(4)	Income Taxes

The provision for income taxes differs from the amount computed by applying the statutory rate as follows:

	Year Ended December 31,
(in thousands)	2011			2010			2009
Income taxes using U.S. federal statutory rate	$	(10,501	)	$	(15,872	)	$	(7,643	)
State income taxes, net of federal benefit		(3,418	)		(4,276	)		(675	)
Foreign rate differential		52			–			–
Valuation allowance		20,563			15,041			5,671
Derivative charge		(5,292	)		5,423			2,913
Stock option exercises and cancellations		102			–			67
Research and development credits		(1,633	)		(519	)		(345	)
Other		127			203			12
Total	$	–		$	–		$	–

Significant components of the Company's deferred tax assets are as follows:

(in thousands)	2011		2010
Deferred tax assets:
Employee compensation accruals	$	4,973	$	3,345
Accrued liabilities		283		231
Research tax credits		2,708		1,076
Other		3		14
Net operating losses		47,118		29,868
Total deferred tax assets		55,085		34,534

Deferred tax liability:
Total deferred tax liabilities		–		–

Valuation allowance		55,085		34,534
Net deferred tax assets	$	–	$	–

As of December 31, 2011 and December 31, 2010, the Company had net operating loss carryforwards for U.S. federal income tax purposes of approximately $122.1 million and $81.1 million, respectively. A portion of the federal amount, $10.2 million, is subject to an annual limitation of approximately $123,000 as a result of a change in the Company's ownership through May 2003, as defined by Federal Internal Revenue Code Section 382 and the related income tax regulations. As a result of the limitation, approximately $114.3 million is available to offset future federal taxable income which expires through 2031. As of December 31, 2011 and December 31, 2010, the Company had net operating loss carryforwards for state and city income tax purposes of approximately $180.2 million and $129.3 million, respectively, which expire through 2031. As of December 31, 2011, the Company had a net operating loss carryforward for foreign income tax purposes of $241,841 which has an indefinite carryforward period. There were no foreign net operating losses prior to 2011.

Management has established a 100% valuation allowance against the deferred tax assets as management does not believe it is more likely than not that these assets will be realized. The Company's valuation allowance increased by approximately $20.5 million, $15.0 million, $5.9 million, $3.2 million and $1.8 million in 2011, 2010, 2009, 2008, and 2007, respectively. The Company has a tax benefit of approximately $1.0 million related to the exercise of non qualified stock options. Pursuant to FASB ASC 718, the benefit will be recognized and recorded to additional paid in capital when the benefit is realized through the reduction of taxes payable.

The Company complies with the provisions of FASB ASC 740-10 in accounting for its uncertain tax positions. ASC 740-10 addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under ASC 740-10, the Company may recognize the tax benefit from an uncertain tax position only if it is more likely that not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The Company has determined that the Company has no significant uncertain tax positions requiring recognition under ASC 740-10.

The Company is subject to income tax in the U.S., the Republic of Ireland, and certain state jurisdictions. The Company has not been audited by the U.S. Internal Revenue Service, international tax authorities, or any states in connection with income taxes. The periods from December 31, 2004 to December 31, 2011 remain open to examination by the U.S. Internal Revenue Service, and international and state tax authorities.

Delcath recognizes interest accrued related to unrecognized tax benefits and penalties, if incurred, as a component of income tax expense.