7. INCOME TAXES AND TAX STATUS

A reconciliation between the provision for income taxes and the expected tax benefit using the federal statutory rate of 34% for the years ended December 31, 2013, 2012, and 2011 is as follows:



	2013		2012		2011
Tax benefit at statutory rate	$	(9,476,580)		(6,909,416)		(4,954,940)
State tax benefit		(975,530)		(711,263)		(510,067)
Increase in valuation allowance		10,648,966		7,640,454		5,722,492
Research and development credit		(299,044)		(239,216)		(272,117)
Capital loss		0		0		(38,439)
Other		102,188		219,441		53,071
	$	0	$	0	$	0

Our deferred tax assets and liabilities relate to the following sources and differences between financial accounting and the tax bases of our assets and liabilities at December 31, 2013 and 2012:



	2013		2012
Gross deferred tax assets:
Net operating loss carry-forward	$	94,742,725	$	85,844,921
Research and development credit		7,618,821		7,319,776
Stock compensation		3,548,655		2,882,576
Patents and other		1,828,103		1,770,367
Fixed assets		121,179		125,737
Accrued liabilities		80,204		64,507
Capital loss carry-forward		5,652		38,439
Charitable Contributions		4,500		0
		107,949,839		98,046,323
Less valuation allowance		(107,949,839)		(98,006,927)
		0		39,396
Gross deferred tax liabilities:
Gains on the cash surrender value of life insurance		0		39,396
		0		39,396
Net deferred tax asset	$	0	$	0

No current or deferred tax provision or benefit was recorded for 2013, 2012, or 2011 as a result of current losses and fully deferred tax valuation allowances for all periods. We have recorded a valuation allowance to state our deferred tax assets at their estimated net realizable value due to the uncertainty related to realization of these assets through future taxable income.

At December 31, 2013, we had cumulative NOL, research and development (“R&D”) tax credit carry-forwards and capital loss carry-forwards for income tax purposes of $258,088,247, $7,618,821, and $15,072 respectively, which expire in varying amounts from 2015 through 2033. The cumulative NOL carry-forward is net of $13,432,293 in carry-forwards from 1993 through 1997 which expired unused from 2008 through 2012. The NOL carry-forward for income tax purposes includes $1,747,888 related to windfall tax benefits from the exercise of share-based compensation awards for which benefit will be recognized as an adjustment to equity rather than a decrease in earnings if realized. The cumulative R&D tax credit carry-forward is net of $496,329 in credits from 1995 through 1997 that expired unused from 2010 through 2012.

Our ability to benefit from the our tax credit carry-forwards could be limited under certain provisions of the Internal Revenue Code if our ownership changes by more than 50%, as defined by Section 382 of the Internal Revenue Code of 1986 (“Section 382”). Under Section 382, an ownership change may limit the amount of NOL, capital loss and R&D credit carry-forwards that can be used annually to offset future taxable income and tax, respectively. In general, an ownership change, as defined by Section 382, results from transactions increasing the ownership of certain shareholders or public groups in the stock of a corporation by more than 50 percentage points over a three-year period. We conduct a study annually of our ownership changes. Based on the results of our studies, we have determined that we do not have any ownership changes on or prior to December 31, 2013 which would result in limitations of our NOL, capital loss or R&D credit carry-forwards under Section 382.

Uncertain Tax Positions

We file income tax returns in the U.S. federal jurisdiction and various state jurisdictions. We have identified our Federal and Florida tax returns as our only major jurisdictions, as defined. The periods subject to examination for those returns are the 1996 through 2013 tax years.

At December 31, 2013, we had an unrecognized tax benefit of approximately $1.4 million. A reconciliation of the amount recorded for unrecognized tax benefits for the years ended December 31, 2013, 2012, and 2011 is as follows:



	For the years ended December 31,
	2013		2012		2011
Unrecognized tax benefits – beginning of year	$	1,369,614		1,369,614		1,369,614
Gross increases – tax positions in prior period		0		0		0
Change in Estimate		0		0		0
Unrecognized tax benefits – end of year	$	1,369,614		1,369,614		1,369,614

Future changes in the unrecognized tax benefit will have no impact on the effective tax rate due to the existence of a valuation allowance. Approximately $0.47 million, net of tax effect, of the unrecognized tax benefit is related to excess tax benefits related to share-based compensation which would be recorded as an adjustment to equity rather than a decrease in earnings, if reversed.

Our policy is that we recognize interest and penalties accrued on any unrecognized tax benefits as a component of our income tax expense. We do not have any accrued interest or penalties associated with any unrecognized tax benefits. For the years ended December 31, 2013, 2012, and 2011, we did not incur any income tax-related interest income, expense or penalties.