5. Income Taxes

The provisions for income taxes on income from continuing operations were as follows (in thousands):

	Year Ended December 31,
	2015			2014			2013
Current:
Federal	$	379		$	263		$	—
State		(7	)		(4,295	)		2
Total current		372			(4,032	)		2

Deferred:
Federal		—			(8,948	)		(5,082	)
State		—			(2,427	)		(834	)
Total deferred		—			(11,375	)		(5,916	)
Income tax expense (benefit)	$	372		$	(15,407	)	$	(5,914	)

In periods in which we have a year-to-date pre-tax loss from continuing operations and pre-tax income in other categories of earnings, such as other comprehensive income, intraperiod tax allocation rules require us to allocate the tax provision to the other categories of earnings. We then record a related tax benefit in continuing operations. During 2015, we recorded unrealized losses on our investments in available-for-sale securities in other comprehensive income, therefore we did not have to allocate our tax provision to our other categories of earnings. However, during 2014 and 2013, we recorded unrealized gains on our investments in available-for-sale securities and had to allocate our tax provision between continuing operations and other comprehensive income. As a result, for the years ended December 31, 2014 and 2013, we recorded a $12.8 million and $5.9 million tax benefit, respectively, in continuing operations and a $12.8 million and $5.9 million tax expense, respectively, in other comprehensive income.

In December 2014, we reached an agreement with the State of California Franchise Tax Board with regard to California franchise tax we paid for the tax year ended December 31, 2009. As part of the agreement, we received a franchise tax refund of $4.3 million in 2015 and our research credit carry-forward to December 31, 2010 increased by $4.3 million. We recognized an income tax benefit for the refund in the fourth quarter of 2014. The increase in our research credit carry-forward increased our deferred tax assets but did not impact our consolidated balance sheet as we recorded a full valuation allowance on our deferred tax assets.

The reconciliation between our effective tax rate on income from continuing operations and the statutory U.S. tax rate is as follows (in thousands):

	Year Ended December 31,
	2015					2014					2013
Pre-tax loss	$	(87,906	)			$	(54,391	)			$	(66,558	)

Statutory rate		(30,767	)	35.0	%		(19,035	)	35.0	%		(23,295	)	35.0	%
State income tax net of federal benefit		1		0.0	%		(3,125	)	5.7	%		(3,823	)	5.7	%
Net change in valuation allowance		69,499		(79.1	)%		29,547		(54.3	)%		28,850		(43.3	)%
Loss on debt extinguishment		—		0.0	%		2,406		(4.4	)%		—		0.0	%
Tax credits		(41,284	)	47.0	%		(23,628	)	43.4	%		(15,839	)	23.8	%
California franchise tax refund		—		0.0	%		(2,795	)	5.1	%		—		0.0	%
Deferred tax true-up		1,496		(1.7	)%		977		(1.8	)%		8,023		(12.1	)%
Other		1,427		(1.6	)%		246		(0.5	)%		170		(0.2	)%
Effective rate	$	372		(0.4	)%	$	(15,407	)	28.2	%	$	(5,914	)	8.9	%

Significant components of our deferred tax assets and liabilities as of December 31, 2015 and 2014 are as follows (in thousands):

	Year Ended December 31,
	2015			2014
Deferred Tax Assets:
Net operating loss carryovers	$	218,493		$	231,654
R&D credits		153,601			93,594
Deferred revenue		45,110			58,836
Stock-based compensation		31,093			21,553
Other		19,655			15,549
Total deferred tax assets	$	467,952		$	421,186

Deferred Tax Liabilities:
Convertible debt	$	(55,928	)	$	(73,733	)
Unrealized gain in other comprehensive income		(5,288	)		(27,878	)
Intangible and capital assets		(2,643	)		(3,641	)
Net deferred tax asset	$	404,093		$	315,934
Valuation allowance		(404,093	)		(315,934	)

Net deferreds	$	—		$	—

We have net deferred tax assets relating primarily to net operating loss carryforwards, or NOL’s, and research and development tax credit carryforwards. Subject to certain limitations, we may use these deferred tax assets to offset taxable income in future periods. Since we have a history of losses and the likelihood of future profitability is not assured, we have provided a full valuation allowance for the deferred tax assets in our balance sheet as of December 31, 2015. If we determine that we are able to realize a portion or all of these deferred tax assets in the future, we will record an adjustment to increase their recorded value and a corresponding adjustment to increase income or additional paid in capital, as appropriate, in that same period.

We recognize excess tax benefits associated with share-based compensation to stockholders' equity only when realized. We follow the with-and-without approach excluding any indirect effects of the excess tax deductions to determine when we should realize excess tax benefits relating to share-based compensation. Under this approach, we do not realize our excess tax benefits related to share-based compensation until after we utilize all other our tax benefits available to us. During the year ended December 31, 2015, we realized $0.4 million of such excess tax benefits, and accordingly, we recorded a corresponding credit to additional paid-in capital. As of December 31, 2015, we had $76.9 million of unrealized excess tax benefits associated with share-based compensation. We will account for the tax benefits as a credit to additional paid-in capital, if and when we realize them, rather than a reduction of the provision for income taxes.

At December 31, 2015, we had federal and California tax net operating loss carryforwards of approximately $734.7 million and $886.5 million, respectively. Our federal tax loss carryforwards will begin to expire in 2023, unless we use them before then. Our California loss carryforwards continue to expire in 2015. At December 31, 2015, we also had federal and California research and development tax credit carryforwards of approximately $146.8 million and $44.7 million, respectively. Our Federal research and development tax credit carryforwards begin to expire in 2018. Our California research and development tax credit carryforwards are available indefinitely. In 2009, we had a substantial amount of taxable income and we used a portion of our Federal NOL carryforwards to reduce our federal income taxes.

We analyze filing positions in all of the federal and state jurisdictions where we file income tax returns, and all open tax years in these jurisdictions to determine if we have any uncertain tax positions on any of our income tax returns. We recognize the impact of an uncertain tax position on an income tax return at the largest amount that the relevant taxing authority is more-likely-than not to sustain upon audit. We do not recognize uncertain income tax positions if they have less than 50 percent likelihood of the applicable tax authority sustaining our position.

The following table summarizes our gross unrecognized tax benefits (in thousands):

	Year Ended December 31,
	2015		2014			2013
Beginning balance of unrecognized tax benefits	$	27,365	$	23,964		$	10,872
Decrease for prior period tax positions		—		(1,653	)		—
Increase for prior period tax positions		215		—			9,821
Increase for current period tax positions		23,677		5,054			3,271
Ending balance of unrecognized tax benefits	$	51,257	$	27,365		$	23,964

At December 31, 2015 we had $33.3 million of tax benefits included in our unrecognized tax benefits that, if we recognized them, would reduce our annual effective tax rate subject to the valuation allowance.

We do not foresee any material changes to our gross unrecognized tax benefits within the next twelve months. We recognize interest and/or penalties related to income tax matters in income tax expense. We did not recognize any accrued interest and penalties related to gross unrecognized tax benefits during the year ended December 31, 2015.

Due to the carryforward of unutilized net operating losses and research and development credits, we are subject to taxation in the United States and various state jurisdictions. Our tax years for 1998 and forward are subject to examination by the U.S. tax authorities and our tax years for 2002 and forward are subject to examination by the California tax authorities.