9. Income Taxes

The components of current and deferred income tax expense included in the Consolidated Statement of Operations for years ended December 31, 2013, 2012 and 2011 as determined in accordance with ASC 740, Income Taxes (“ASC 740”), are as follows:

Year ended December 31,

2013

2012

2011

Current:

Federal

—

State and local

—

Deferred:

Federal

—

State and local

—

Income tax expense from operations

—

The Company has recorded its non-income based taxes as part of other liabilities and other expenses.

Net operating losses

The Company has generated net operating losses for tax purposes (“NOL”) during the years ended December 31, 2013, 2012, 2011 and prior periods which may be used to minimize income taxes paid. The following table provides a summary of the NOL activity for the years indicated:


	Year ended December 31,
	2013			2012			2011
Beginning NOL	$	(136,515	)	$	(106,939	)	$	(101,856	)
U.S. GAAP income		51,537			11,030			3,092
Tax differences:
Temporary		5,580			(5,633	)		209
Permanent		(61,561	)		(37,618	)		(9,334	)
Net operating losses expired		—			2,645			950

Ending NOL	$	(140,959	)	$	(136,515	)	$	(106,939	)

Temporary differences are primarily comprised of the difference between recognizing expenses for tax purposes and U.S. GAAP purposes associated with rent, stock-based compensation and depreciation of fixed assets.

Permanent differences are primarily comprised of the difference between stock-based compensation amounts recognized for tax purposes and U.S. GAAP purposes at the time options are exercised (at the intrinsic value) or restricted stock is vested (at fair value of the share price). The Company may record additional NOLs from stock-based compensation awards which have been granted to employees and remain unexercised or unvested as of December 31, 2013. See Note 6 for additional details related to outstanding stock compensation awards.

The Company’s net operating losses generally expire 20 years from the time they are generated. In addition, due to the Company incurring a series of changes in ownership as defined by Section 382 under the Internal Revenue Code, the Company is limited as to the amount of NOL it may use in a given year. Prior to the consideration of any limitations imposed due to ownership changes, the Company’s available NOLs will expire as follows:


Year Ending December 31:
2018	$	5,819
2019		5,101
2021		579
2023		608
2024		2,330
2025		3,239
2026		15,560
2027		24,655
2028		19,754
2029		14,218
2030		6,385
2031		6,052
2032		32,215
2033		4,444

	$	140,959

The amounts summarized above are subject to the following annual limitations as indicated by the years such NOLs were incurred:


NOLs generated between	Total		Annual Prospective Limitation		Amount Deemed Worthless
1998 — 2004	$	14,049	$	524	$	3,487
2005 — 2012		118,166		68,164		—
2012 — 2013		8,744		—		—

Net operating losses	$	140,959	$	68,688	$	3,487

Any NOL amounts not used because of the annual limitation can be used in future periods until expiration.

Deferred tax asset

As of December 31, 2013 and 2012, $111,635 and $49,946 of the NOLs has been generated from stock-based compensation amounts recognized for tax purposes at the time options are exercised (at the intrinsic value) or restricted stock is vested (at fair value of the share price) and previously expensed at the date of grant for U.S. GAAP purposes. Since these amounts cannot be recognized as a deferred tax asset under U.S. GAAP, accordingly, a deferred tax asset related to this amount is not recorded.

A reconciliation of the NOL amount presented above and the amount utilized in calculating the deferred tax asset at December 31, 2013 and 2012, respectively, is as follows:


	December 31,
	2013			2012
Net operating losses	$	140,959		$	136,515
Net operating losses deemed worthless		(3,487	)		(3,487	)
Unrecognized stock-based compensation		(111,635	)		(49,946	)

Gross net operating losses available for deferred tax asset		25,837			83,082
Tax rate		45.43	%		45.22	%

Tax affected	$	11,738		$	37,571

At December 31, 2013 and 2012, the composition of the deferred tax asset is summarized as follows by applying a 45.43% and 45.22% tax rate to the deferred tax items:


	December 31,
	2013			2012
Deferred tax assets:
Net operating losses	$	11,738		$	37,571
Stock-based compensation		7,579			6,471
Fixed assets		—			286
Deferred rent liability		1,855			68
Other		82			82

Deferred tax assets		21,254			44,478
Deferred tax liabilities:
Fixed assets		7			—
Unrealized gains		26			—

Deferred tax liabilities		33			—
Total deferred tax assets less deferred tax liabilities		21,221			44,478
Less: valuation allowance		(21,221	)		(44,478	)

Net deferred tax assets and liabilities	$	—		$	—

At December 31, 2013 and 2012, the deferred tax asset has been offset by a valuation allowance of $21,221 and $44,478 respectively. The Company believes it is more likely than not that the deferred tax asset will not be realized.

A reconciliation of the statutory federal income tax rate of 35% and the Company’s effective rate is as follows:


	December 31,
	2013			2012			2011
Federal statutory rate		35.00	%		35.00	%		35.00	%
Permanent differences		0.09	%		0.37	%		32.57	%
State income tax rate, net of federal benefit		10.06	%		9.44	%		21.28	%
(Decrease) in valuation allowance		(45.13	%)		(44.82	%)		(89.25	%)
Other differences, net		(0.02	%)		0.01	%		0.40	%

Effective rate		0.00	%		0.00	%		0.00	%

Uncertain tax positions

As of December 31, 2013, the Company determined that it has no uncertain tax positions, interest or penalties as defined within ASC 740-10. The Company does not have unrecognized tax benefits. The Company does not believe that it is reasonably possible that the total unrecognized benefits will significantly increase within the next 12 months. The Company is not currently under audit by any taxing authority. Tax returns filed with each jurisdiction remain open to examination under the normal three-year statute of limitations.