12. Income taxes

Income Taxes

The Income Tax Provision consisted of the following for the years ended December 31, 2014 and December 31, 2013:

	2014			2013
Current:
U.S. Federal	$	—		$	—
U.S. State and Local		(4,890	)		2
Foreign		197			—

	$	(4,693	)	$	2

A reconciliation of the U.S. statutory income tax rate to the Company's effective tax rate is as follows:

				December 31,
	2014			2013			2012
Federal income tax (benefit) at statutory rate		34.00	%		34.00	%		34.00	%
State income tax benefit, net of federal benefit		(1.60	)		5.65			3.80
Permanent differences		(0.93	)		(5.90	)		—
NOL IRC Section 382 Limitations		(21.53	)		—			—
Research and development		3.78			15.88			—
Increase to valuation allowance		9.17			(49.63	)		(35.80	)
Foreign Taxes		(18.14	)		—			—
Other		0.01			—			(2.00	)

Effective income tax rate		4.76	%		0.00	%		0.00	%

The significant components of the Company's deferred tax assets and liabilities at December 31, 2014 and 2013 are as follows:

	2014			2013
Current:
Accrued Expense	$	611		$	333
Deferred tax assets:
Amortization		69			80
Depreciation		2,268			1,922
Deferred revenue		699			350
Federal tax credits		17,807			14,082
State tax credits		1,274			1,587
Federal net operating losses		76,933			88,188
State net operating losses		9,185			10,457
Capitalized research and development costs		10,585			12,254
Other		3,852			3,212

Total gross deferred tax assets		123,283			132,465
Less valuation allowance		(123,283	)		(132,465	)

Net deferred tax assets	$	—		$	—

At December 31, 2014 and 2013, the Company recorded a full valuation allowance against its net deferred tax assets of approximately $123.3 million and $132.5 million, respectively. The change in the valuation allowance during the years ended December 31, 2014 and 2013 was approximately $9.2 million and $25.6 million, respectively. A full valuation allowance has been recorded since, in the judgment of management, these assets are not more likely than not to be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during periods in which those temporary differences and carryforwards become deductible or are utilized.

As of December 31, 2014, the Company has approximately $226.3 million and $154.6 million of federal and state net operating loss carryforwards, respectively. As of December 31, 2014, credit carryforwards for federal and state purposes are approximately $6.5 million and $1.7 million, respectively. In addition the Orphan Drug Credit Carryover available as of December 31, 2013 is approximately $11.4 million. The federal net operating loss carryforwards begin to expire in 2021, while the federal credit carryforwards begin to expire in 2019. State net operating loss carryforwards begin to expire in 2030, and the state credit carryforwards begin to expire in 2015. Sections 382 and 383 of the Internal Revenue Code of 1986 subject the future utilization of net operating losses and certain other tax attributes, such as research and experimental tax credits, to an annual limitation in the event of certain ownership changes, as defined. The Company has undergone an ownership change and has determined that a "change in ownership" as defined by IRC Section 382 of the Internal Revenue Code of 1986, as amended, and the rules and regulations promulgated thereunder, did occur in June of 2013. Accordingly, about $231.5 million of the Company's NOL carryforwards are limited and the Company can only use $16.7 million for the first five years from the ownership change and $5.7 million per year going forward. Therefore, $169.2 million of the NOL's will be freed up over the next 20 years and $62.3 million are expected to expire unused which are not included in the deferred tax assets listed above. In summary, there are $226.1 million of NOLs available, out of which $169.2 million are limited by IRC Section 382. At December 31, 2014, there is $82.1 million available for immediate use and an additional $16.7 million will free up in 2015.

The State of New Jersey provides the Technology Business Tax Certificate Transfer Program enabling approved unprofitable biotechnology businesses to sell their unused net operating loss carryforwards to unaffiliated, profitable corporate taxpayers in the State of New Jersey for cash. The Company has participated in this program and sold state net operating losses and research and development credits totaling $50.4 million during 2014. The New Jersey net operating losses and research and development credits sold during 2014 were generated in 2007 through 2010. The Company recognized a tax benefit of $4.9 million for the year ended December 31, 2014. The company did not participate in this program during the year ended December 31, 2013.

The income tax benefit for the years ended December 31, 2013 and 2014 differed from the amounts computed by applying the U.S. federal income tax rate of 34% to loss before tax benefit as a result of nondeductible expenses, tax credits generated, utilization of net operating loss carryforwards, and increases in the Company's valuation allowance. The Company applies the elements of FASB ASC 740-10 "Income Taxes—Overall" regarding accounting for uncertainty in income taxes. This clarifies the accounting for uncertainty in income taxes recognized in financial statements and required impact of a tax position to be recognized in the financial statements if that position is more likely than not of being sustained by the taxing authority. As of December 31, 2014 the company did not have any unrecognized tax benefits and has not accrued any interest or penalties through 2014. The Company does not expect to have any unrecognized tax benefits within the next twelve months. The Company's policy is to recognize interest and penalties related to tax matters within the income tax provision. Tax years beginning in 2011 are generally subject to examination by taxing authorities, although net operating losses from all years are subject to examinations and adjustments for at least three years following the year in which the attributes are used.

For all years through December 31, 2014, the Company generated research credits but has not conducted a study to document the qualified activities. This study may result in an adjustment to the Company's research and development credit carryforwards; however, until a study is completed and any adjustment is known, no amounts are being presented as an uncertain tax position for the last two years. A full valuation allowance has been provided against the Company's research and development credits and, if an adjustment is required, this adjustment would be offset by an adjustment to the deferred tax asset established for the research and development credit carryforwards and the valuation allowance.

In July 2013, the FASB issued amended guidance for the presentation of an unrecognized tax benefit when a net operating loss carry forward exits, which is effective for the Company January 1, 2014. This amended guidance requires an entity to present an unrecognized tax benefit as a reduction of a deferred tax asset for a net operating carry forward, a similiar tax loss or a tax credit carry forward. If an applicable deferred tax asset is not available or a company does not expect to use the applicable deferred tax asset, the unrecognized tax benefit should be presented as a liability in the financial statements and should not be combined wth an unrelated deferred tax asset. The Company does not expect the adoption of this amended guidance to have a significant impact on the consolidated financial statements.