INCOME TAXES

The following tables reconcile the federal statutory tax rate to the effective tax rates and the related impact to the provision (benefit) for income taxes for the three and nine months ended September 30, 2014 and 2013:



	Three Months Ended September 30, 2014					Three Months Ended September 30, 2013
	Amount			Rate		Amount			Rate
	(in thousands, except for percentages)
Federal statutory tax rate applied to income before taxes	$	18,822		35.0	%	$	(13,690	)	35.0	%
Differential arising from:
State	2,425			4.5	%	(928		)	2.4	%
Non-deductible expenses	3,537			6.6	%	2,036			(5.2	)%
Domestic manufacturing deduction	—			—	%	(577		)	1.5	%
Contingent consideration	1,442			2.7	%	1,823			(4.7	)%
2013 Federal research credit	—			—	%	(6,394		)	16.3	%
Prior year federal research credits	—			—	%	(360		)	0.9	%
Transaction costs	—			—	%	2,739			(7.0	)%
Non-deductible loss on extinguishment of 2017 Notes	—			—	%	9,538			(24.4	)%
Impact of reserve for uncertain tax positions	88			0.2	%	39			(0.1	)%
Foreign rate differential	3,989			7.4	%	(90		)	0.2	%
Valuation allowance - foreign losses	1,252			2.3	%	—			—	%
Other	(606		)	(1.2	)%	644			(1.6	)%
Total	$	30,949		57.5	%	$	(5,220	)	13.3	%



	Nine Months Ended September 30, 2014					Nine Months Ended September 30, 2013
	Amount			Rate		Amount			Rate
	(in thousands, except for percentages)
Federal statutory tax rate applied to income before taxes	$	33,612		35.0	%	$	(4,946	)	35.0	%
Differential arising from:
State	2,220			2.3	%	(485		)	3.4	%
Non-deductible expenses	2,669			2.8	%	2,438			(17.3	)%
Domestic manufacturing deduction	—			—	%	(1,386		)	9.8	%
Contingent consideration	(20,773		)	(21.6	)%	2,241			(15.8	)%
2013 Federal research credit	—			—	%	(7,701		)	54.5	%
Prior year federal research credits	—			—	%	(4,401		)	31.1	%
Transaction costs	—			—	%	2,739			(19.4	)%
Non-deductible loss on extinguishment of 2017 Notes	—			—	%	9,538			(67.5	)%
Impact of reserve for uncertain tax positions	257			0.3	%	(371		)	2.6	%
Foreign rate differential	5,751			6.0	%	(110		)	0.8	%
Valuation allowance - foreign losses	1,836			1.9	%	—			—	%
Other	(629		)	(0.7	)%	878			(6.1	)%
Total	$	24,943		26.0	%	$	(1,566	)	11.1	%

In the tables above, permanent differences that increase the tax benefit for the three and nine months ended September 30, 2013, are shown as increases to the effective tax rate. Permanent differences that decrease the tax benefit for the three and nine months ended September 30, 2013, are shown as decreases to the effective tax rate.

The effective tax rate for the nine months ended September 30, 2014, was impacted by non-taxable contingent consideration income recorded during that period related to the change in market value of the Optimer CVRs, which is a discrete adjustment for which no tax expense was recorded. The effective tax for the three and nine months ended September 30, 2013, included $6.8 million and $12.1 million, respectively, in benefits from federal research credits. The federal research credit expired at the end of 2013. If the credit is extended, it could have an impact on our effective tax rate in future periods.

Contingent consideration will fluctuate as a result of any changes in the fair value assumptions based on any additional data received on our SIVEXTRO, ZERBAXA and/or bevenopran programs, as well as based upon the market price of the CVRs issued in connection with our acquisition of Optimer. Any significant contingent consideration expense or income will result in a significantly higher or lower effective tax rate because contingent consideration expense is largely not deductible for tax purposes and contingent consideration income is not taxable.

Our total uncertain tax positions were $51.6 million and $43.1 million as of September 30, 2014 and December 31, 2013, respectively. The increase in our uncertain tax positions was primarily related to the valuation of intellectual property rights for SIVEXTRO direct sales outside of the U.S., which were transferred to one of our foreign subsidiaries during the three months ended June 30, 2014. Of the total uncertain tax positions as of September 30, 2014, $18.5 million were included in other long-term liabilities within the condensed consolidated balance sheets and $33.1 million were offset against deferred tax assets. Our 2011 and 2012 federal income tax returns are currently under audit by the Internal Revenue Service (IRS). Of the total uncertain tax positions at September 30, 2014, approximately $13.9 million relate to positions on the 2011 and 2012 tax returns. Based on the outcome of the audit, some or all of these positions may be effectively settled in the next 12 months.