9. Income Taxes

The components of current and deferred income tax expense included in the Consolidated Statement of Operations for years ended December 31, 2014, 2013 and 2012 as determined in accordance with ASC 740, Income Taxes (“ASC 740”), are as follows:


	Year ended December 31,
	2014		2013		2012
Current:
Federal	$	—	$	—	$	—
State and local		94		—		—
Foreign		—		—		—

		94		—		—

Deferred:
Federal		10,739		—		—
State and local		1,664		—		—
Foreign		—		—		—

		12,403		—		—

Income tax expense from operations	$	12,497	$	—	$	—

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

Net operating losses – U.S.

The Company has generated net operating losses for tax purposes (“NOL”) during the years ended December 31, 2013 and 2012 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,
	2014			2013			2012
Beginning NOL	$	(140,959	)	$	(136,515	)	$	(106,939	)
U.S. GAAP income		77,609			51,537			11,030
Tax differences:
Temporary		(1,425	)		5,580			(5,633	)
Permanent		(45,064	)		(61,561	)		(37,618	)
Net operating losses expired		—			—			2,645

Ending NOL	$	(109,839	)	$	(140,959	)	$	(136,515	)

Temporary differences are primarily comprised of the timing 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 previously expensed at the date of grant for 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, 2014. 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	$	502
2019		5,101
2021		579
2023		608
2024		1,942
2027		18,039
2028		19,754
2029		14,218
2030		6,385
2031		6,052
2032		32,215
2033		4,444

	$	109,839

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	$	8,731	$	524	$	3,487
2005 — 2013		101,108		—		—

Net operating losses	$	109,839	$	524	$	3,487

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

Net operating losses – Non-U.S.

During the year ended December 31, 2014, the Company’s foreign subsidiaries generated $4,061 of NOLs. At December 31, 2014, a deferred tax asset related to these NOLs has been fully offset by a valuation allowance of $816.

Deferred tax asset

As of December 31, 2014 and 2013, $101,108 and $111,635 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, 2014 and 2013, respectively, is as follows:


	December 31,
	2014			2013
Net operating losses	$	109,839		$	140,959
Net operating losses deemed worthless		(3,487	)		(3,487	)
Unrecognized stock-based compensation		(101,108	)		(111,635	)

Gross net operating losses available for deferred tax asset		5,244			25,837
Tax rate		38.38	%		45.43	%

Tax affected	$	2,013		$	11,738

At December 31, 2014 and 2013, the composition of the deferred tax asset is summarized as follows:


	December 31,
	2014			2013
Deferred tax assets:
Net operating losses	$	2,013		$	11,738
Foreign net operating losses		816			—
Stock-based compensation		6,046			7,579
Accrued expenses		5,236			—
Deferred rent liability		2,170			1,855
Other		82			82

Deferred tax assets		16,363			21,254
Deferred tax liabilities:
Incentive compensation		4,092			—
Fixed assets		1,965			7
Unrealized gains		—			26

Deferred tax liabilities		6,057			33
Total deferred tax assets less deferred tax liabilities		10,306			21,221
Less: valuation allowance		(816	)		(21,221	)

Net deferred tax assets and liabilities	$	9,490		$	—

At December 31, 2014 and 2013, the deferred tax asset has been offset by a valuation allowance of $816 and $21,221 respectively.

During the first quarter of 2014, management determined that although realization is not assured, it believed that it is more likely than not that its gross deferred tax asset would be realized. Therefore, it released the valuation allowance previously recorded resulting in an income tax benefit of $21,221 on the Company’s Consolidated Statements of Operations. In addition, during 2014, the Company generated foreign losses resulting in a deferred tax asset of $816 that is currently not expected to be realized in the foreseeable future and, accordingly, a valuation allowance has been established.

During the third quarter of 2014, the Company completed a state income tax study, which resulted in a reduction in its current baseline operating tax rate in the U.S. from 45% to approximately 38%. The Company recorded a charge to income tax expense in the third quarter to reduce the value of our deferred tax asset, which had previously been recorded using a 45% rate. The Company recorded a credit to additional paid-in capital of $21,893 for the amount of NOLs from stock-based compensation utilized to reduce taxes payable during the period.

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


	December 31,
	2014			2013			2012
Federal statutory rate		35.00	%		35.00	%		35.00	%
Permanent differences		0.69	%		0.09	%		0.37	%
State income tax rate, net of federal benefit		1.55	%		10.06	%		9.44	%
Foreign tax differential		0.82	%		—			—
Decrease in valuation allowance		(27.74	%)		(45.13	%)		(44.82	%)
Change in effective state rate		6.86	%		—			—
Other differences, net		(0.19	%)		(0.02	%)		0.01	%

Effective rate		16.99	%		0.00	%		0.00	%

Uncertain tax positions

As of December 31, 2014, 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.