17. Income Taxes

At December 31, 2011, the Company had federal and state net operating loss carryforwards of $148.0 million and $96.0 million, respectively, available to offset against future taxable income, which expire in 2012 through 2031. As a result of a change in-control that occurred in the CytRx shareholder base in July 2002, approximately $13.7 million in federal net operating loss carryforwards became limited in their availability to $363,000 annually. Management currently believes that the remaining $144.3 million in federal net operating loss carryforwards, and the $82.3 million in state net operating loss carryforwards, are unrestricted. However, management is reviewing its recent equity transactions such as the company's underwritten public offering on July 27, 2011 to determine if they may have resulted in any further restrictions on the Company's net operating loss carryforwards. As of December 31, 2011, CytRx also had research and development and alternative minimum tax credits for federal and state purposes of approximately $5.7 million and $6.6 million, respectively, available for offset against future income taxes, which expire in 2022 through 2031. Based on an assessment of all available evidence including, but not limited to, the Company's limited operating history in its core business and lack of profitability, uncertainties of the commercial viability of its technology, the impact of government regulation and healthcare reform initiatives, and other risks normally associated with biotechnology companies, the Company has concluded that it is more likely than not that these net operating loss carryforwards and credits will not be realized and, as a result, a 100% deferred tax valuation allowance has been recorded against these assets.

Deferred income taxes reflect the net effect of temporary differences between the financial reporting carrying amounts of assets and liabilities and income tax carrying amounts of assets and liabilities. The components of the Company's deferred tax assets and liabilities, all of which are long-term, are as follows (in thousands):

	December 31,
	2011			2010
Deferred tax assets:
Net operating loss carryforwards	$	56,025		$	38,715
Tax credit carryforwards		10,040			8,663
Equipment, furnishings and other		9,154			8,554

Total deferred tax assets		75,219			55,932
Deferred tax liabilities		(3,868	)		(830	)
Net deferred tax assets		71,351			55,102
Valuation allowance		(71,351	)		(55,102	)
	$	-		$	-

For all years presented, the Company did not recognize any deferred tax assets or liabilities. The net change in valuation allowance for the years ended December 31, 2011 and 2010 was $16.2 million and $3.3 million, respectively.

The provision for income taxes differs from the provision computed by applying the Federal statutory rate to net loss before income taxes as follows (in thousands):

	Years ended December 31,
	2011			2010			2009
Federal benefit at statutory rate	$	(4,996	)	$	139		$	(1,809	)
State income taxes, net of Federal taxes		(857	)		24			(310	)
Permanent differences		6			22			(136	)
Book gain in excess of tax gain		-			(3,630	)		-
Provision related to change in valuation allowance		16,235			3,278			3,651
Net change in research and development tax credits		-			-			(2,826	)
Other, net		(10,290	)		167			911
	$	98		$	-		$	(519	)

There have been no changes to the Company's liability for unrecognized tax benefits during the year ended December 31, 2011.

The Company files income tax returns in the U.S. Federal jurisdiction and various state jurisdictions. As of the date of adoption of ASC 740 and the year ended December 31, 2011, the tax returns for 2007 through 2011 remain open to examination by the Internal Revenue Service and various state tax authorities.

The Company's policy is to recognize any interest and penalties related to unrecognized tax benefits as a component of income tax expense. As of the date of adoption of ASC 740 and the years ended December 31, 2011, 2010 and 2009, the Company had accrued no interest or penalties related to uncertain tax positions.