Income Taxes:

($ in thousands)



	Three months ended						Nine months ended
	September 30, 2014			September 30, 2013			September 30, 2014			September 30, 2013
Benefit for income taxes	$	(22,425	)	$	(18,797	)	$	(64,762	)	$	(36,077	)
Effective tax rate	37		%	39		%	38		%	35		%

The effective tax rate for the three months ended September 30, 2014 reflects benefits for deductions specific to U.S. domestic manufacturing companies and a benefit related to the release of certain tax reserves in settlement of an audit offset by our nondeductible portion of the annual pharmaceutical manufacturers’ fee under the Patient Protection and Affordable Care Act. The effective tax rate for the three months ended September 30, 2013 reflects benefits for deductions specific to U.S. domestic manufacturing companies and our R&D credit partially offset by our nondeductible portion of the annual pharmaceutical manufacturers’ fee under the Patient Protection and Affordable Care Act.

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

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

Par Pharmaceutical Companies, Inc. is no longer subject to IRS audit for periods prior to 2012. 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. An unrecognized tax benefit is a liability that represents a potential future obligation to the taxing authorities. As of September 30, 2014, we had $15,995 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 nine months ended September 30, 2014, we recorded an increase in unrecognized tax benefits of $1,997 thousand as a result of tax positions taken during the period and a decrease in unrecognized tax benefits of $6,944 thousand as a result of an audit settlement. 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.