16. INCOME TAXES

As of December 31, 2014, the Company had federal and state net operating loss carryforwards of $324.0 million and $220.9 million, respectively, available to reduce future taxable income, which expire between 2015 and 2034. Utilization of these net operating losses could be limited under Section 382 of the Internal Revenue Code and similar state laws based on ownership changes and the value of the Company’s stock. Additionally, the Company has $25.3 million and $5.0 million of federal and state research and development credits, respectively, available to offset future taxable income. These federal and state research and development credits begin to expire between 2018 and 2034 and between 2015 and 2029, respectively. Approximately $13.0 million of the Company’s carryforwards were generated as a result of deductions related to exercises of stock options. When utilized, this portion of the Company’s carryforwards, as tax affected, will be accounted for as a direct increase to contributed capital rather than as a reduction of the year’s provision for income taxes. The principal differences between net operating loss carryforwards for tax purposes and the accumulated deficit result from timing differences related to depreciation, amortization, treatment of research and development costs, limitations on the length of time that net operating losses may be carried forward, and differences in the recognition of stock-based compensation.

The Company had gross deferred tax assets of $165.8 million and $133.6 million at December 31, 2014 and 2013, respectively, primarily from U.S. federal and state net operating loss carryforwards, U.S. federal and state research and development credit carryforwards, stock-based compensation expense and intangibles. A valuation allowance was recorded to reduce the net deferred tax asset to zero because it is more likely than not that the deferred tax asset will not be realized.

An analysis of the deferred tax assets (liabilities) is as follows:


	As of December 31,
	2014			2013
	(in thousands)
Net operating loss carryforwards	$	115,699		$	94,170
Difference in depreciation and amortization		2,800			2,492
Research and development tax credits		29,127			23,599
Stock-based compensation		13,637			9,036
Deferred rent		2,864			2,849
Deferred revenue		1,213			1,219
Other		413			208

Gross deferred tax assets		165,753			133,573
Valuation allowance		(165,753	)		(133,573	)

Net deferred tax asset	$	—		$	—

The net change in the valuation allowance for deferred tax assets was an increase of $32.2 million and $19.4 million for the years ended December 31, 2014 and 2013, respectively, mainly due to the increase in the net operating loss carryforwards, stock-based compensation and research and development tax credits.

The reconciliation between the Company’s effective tax rate and the income tax rate is as follows:


	For the Year Ended December 31,
	2014			2013			2012
Federal income tax rate		34.0	%		34.0	%		34.0	%
Research and development tax credits		2.4			1.4			(0.6	)
Valuation allowance		(21.6	)		(12.4	)		(7.5	)
Permanent Differences		(2.4	)		(8.8	)		(25.9	)
Foreign rate differential		(12.4	)		(14.2	)		—

Effective tax rate		—	%		—	%		—	%

Permanent differences affecting the Company’s effective tax rate include loss on changes in warrant valuation and losses in a foreign jurisdiction. On December 31, 2012, the Company licensed certain intellectual property of Sarepta Therapeutics, Inc. to its wholly owned subsidiary, Sarepta International C.V. The parties also entered into a contract research agreement under which Sarepta Therapeutics, Inc. performs research services for Sarepta International C.V. For the years ended December 31, 2014 and 2013, Sarepta International C.V. incurred $48.5 million and $46.7 million of costs in connection with the research and development activities.

The Company’s policy is to recognize interest and/or penalties related to income tax matters in income tax expense. The Company had no accrual for interest or penalties on its balance sheet at December 31, 2014 or December 31, 2013, and has not recognized interest and/or penalties in the statement of operations for years ended December 31, 2014, 2013 or 2012. The Company has not recognized any liability for unrecognized tax benefits.