5. Income Taxes

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

	Year Ended December 31,
	2016		2015			2014
Current:
Federal	$	1,067	$	379		$	263
State		1,867		(7	)		(4,295	)
Total current		2,934		372			(4,032	)

Deferred:
Federal		—		—			(8,948	)
State		—		—			(2,427	)
Total deferred		—		—			(11,375	)
Income tax expense (benefit)	$	2,934	$	372		$	(15,407	)

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 2016 and 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, 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 year ended December 31, 2014, we recorded a $12.8 million tax benefit, in continuing operations and a $12.8 million tax expense, in other comprehensive income.

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

	Year Ended December 31,
	2016					2015					2014
Pre-tax loss	$	(83,622	)			$	(87,906	)			$	(54,391	)

Statutory rate		(29,268	)	35.0	%		(30,767	)	35.0	%		(19,035	)	35.0	%
State income tax net of federal benefit		(276	)	0.3	%		1		0.0	%		(3,125	)	5.7	%
Net change in valuation allowance		55,927		(66.9	)%		69,499		(79.1	)%		29,547		(54.3	)%
Loss on debt extinguishment		—		0.0	%		—		0.0	%		2,406		(4.4	)%
Tax credits		(26,954	)	32.2	%		(41,284	)	47.0	%		(23,628	)	43.4	%
California franchise tax refund		—		0.0	%		—		0.0	%		(2,795	)	5.1	%
Deferred tax true-up		2,591		(3.1	)%		1,496		(1.7	)%		977		(1.8	)%
Other		914		(1.1	)%		1,427		(1.6	)%		246		(0.5	)%
Effective rate	$	2,934		(3.5	)%	$	372		(0.4	)%	$	(15,407	)	28.2	%

Significant components of our deferred tax assets and liabilities as of December 31, 2016 and 2015 are as follows (in thousands):

	Year Ended December 31,
	2016			2015
Deferred Tax Assets:
Net operating loss carryovers	$	194,372		$	218,493
R&D credits		193,845			153,601
Deferred revenue		54,203			45,110
Stock-based compensation		48,209			31,093
Other		26,228			19,655
Total deferred tax assets	$	516,857		$	467,952

Deferred Tax Liabilities:
Convertible debt	$	(62,669	)	$	(55,928	)
Unrealized gain in other comprehensive income		-			(5,288	)
Intangible and capital assets		(2,030	)		(2,643	)
Net deferred tax asset	$	452,158		$	404,093
Valuation allowance		(452,158	)		(404,093	)

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 as it pertains to the income tax accounting rules, we have provided a full valuation allowance for the deferred tax assets in our balance sheet as of December 31, 2016. 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.

Historically, we recognized excess tax benefits associated with share-based compensation to stockholders' equity only when realized. We followed 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 did not realize our excess tax benefits related to share-based compensation until after we utilize all our other tax benefits available to us. During the year ended December 31, 2016, we realized $1.9 million of such excess tax benefits, and accordingly, we recorded a corresponding credit to additional paid-in capital.

In March 2016, the FASB issued amended guidance to simplify certain aspects of share-based payment accounting which affects how we account for unrecognized tax benefits. As of December 31, 2016, we had $82.5 million of unrealized excess tax benefits associated with share-based compensation. We adopted this amended guidance on January 1, 2017. Upon adoption we will recognize the balance of these unrecognized tax benefits as a deferred tax asset which will be offset by our full valuation allowance. The adoption of this guidance did not affect our accumulated loss.

At December 31, 2016, we had federal and California tax net operating loss carryforwards of approximately $679.8 million and $973.1 million, respectively. Our federal tax loss carryforwards will begin to expire in 2024, unless we use them before then. Our California loss carryforwards continue to expire in 2016. At December 31, 2016 we also had federal and California research and development tax credit carryforwards of approximately $189.6 million and $48.0 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.

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,
	2016			2015		2014
Beginning balance of unrecognized tax benefits	$	51,257		$	27,365	$	23,964
Settlement of prior period tax positions		(4,033	)		—		—
Decrease for prior period tax positions		—			—		(1,653	)
Increase for prior period tax positions		7,928			215		—
Increase for current period tax positions		11,847			23,677		5,054
Ending balance of unrecognized tax benefits	$	66,999		$	51,257	$	27,365

Included in the balance of unrecognized tax benefits at December 31, 2016, is $46.4 million that, if recognized, would not impact our income tax benefit or effective tax rate as long as our deferred tax asset remains subject to a full 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, 2016.

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 2003 and forward are subject to examination by the California tax authorities.