10. Income Taxes

The provision (benefit) for income taxes is as follows for the years ended December 31, 2013, 2012 and 2011 (in thousands):


	Years Ended December 31,
	2013		2012		2011
Current:
Federal	$	(3,263)	$	(9,531)	$	14,406
State		—		—		3,461


Total current		(3,263)		(9,531)		17,867

Deferred:
Federal		3,842		6,707		(10,660)
State		—		—		—


Total deferred		3,842		6,707		(10,660)


Total	$	579	$	(2,824)	$	7,207

A reconciliation of the expected income tax benefit (expense) computed using the federal statutory income tax rate to the Company’s effective income tax rate is as follows for the years ended December 31, 2013, 2012 and 2011:


	December 31,
	2013		2012		2011
Income tax benefit computed at federal statutory tax rate		35.00%		35.00%		35.00%
State taxes, net of federal benefit		4.02		7.07		3.95
Change in valuation allowance		(38.02)		(28.08)		(74.29)
General business credits and other credits		0.52		0.12		(2.36)
Permanent differences		(1.75)		(0.63)		(0.60)
Interest and penalties		(1.19)		(1.95)		(1.72)
Other		(0.07)		0.79		(3.66)


Total		(1.49)%		12.32%		(43.68)%

During the years ended December 31, 2013, 2012 and 2011, the Company incurred $0.6 million, $0.6 million, and $0.3 million for interest and penalties related to the non-payment of U.S. federal income taxes, respectively.

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred tax assets and liabilities for the years ended December 31, 2013 and 2012 are as follows (in thousands):


	2013		2012
Deferred tax assets:
Net operating loss carryforwards	$	21,901	$	1,666
Deferred revenue		23,171		33,250
Tax credit carryforwards		637		427
Purchased intangible assets		147		158
Stock-based compensation		768		269
Deferred rent		138		172
Other		231		232


Total deferred tax assets		46,993		36,174
Valuation allowance		(46,549)		(31,786)


Total deferred tax assets	$	444	$	4,388

Deferred tax liabilities:
Depreciation and amortization	$	(444)	$	(435)


Total deferred tax liabilities	$	(444)	$	(435)


Net deferred tax asset	$	-	$	3,953

As of December 31, 2013, the Company had net operating loss carryforwards available to reduce federal and state income taxes of approximately $49.2 million and $90.3 million, respectively. If not utilized, these carryforwards expire at various dates through 2033. At December 31, 2013 the Company also has available research and development tax credits for federal and state income tax purposes of approximately $627,000 and $17,000, respectively.

During 2011, the Company conducted a study of its research and development credit carryforwards. This study resulted in an adjustment to the Company’s research and development credit carryforward, as the Company concluded that the credits were not more likely than not to be realized. Utilization of the net operating loss carryforwards and credits may be subject to annual limitations as prescribed by federal and state statutory provisions. The annual limitation may result in the expiration of net operating loss carryforwards prior to its utilization.

The Company has state net operating loss carry forward (NOLs) related to stock compensation in the amount of $182,000 that is not included in deferred tax assets. When the excess stock-based compensation related to NOL carryover tax assets are realized, the benefit will be credited directly to stockholders’ equity.

Utilization of the NOLs and tax credit carryforwards may be subject to a substantial annual limitation due to ownership change limitations that have occurred previously or that could occur in the future, as provided by Section 382 of the Internal Revenue Code of 1986 (“Section 382”), as well as similar state provisions. Ownership changes may limit the amount of NOLs and tax credit carryforwards that can be utilized annually to offset future taxable income and tax, respectively. In general, an ownership change, as defined by Section 382, results from transactions that increase the ownership of 5% shareholders in the stock of a corporation by more than 50 percent in the aggregate over a three-year period. During 2011, the Company completed a study through December 31, 2011, to determine whether any ownership change has occurred since the Company’s formation and has determined that transactions have resulted in two ownership changes, as defined by Section 32. The impact of the ownership changes have been reflected in the Company’s deferred tax assets in the table above. There could be additional ownership changes in the future that could further limit the amount of NOLs and tax credit carryforwards that the Company can utilize.

As required by ASC 740, management of the Company has evaluated the positive and negative evidence bearing upon the realizability of its deferred tax assets. During the year ended December 31, 2011, management determined that it was more likely than not that it would realize a portion of its deferred tax assets because of the Company’s ability to carryback future losses for U.S. federal income tax purposes. As a result, the Company reversed approximately $10.7 million of the valuation allowance on its deferred tax assets in the year ended December 31, 2011, representing the amount of deferred tax assets that will be realized in 2012 and 2013, the year available for carryback. The Company utilized certain of the deferred tax assets, including net operating losses, generated in the year ended December 31, 2013 to reduce its federal income taxes payable in the year ended December 31, 2013 and 2012. For the remainder of the Company’s deferred tax assets, management determined that it is more likely than not that the Company may not realize the benefit and has recorded a valuation allowance of approximately $46.5 million and $31.8 million at December 31, 2013 and 2012, respectively. The valuation allowance increased by $14.8 million in the year ended December 31, 2013.

The Company applies the accounting guidance in ASC 740 related to accounting for uncertainty in income taxes. The Company’s reserves related to taxes are based on a determination of whether, and how much of, a tax benefit taken by the Company in its tax filings or positions is more likely than not to be realized following resolution of any potential contingencies present related to the tax benefit. As of December 31, 2013 and 2012 the Company had no unrecognized tax benefits. The Company recognizes interest and penalties related to uncertain tax positions in income tax expense.

The statute of limitations for assessment by the Internal Revenue Service (IRS) and state tax authorities is open for tax years ending December 31, 2013, 2012, 2011, and 2010 although carryforward attributes that were generated for tax years prior to 2010 may still be adjusted upon examination by the IRS or state tax authorities if they either have been, or will be, used in a future period. There are currently no federal or state audits in progress.