12. Income Taxes

The components of the income tax (benefit)/ expense for the years ended December 31, 2016, 2015 and 2014 were as follow, in thousands:

	Year Ended December 31,
	2016			2015		2014
Current
Federal	$	544		$	624	$	630
State		78			42		—
Deferred
Federal		(39,898	)		—		—
State		(1,576	)		—		—

Total	$	(40,852	)	$	666	$	630

A reconciliation of the expected income tax (benefit)/ expense computed using the U.S. Federal statutory income tax rate to the Company's effective income tax rate is as follows, in thousands:

	Year Ended December 31,
	2016			2015			2014
Income tax expense/(benefit) computed at U.S. Federal statutory tax rate	$	17,629		$	5,114		$	(3,603	)
Permanent items		715			601			610
State income taxes		(1,523	)		42			(245	)
Change in valuation allowance		(56,019	)		(4,705	)		4,413
Uncertain income tax position		143			533			(329	)
Research and development credits		(1,902	)		(979	)		(535	)
Other		105			60			(125	)
Deferred rate change		—			—			444

Income tax (benefit)/expense	$	(40,852	)	$	666		$	630

The significant components of the Company's deferred income tax assets (liabilities) were as follow, in thousands:

	As of December 31,
	2016			2015
Deferred tax assets:
Net operating loss carryforward	$	24,926		$	34,610
Deferred rent credit		417			532
Accrued compensation and non-qualified stock options		8,128			5,886
Deferred financing costs		128			187
Depreciation and amortization		706			290
Research and development credits		7,119			5,529
Capitalized overhead into inventory (UNICAP §263A)		1,086			543
Nonrecourse liability related to sale of future royalties		11,223			11,526
Other		878			498
AMT credit		1,581			1,108
Valuation allowance		—			(60,090	)

Net deferred tax asset		56,192			619
Deferred tax liability:
Debt discount on convertible notes		(141	)		(509	)
Infringement legal cost		(13,899	)		—
Depreciation		(423	)		(110	)

Net deferred taxes	$	41,729		$	—

In assessing the realizability of deferred income tax assets, management considers whether it is more likely than not that some or all of the deferred income tax assets will not be realized. The ultimate realization of the deferred income tax assets is dependent upon the generation of future taxable income during the periods in which the net operating loss (NOL) and tax credit carryforwards are available. Management considers projected future taxable income, the scheduled reversal of deferred income tax liabilities, and available tax planning strategies that can be implemented by the Company in making this assessment. Based upon the level of historical taxable income and projections for future taxable income over the periods in which the NOL and credit carryforwards are available to reduce income taxes payable, management had established in 2015 a full valuation allowance as the Company was not more likely than not to realize such net deferred tax assets.

During the third quarter of 2016, the Company determined the positive evidence regarding the valuation of the deferred tax assets outweighed the negative. Accordingly, the Company eliminated the valuation allowance of $60.1 million and recorded the assessment to the deferred income tax expense.

As of December 31, 2016, the U.S. Federal NOL carryforwards amounted to approximately $87.3 million ($30.5 million tax effected) and $28.2 million ($1.6 million tax effected), respectively, and will expire in various years beginning in 2030. As of December 31, 2016, the Company has available research and development credit carryforwards of approximately $7.1 million, which expire, if unused, starting in 2026. The use of the Company's U.S. Federal and state NOL carryforwards and research and development credits are restricted in annual use due to changes in the Company's ownership. For the year ended December 31, 2016, the Company utilized NOL's of approximately $48.1 million and expects the remaining $87.3 million of Federal NOL carryforwards to become available over the years from 2017 to 2020, in amounts ranging from $7.1 million to $20.3 million per year. In addition, the Company has available research and development credits of approximately $7.1 million, expected to become available in 2020 to 2021. The Company's state NOL's will have a similar limitation to the amount noted for US Federal. Additionally, despite the NOL carryforwards, the Company may have a future tax liability due to state and local income tax requirements. The Company paid no Federal income taxes in the years ended December 31, 2016, 2015 or 2014.

The Company accounts for uncertain income tax positions pursuant to the guidance in FASB ASC Topic 740, Income Taxes. The Company recognizes interest and penalties related to uncertain tax positions, if any, in income tax expense. As of December 31, 2016, the Company accrued interest of a nominal amount and penalties of $0.1 million related to uncertain tax positions. The Company's income taxes have not been subject to examination by any tax jurisdictions since its inception in 2005. Due to NOL and research and development credit carryforwards, all U.S. Federal and state income tax returns filed by the Company are subject to examination by the taxing jurisdictions. Some uncertain income tax position liabilities have been recorded to the Company's deferred income tax assets to offset such tax attribute carryforwards and other positions that can't be offset by tax attributes a liability has been booked.

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

	Year Ended December 31,
	2016			2015			2014
Balance as of January 1	$	9,341		$	8,964		$	9,828
Gross (decreases) increases related to prior-year tax positions		—			(5	)		18
Gross increases related to current-year tax positions		662			646			710
Gross decreases related to prior-year tax positions		(375	)		—			—
Gross decreases related to current-year tax positions		(169	)		(243	)		(1,057	)
Change in tax rates		(160	)		(21	)		(535	)

Balance as of December 31	$	9,299		$	9,341		$	8,964

As of December 31, 2016 and 2015, the Company recorded $0.5 million and $0.6 million of current tax expense on setting up an uncertain tax position related to the Alternative Minimum Tax. The Company does not anticipate a significant increase or decrease in the uncertain income tax benefits within the next 12 months.