Note 18. Income Taxes

Loss before income taxes is attributed to the following geographic locations for the years ended December 31,


	2015		2014
United States	$	36,065,000	$	30,215,000
Foreign		350,000		2,526,000

Total loss before income taxes	$	36,415,000	$	32,741,000

We follow authoritative guidance regarding accounting for uncertainty in income taxes, which prescribes a recognition threshold a tax position is required to meet before being recognized in the financial statements. As of December 31, 2015 and 2014, we have not recorded any unrecognized tax benefits. Deferred income taxes reflect the tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of our deferred tax assets and liabilities at December 31 are as follows:


	2015			2014
Deferred tax assets:
Capitalized research and development costs	$	75,409,000		$	66,212,000
Net operating losses		59,319,000			57,261,000
Research and development credits		10,581,000			9,798,000
Stock-based compensation		1,925,000			1,124,000
Capital loss carryover		264,000			254,000
Fixed assets		(107,000	)		393,000
Other		4,707,000			3,930,000

		152,098,000			138,972,000
Valuation allowance		(152,098,000	)		(138,972,000	)

Total deferred tax assets	$	—		$	—

Realization of deferred tax assets is dependent upon future earnings, if any, the timing and amount of which are uncertain. Accordingly, the net deferred tax assets have been fully offset by a valuation allowance. The valuation allowance increased by approximately $13,126,000 in 2015 and by approximately $10,657,000 in 2014.

As of December 31, 2015, we had the following:

•

Net operating loss carry forwards for federal income tax purposes of approximately $169,972,000 which expire in the years 2018 through 2035. This includes $1,792,000 of excess deductions from the exercise of stock options, the benefit of which will be recorded in additional paid-in-capital when realized

•

Federal research and development tax credits of approximately $6,725,000 which expire in the years 2018 through 2035.

•

Net operating loss carry forwards for state income tax purposes of approximately $34,136,000 which expire in the years 2016 through 2035. This includes $1,362,000 of excess deductions from the exercise of stock options, the benefit of which will be recorded in additional paid-in-capital when realized.

•

State research and development tax credits of approximately $5,842,000 ($3,856,000 net of federal tax effect) which do not expire.

•

Net operating loss carry forwards in foreign jurisdictions of approximately $1,128,000 which do not expire.

•

Capital loss carry forwards for federal and state income tax purposes of $746,000 which expire in 2016.

Utilization of the federal and state net operating loss and federal and state research and development tax credit carry forwards may be subject to annual limitations due to the ownership percentage change provisions of the Internal Revenue Code of 1986 and similar state provisions. The annual limitations may result in the inability to fully offset future annual taxable income and could result in the expiration of the net operating loss carry forwards before utilization. Utilization of foreign net operating loss carry forwards may be limited or disallowed under similar foreign income tax provisions.

The effective tax rate as a percentage of income before income taxes differs from the statutory federal income tax rate (when applied to income before income taxes) for the years ended December 31 as follows:


	2015			2014			2013
Statutory federal income tax (benefit) rate		(34	)%		(34	)%		(34	)%
State income tax (benefit) rate		(0.6	)		—			—
Increase resulting from:
Expenses not deductible for taxes		0.1			0.8			0.5
Increase in valuation allowance		36.0			32.6			38.8
Change in state deferred tax rate		(2.2	)		0.0			1.1
Change in foreign deferred tax rate		0.3			2.8			0.9
Expiration of tax attributes		1.2			1.7			0.5
Prior year true up		2.5			1.1			(0.7	)
Tax credits		(2.5	)		(2.4	)		(3.0	)
Warrant valuation		(0.9	)		(2.5	)		(4.1	)

Effective tax (benefit) rate		0	%		0	%		0	%

As of December 31, 2015, we have not recognized U.S deferred income taxes as we have cumulative total undistributed losses for non-U.S. subsidiaries. Determining the unrecognized deferred tax liability related to investments in these non-U. S. subsidiaries that are indefinitely reinvested is no practicable.

We did not have any unrecognized tax benefits at December 31, 2015. Our policy is to recognize interest and penalties related to income tax matters in income tax expense. Because we have no tax liabilities, no tax-related interest and penalties have been expensed in our consolidated statements of operations during 2015 or accrued as a liability in our consolidated balance sheets at December 31, 2015. We do not anticipate any significant changes to total unrecognized tax benefits as a result of settlement of audits or the expiration of statute of limitations within the next twelve months.

We file U.S. federal income tax returns, as well as tax returns with the State of California, the State of Colorado and the State of Rhode Island. Due to the carry forward of unutilized net operating losses and research and development credits, our federal tax returns from 1998 forward remain subject to examination by the Internal Revenue Service, and our State of California tax returns from 2001 forward and our State of Rhode Island tax returns from 2010 forward remain subject to examination by the respective state tax authorities. We file income tax returns in various foreign jurisdictions. Tax years from 2007 forward remain subject to examination by the appropriate foreign governmental agencies.