiconductor. The second “change in ownership” event occurred on September 19, 2008, the date of the Company's Merger with Tower. The Company concluded that the net operating loss limitation for the change in ownership which occurred in September 2008 will be an annual utilization of $2.1 million for the use in its tax return. The Company had at December 31, 2014 federal net operating loss carry forwards of approximately $31 million that will begin to expire in 2022 unless previously utilized.

At December 31, 2014, the Company had state net operating loss carry forwards of approximately $141.5 million. The state tax loss carry forwards is expected to start expiring from 2015 onwards.

At December 31, 2014, the Company had combined federal and state alternative minimum tax credits of $0.9 million. The alternative minimum tax credits do not expire. At December 31, 2014, the Company had approximately $1.0 million of federal research and development credits that will begin to expire in 2030.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:

	Unrecognized tax
	benefits
	(in thousands)
Balance at January 1, 2014	$	19,362
Additions for tax positions of current year		51
Reductions for tax positions of prior years		-
Balance at December 31, 2014	$	19,413

	Unrecognized tax
	benefits
	(in thousands)
Balance at January 1, 2013	$	19,721
Additions for tax positions of current year		12
Reductions for tax positions of prior years		(371	)
Balance at December 31, 2013	$	19,362

	Unrecognized tax
	benefits
	(in thousands)
Balance at January 1, 2012	$	23,965
Reductions for tax positions of prior year		(275	)
Settlements		(3,969	)
Balance at December 31, 2012	$	19,721

The Company accounts for its uncertain tax provisions in accordance with ASC 740. The Company's policy is to recognize interest and penalties that would be assessed in relation to the settlement value of unrecognized tax benefits as a component of income tax expense. At December 31, 2014, the Company had unrecognized tax benefits of $19.4 million. The amount of unrecognized tax benefit that, if recognized and realized, would affect the effective tax rate is $19.1 million as of December 31, 2014.

The statute of limitation with respect to tax year 2010 which is expected to expire during 2015, will result in, if expired, the cancelation of the respective unrecognized tax benefit for such year, in the amount of approximately $11 million.

During 2014, the Company was updated that the 2011 federal tax returns it has filed in 2012 and were audited since 2013, were accepted as filed without any audit adjustments.

The Company and its subsidiaries are subject to U.S. federal income tax as well as income tax in multiple state and foreign jurisdictions. With few exceptions, the Company is no longer subject to U.S. federal income tax examinations for years before 2010; state and local income tax examinations before 2010; and foreign income tax examinations before 2011. However, to the extent allowed by law, the tax authorities may have the right to examine prior periods where net operating losses were generated and carried forward, and make adjustments up to the amount of the net operating loss carry forward amount.