8. Income Taxes

The Company utilizes the liability method of accounting for deferred income taxes. Under this method, deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the carrying amounts and the tax basis of assets and liabilities. A valuation allowance is established against deferred tax assets when, based on the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. The Company's policy is to record interest and penalties on uncertain tax positions as income tax expense.

Deferred income taxes reflect the net effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. A reconciliation of the statutory U.S. federal rate to the Company's effective tax rate is as follows:



	Years ended December 31,
	2016		2015		2014
Percent of pre-tax income:
U.S. federal statutory income tax rate	35.0	%	35.0	%	35.0	%
State taxes, net of federal benefit	2.8	%	7.4	%	6.8	%
Permanent items	(1.4	)%	(0.5	)%	2.3	%
Impact of state rate changes	(11.0	)%	0.9	%	—	%
Research and development credit	1.9	%	—	%	—	%
Other	1.1	%	—	%	—	%
Change in valuation allowance	(28.2	)%	(29.1	)%	(89.5	)%
Effective income tax rate	0.2	%	13.7	%	(45.4	)%

The components of income tax (benefit) expense are as follows:



	Years ended December 31,
	2016			2015			2014
Current:
Federal	$	(23,393	)	$	136		$	29,505
State	21			91			11,440
Deferred:
Federal	22,966			(17,014		)	(4,469		)
State	—			—			—
Income tax (benefit) expense	$	(406	)	$	(16,787	)	$	36,476

Significant components of the Company's deferred tax assets (liabilities) for 2016 and 2015 consist of the following:



	As of December 31,
	2016			2015
Deferred tax assets (liabilities)
Deferred revenue	$	125,634		$	142,675
License and technology payments	10,532			13,150
Share-based compensation	16,494			11,427
Accrued expenses	530			743
Depreciation	(651		)	(617		)
Federal and state net operating loss carryforwards	75,177			26,065
Excess tax benefits related to share-based compensation	—			1,630
Research and development credits	3,720			—
Other	2,155			5
Deferred income tax assets	233,591			195,078
Valuation allowance	(233,591		)	(171,965		)
Net deferred tax assets	$	—		$	23,113

In assessing the realizability of deferred tax assets, the Company considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of taxable income during the periods in which the temporary differences representing net future deductible amounts become deductible, and is impacted by the Company’s ability to carry back losses to 2014, the only year in which the Company had taxable income. The Company incurred tax losses in 2016. The Company realized its net deferred tax assets recorded as of December 31, 2015 in 2016 as a result of the Company’s carry back of its 2015 federal tax losses to 2014. The Company has carried forward its 2015 state tax losses due to various state restrictions on the use of carryback claims. The state NOLs are expected to begin to expire in 2027. Due to the Company’s history of losses and lack of other positive evidence to support taxable income after the 2014 tax year, the Company has recorded a valuation allowance against those remaining deferred tax assets that are not expected to be realized. As of December 31, 2016, the Company has federal NOLs carryforwards of approximately $187.4 million. These losses are due to expire in 2036.

For the years ended December 31, 2016 and 2015, the Company recorded a benefit from income taxes of $0.4 million and $16.8 million, respectively. The benefit from income taxes recorded in each period of 2016 and 2015 was based upon the Company’s estimated federal and state income tax liability for those respective years.

For the year ended December 31, 2016, the Company recorded an income tax benefit of $0.4 million related to unanticipated refunds received and the reduction in its valuation allowances to reflect the income tax associated with unrealized gains on available for sale securities recorded in other comprehensive income (loss). A corresponding income tax provision was also recorded in other comprehensive income (loss).

Pursuant to ASC 740, Income Taxes, the Company routinely evaluates the likelihood of success if challenged on income tax positions claimed on its income tax returns. During the year ended December 31, 2016, the Company reduced certain deferred tax assets by $3.8 million and reduced the corresponding valuation allowance by an equivalent amount. These items have not been recognized in the financial statements and if disallowed by the tax authorities, would not result in an adjustment to the Company’s effective tax rate, its balance sheet or its cash flow statements for the current year.

The Company's position with respect to uncertain tax positions is set forth below:



Opening balance	$	300
Gross amount of increases in unrecognized tax benefits during the period - current year provisions	—
Gross amount of increases in unrecognized tax benefits during the period - prior year provisions	3,828
Gross amount of increases in unrecognized tax benefits during the period - other	—
Decreases due to settlement with tax authorities during the period	—
Reduction of unrecognized tax benefits due to expiration of the state of limitations during the period	—
Closing Balance	$	4,128

As the Company is currently being audited by the Internal Revenue Service and also anticipates an audit by the New York State Department of Taxation and Finance to occur during 2017, an estimate of unrecognized tax benefits that may be realized over the next twelve months cannot be determined at this time.

The Company will continue to evaluate its ability to realize its deferred tax assets on a periodic basis and will adjust such amounts in light of changing facts and circumstances including, but not limited to, future projections of taxable income, tax legislation, rulings by relevant tax authorities, the progress of ongoing tax audits and the regulatory approval of products currently under development. Any additional changes to the valuation allowance recorded on deferred tax assets in the future would impact the Company’s income taxes.