15. Income Taxes

Consolidated income (loss) before provision for income taxes consisted of the following (in thousands):


	Years Ended December 31,
	2012			2011			2010
U.S.	$	(70,792	)	$	(49,990	)	$	(56,379	)
Non U.S.		843			1,393			(929	)

Total	$	(69,949	)	$	(48,597	)	$	(57,308	)

No income tax expense was recorded for the years ended December 31, 2012, 2011 and 2010 due to net operating loss carryforwards to offset the net income at Dynavax Europe and a valuation allowance which offsets the deferred tax assets. The difference between the consolidated income tax benefit and the amount computed by applying the federal statutory income tax rate to the consolidated loss before income taxes was as follows (in thousands):


	Years Ended December 31,
	2012			2011			2010
Income tax benefit at federal statutory rate	$	(23,650	)	$	(16,523	)	$	(19,486	)
State tax		(89	)		(2,586	)		(1,617	)
Tax credits		—			(1,394	)		(2,172	)
Deferred compensation charges		1,002			595			318
Change in valuation allowance		21,966			18,099			19,863
Change in foreign tax rates		—			(34	)		22
Change in the fair value measurements		—			286			2,997
Non-deductible debt discount		—			509			420
Deemed dividend		—			273			—
Other		771			775			(345	)

Total income tax expense	$	—		$	—		$	—

Deferred tax assets and liabilities as of December 31, 2012 and 2011 consisted of the following (in thousands):


	December 31,
	2012			2011
Deferred tax assets:
Net operating loss carry forwards	$	127,529		$	103,119
Research tax credit carry forwards		18,163			17,477
Accruals and reserves		8,529			6,818
Capitalized research costs		12,757			17,278
Deferred revenue		2,180			2,189
Other		1,221			1,455

		170,379			148,336
Less valuation allowance		(170,232	)		(148,266	)

Total deferred tax assets		147			70

Deferred tax liabilities:
Acquired intangible assets		(86	)		(27	)
Other		(61	)		(43	)

Total deferred tax liabilities		(147	)		(70	)

Net deferred tax assets	$	—		$	—

The tax benefit of net operating losses, temporary differences and credit carryforwards is required to be recorded as an asset to the extent that management assesses that realization is “more likely than not.” Realization of the future tax benefits is dependent on our ability to generate sufficient taxable income within the carryforward period. Because of our recent history of operating losses, management believes that recognition of the deferred tax assets arising from the above-mentioned future tax benefits is currently not likely to be realized and, accordingly, has provided a full valuation allowance. The valuation allowance increased by $22.0 million, $18.1 million and $19.9 million during the years ended December 31, 2012, 2011 and 2010, respectively. The amount of the valuation allowance for deferred tax assets associated with excess tax deductions from stock based compensation arrangements that will be allocated to contributed capital if the future tax benefits are subsequently recognized is $0.4 million.

We have not recorded deferred income taxes applicable to undistributed earnings of a foreign subsidiary that are indefinitely reinvested in foreign operations. Generally, such earnings become subject to U.S. tax upon the remittance of dividends and under certain other circumstances. It is not practicable to estimate the amount of the deferred tax liability on such undistributed earnings.

As of December 31, 2012, we had federal net operating loss carryforwards of approximately $323.8 million, which will expire in the years 2018 through 2032 and federal research and development tax credits of approximately $11.2 million, which expire in the years 2018 through 2032.

As of December 31, 2012, we had net operating loss carryforwards for California state income tax purposes of approximately $226.2 million, which expire in the years 2013 through 2032, and California state research and development tax credits of approximately $10.5 million which do not expire.

As of December 31, 2012, we had net operating loss carryforwards for foreign income tax purposes of approximately $28.0 million, which do not expire.

The Tax Reform Act of 1986 limits the annual use of net operating loss and tax credit carryforwards in certain situations where changes occur in stock ownership of a company. In the event the Company has a change in ownership, as defined, the annual utilization of such carryforwards could be limited. Due to past equity issuances and changes in ownership of Dynavax common stock, we believe that our ability to use some of our net operating losses and tax credits in the future may be limited. We are conducting an analysis under Sections 382 and 383 of the Internal Revenue Code as enacted by the Tax Reform Act of 1986, and if necessary, we will reduce our net operating losses and tax credits by any applicable limitation when our analysis is complete.

In November 2010, we received a one-time $0.7 million payment under The Patient Protection and Affordable Care Act of 2010 covering research and development costs from 2009 and 2010 for three of our qualified therapeutic discovery projects including HEPLISAV. The funds received as a result of this award were recorded as other income in the year ended December 31, 2010.