Income Taxes:

($ in thousands)



	Three months ended						Six months ended
	June 30, 2014			June 30, 2013			June 30, 2014			June 30, 2013
Benefit for income taxes	$	(18,106	)	$	(9,300	)	$	(42,338	)	$	(17,280	)
Effective tax rate	40		%	30		%	39		%	32		%

The effective tax rate for the three months ended June 30, 2014 and June 30, 2013 reflects our nondeductible portion of the annual pharmaceutical manufacturers’ fee under the Patient Protection and Affordable Care Act, more than offset by benefits for deductions specific to U.S. domestic manufacturing companies and a benefit related to determination of deductibility of certain settled AWP litigation. The effective tax rate for the three months ended June 30, 2013 reflects our nondeductible portion of the annual pharmaceutical manufacturers’ fee under the Patient Protection and Affordable Care Act, offset by benefits for deductions specific to U.S. domestic manufacturing companies.

The effective tax rate for the six months ended June 30, 2014 reflects our nondeductible portion of the annual pharmaceutical manufacturers’ fee under the Patient Protection and Affordable Care Act, more than offset by benefits for deductions specific to U.S. domestic manufacturing companies and a benefit related to determination of deductibility of certain settled AWP litigation. The effective tax rate for the six months ended June 30, 2013 reflects our nondeductible portion of the annual pharmaceutical manufacturers’ fee under the Patient Protection and Affordable Care Act, offset by benefits for deductions specific to U.S. domestic manufacturing companies.

Current deferred income tax assets at June 30, 2014 consist of temporary differences primarily related to accounts receivable reserves, inventory reserves, accrued legal settlements and net operating loss carryforwards. Non-current deferred income tax liabilities at June 30, 2014 consist of timing differences primarily related to intangible assets, debt and depreciation.

The Company is currently being audited by the IRS for the tax years 2009, 2010 and 2011. Par Pharmaceutical Companies, Inc. is no longer subject to IRS audit for periods prior to 2009. Par is currently under audit in two state jurisdictions for the years 2005 to 2009. In most other state jurisdictions, we are no longer subject to examination by state tax authorities for years prior to 2008.

We reflect interest and penalties attributable to income taxes, to the extent they arise, as a component of income tax provision or benefit.

The difference between a tax position taken or expected to be taken in a tax return and the benefit recognized and measured pursuant to ASC 740-10 represents an unrecognized tax benefit. An unrecognized tax benefit is a liability that represents a potential future obligation to the taxing authorities. As of June 30, 2014, we had $18,927 thousand included in “Long-term liabilities” on the condensed consolidated balance sheet that represented unrecognized tax benefits, interest and penalties based on evaluation of tax positions. During the six months ended June 30, 2014, we recorded an increase in unrecognized tax benefits of $1,647 thousand as a result of tax positions taken during the period and a decrease in unrecognized tax benefits of $3,201 thousand as a result of audit settlements. We expect that a portion of this total liability could potentially settle in the next 12 months. However, the dollar range for a potential settlement cannot be estimated at this time.