7. Income Taxes

The Company’s income tax provision was computed based on the federal statutory rate and the average state statutory rates, net of the related federal benefit. There was no current or deferred income tax expense or benefit for the years ended December 31, 2015 and 2014, due to the Company’s net losses and increases in its deferred tax asset valuation allowance. Following is a reconciliation of the statutory federal income rate to the Company’s effective tax rate:

	Year ended December 31,
	2015			2014
Federal tax at statutory rate		34.0	%		34.0	%
State and local tax at statutory rate		3.0			5.5
Research and development tax credits		0.4			(0.6	)
Equity compensation		(0.6	)		(1.6	)
Other permanent differences and credits		—			(0.1	)
Change in valuation allowance		(36.8	)		(37.2	)
Effective tax rate		0.0	%		0.0	%

The Company’s income tax provision was computed based on the federal statutory rate and the average state statutory rates, net of the related federal benefit.

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. When realization of the deferred tax asset is more likely than not to occur, the benefit related to the deductible temporary differences attributable to operations is recognized as a reduction of income tax expense. Valuation allowances are provided against deferred tax assets when, based on all available evidence, it is considered more likely than not that some portion or all of the recorded deferred tax assets will not be realized in future periods. The Company cannot be certain that future taxable income will be sufficient to realize its deferred tax assets, and accordingly a full valuation allowance has been provided on its deferred tax assets. The Company continues to maintain the underlying tax benefits to offset future taxable income and to monitor the need for a valuation allowance based on the profitability of its future operations. The valuation allowance increased by approximately $22.3 million and $13.8 million, during the years ended December 31, 2015 and 2014, respectively, primarily as a result of increases in unbenefited deferred tax assets such as tax losses and stock-based compensation. Significant components of the Company’s deferred tax assets and liabilities are as follows:

		December 31,
		2015			2014
	(in thousands)
Deferred tax assets:
Accrued expenses		$	912		$	559
Intangible assets			527		$	603
Restricted stock			301		$	436
Fixed assets			—		$	2
Non-qualified stock options ⁽¹⁾			1,558		$	440
Research and development credits			1,829		$	1,589
Net operating loss carryforward			51,356		$	30,559
Other			64		$	39
Total deferred tax assets			56,547		$	34,227
Less valuation allowance			(56,545	)		(34,227	)
Total deferred tax assets, net of valuation allowance			2			—
Deferred tax liabilities:
Fixed assets			(2	)		—
Restricted stock			—			—
Total deferred tax liabilities			(2	)		—
Net deferred tax asset		$	—		$	—

⁽¹⁾

This amount was reclassified from “other” in 2014 for comparability.

At December 31, 2015 and December 31, 2014, the Company has approximately $1.0 million (after amortization of $0.9 million) and $1.2 million (after amortization of $0.8 million), respectively, of start-up expenses capitalized for income tax purposes with amortization available to offset future federal, state and local income tax. At December 31, 2015 and 2014, the Company has approximately $140.5 million and $84.2 million, respectively, of federal net operating loss (NOL) carry-forwards. Additionally, at December 31, 2015 and 2014, the Company has approximately $111.9 million and $83.7 million, respectively, of state net operating loss (NOL) carry-forwards which expire through 2035. Included in the 2015 and 2014 NOLs are approximately $0.9 million of tax deductions related to equity compensation in excess of book compensation expense. Pursuant to the realization requirements in ASC 718, these tax deductions are not included in the NOL deferred tax asset above. The Company also has approximately $2.0 million of federal and state research and development tax credit carry-forwards. The NOL and research and development tax credit carry-forwards begin to expire in 2027 through 2035, and will be utilized for tax purposes at such time the Company generates taxable income. The NOL and research and development tax credit carry-forwards may be limited in certain circumstances, including ownership changes.

Under the provisions of the Internal Revenue Code, the net operating loss and tax credit carry-forwards are subject to review and possible adjustment by the Internal Revenue Service and state tax authorities. Net operating loss and tax credit carryforwards may become subject to an annual limitation in the event of certain cumulative changes in the ownership interest of significant shareholders over a three-year period in excess of 50%, as defined under Sections 382 and 383 of the Internal Revenue Code, respectively, as well as similar state provisions. This could limit the amount of tax attributes that can be utilized annually to offset future taxable income or tax liabilities. The amount of the annual limitation is determined based on the value of the Company immediately prior to the ownership change. Subsequent ownership changes may further affect the limitation in future years. The Company has completed several financings since its inception, which may have resulted in a change in control as defined by Sections 382 and 383 of the Internal Revenue Code, or could result in a change in control in the future. The Company has not yet analyzed whether there has been a change in control.

For applicable years, the Company generated research credits but has not conducted a study to document its qualified activities. This study may result in an adjustment to the Company’s research and development credit carryforwards; however, until a study is completed and any adjustment is known, no amounts are being presented as an uncertain tax position. A full valuation allowance has been provided against the Company’s research and development 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 carry-forwards and the valuation allowance.

The Company will recognize interest and penalties related to uncertain tax positions in income tax expense. As of December 31, 2015, 2014 and 2013, the Company had no accrued uncertain tax positions or associated interest or penalties and no amounts have been recognized in the Company’s consolidated statements of operations.

The Company files income tax returns in the U.S. federal jurisdiction, and various state jurisdictions. The Company’s 2012 through 2014 tax years remain open and subject to examination by federal and state taxing authorities. However, federal and state net operating losses from 2008 through 2014 are subject to review by taxing authorities in the year utilized.