15. Income Taxes

Domestic and foreign (loss)/income before provision for income taxes for the years ended December 31, 2015, 2014 and 2013 are as follows:


	2015		2014		2013
	(in thousands)
Domestic	$	(55,900)	$	(22,037)	$	(63,421)
Foreign		(15,670)		(16,449)		410
Loss before provision for income taxes	$	(71,570)	$	(38,486)	$	(63,011)

Provision for income taxes for the years ended December 31, 2015, 2014 and 2013 are as follows:


	2015		2014		2013
	(in thousands)
Current:
Federal	$	(20)	$	233	$	-
State		122		-		44
Foreign		1,166		892		303
		1,268		1,125		347
Deferred:
Federal		238		-		-
State		39		-		-
Foreign		224		(226)		-
		501		(226)		-
Provision for income taxes	$	1,769	$	899	$	347

Deferred taxes are recognized for temporary differences between the basis of assets and liabilities for financial statement and income tax purposes. The primary components of the Company’s deferred tax assets and liabilities comprised of the following:


	December 31,
	2015		2014
	(in thousands)
Deferred tax assets:
Net operating loss carryforwards	$	60,325	$	56,794
Research and development credits		34,744		28,509
Stock compensation		19,444		16,620
Capitalized research expenses		2,551		3,695
Impairment loss on available for sale securities/capital loss carryforward		679		685
Intangible assets		1,882		-
Other temporary differences		10,391		5,070
Total gross deferred tax assets		130,016		111,373
Valuation allowance		(121,072)		(100,586)
Net deferred tax assets	$	8,944	$	10,787
Deferred tax liabilities:
Convertible Notes	$	(8,560)	$	(10,079)
Other temporary differences		(661)		(485)
Total deferred tax liabilities	$	(9,221)	$	(10,564)
Net deferred tax (liabilities) assets	$	(277)	$	223
Reported as:
Short-term deferred tax assets	$	-	$	402
Long-term deferred tax liabilities		(277)		(179)
Net deferred tax (liabilities) assets	$	(277)	$	223

As of December 31, 2015, the Company has $121.1 million of valuation allowance recorded against its U.S. and foreign deferred tax assets. If the Company is subsequently able to utilize all or a portion of the deferred tax assets for which the remaining valuation allowance has been established, then the Company may be required to recognize these deferred tax assets through the reduction of the valuation allowance which could result in a material benefit to results of operations in the period in which the benefit is determined.

The Company has evaluated the positive and negative evidence bearing upon the realizability of its deferred tax assets and concluded that based on the Company’s history of operating losses that it is more likely than not that the benefit of its deferred tax assets will not be realized. Therefore, Company has provided a full valuation allowance against its domestic and foreign deferred tax assets as of December 31, 2015. The valuation allowance increased approximately $20.5 million during the year ended December 31, 2015, primarily due to the deferred tax assets established in connection with the Company’s net operating loss carryforwards and research credits.

A reconciliation of the statutory tax rates and the effective tax rates for the years ended December 31, 2015, 2014 and 2013 are as follows:


	December 31,
	2015		2014		2013
Statutory rate benefit	(35)	%	(35)	%	(35)	%
State and local income tax benefit (net of federal tax benefit)	(1)		(1)		(2)
Foreign rate differential	4		6		-
Credits	(7)		3		(11)
Stock compensation	5		9		-
NOL accrual to return	-		(3)		-
Fines and penalties	6		-		-
Other	1		2		7
Valuation allowance	29		21		42
Effective tax rate	2	%	2	%	1	%

As of December 31, 2015, the Company had cumulative federal, state and foreign net operating losses (“NOL”) of $173.4 million, $104.2 million and $33.4 million, respectively. The federal NOL carryforwards expire at various dates from 2025 through 2035, if not utilized. The state NOL expires at various dates from 2029 through 2035, if not utilized. The foreign NOL will begin to expire at various dates beginning in 2022, if not utilized. The Company’s federal and state NOL carryforwards for tax return purposes are $33.5 million and $27.3 million greater than its recognized federal and state NOLs respectively for financial reporting purposes, primarily due to excess tax benefits (stock compensation deductions in excess of book compensation costs) not recognized for financial statement purposes until realized. The tax benefit of this loss would be recognized for financial statement purposes in the period in which the tax benefit reduces income taxes payable, which will not be recognized until the Company recognizes a reduction in taxes payable from all other NOL carryforwards.

The Company also has available federal general business credit and state research and development credit carryforwards of $34.3 million for federal income tax purposes and $0.3 million for state income tax purposes that expire at various dates from 2021 through 2030, and a $0.2 million federal alternative minimum tax credit. A full valuation allowance has been provided against the Company’s federal and state credits and, if an adjustment is required, this adjustment would be offset by an adjustment to the deferred tax asset established for the research and development credit carryforward and the corresponding valuation allowance.

The Company believes a change of ownership within the meaning of Section 382 and 383 of the Internal Revenue Code occurred in 2005 and 2012. Under Section 382 and 383 of the Internal Revenue Code of 1986, as amended, if a corporation undergoes an “ownership change,” generally defined as a greater than 50% change (by value) in its equity ownership over a three-year period, the corporation’s ability to use its pre-change net operating loss carryforwards, or NOLs, and other pre-change tax attributes (such as research tax credits) to offset its post-change income may be limited. As a result, the Company’s U.S. federal net operating loss and general business credit utilization will be limited to an amount equal to the market capitalization at the time of the ownership change multiplied by the federal long-term tax exempt rate.

The Company has not recorded any amounts for unrecognized tax benefits as of December 31, 2015 and 2014, respectively. The Company’s policy is to record estimated interest and penalties related to the underpayment of income taxes as a component of its income tax provision. As of December 31, 2015 and 2014, the Company had no accrued interest or penalties related to uncertain tax positions and no amounts have been recognized in the Company’s consolidated statement of operations.

The Company and its subsidiaries file income tax returns in the United States, as well as various state and foreign jurisdictions. The federal, state and foreign income tax returns are generally subject to tax examinations for the tax years ended December 31, 2011 through December 31, 2014. To the extent the Company has tax attribute carryforwards, the tax years in which the attribute was generated may still be adjusted upon examination by the Internal Revenue Service, state or foreign tax authorities to the extent utilized in a future period.