Annual report pursuant to Section 13 and 15(d)

Income Taxes

v2.4.1.9
Income Taxes
 12 Months Ended
Dec. 31, 2014
Income Taxes [Abstract]  
Income Taxes
8. Income Taxes

The total income tax benefit consists of the following (in thousands):

   
Year ended December 31,
  
   
2014
    
2013
    
2012
  
 
Federal income tax (benefit) provision
  
$
-
    
$
(14
)
  
$
(74
)
Total
  
$
-
    
$
(14
)
  
$
(74
)

The Company has significant losses in 2014, 2013 and 2012 and as such there was no income tax expense for the years ended December 31, 2014, 2013 and 2012. The income tax benefit in 2013 and 2012 relate to federal refundable credits.
Reconciliation between the tax provision computed at the federal statutory income tax rate of 34% and the Company’s actual effective income tax rate is as follows:
 
   
Year ended December 31,
  
   
2014
    
2013
    
2012
  
Federal tax at statutory rate
    
34
%
    
34
%
    
34
%
Warrant valuation
    
40
%
    
-17
%
    
-4
%
Permanent items and other
    
-1
%
    
0
%
    
-1
%
Valuation allowance
    
-73
%
    
-17
%
    
-29
%
Total
    
0
%
    
0
%
    
0
%
 
The significant components of net deferred tax assets as of December 31, 2014 and 2013 were as follows (in millions):

   
December 31,
  
   
2014
    
2013
  
Capitalized research and development expenses
  
$
50.9
    
$
49.4
  
Net operating loss carryforwards
    
105.0
      
78.4
  
Research and development and other credit carryforwards
    
12.1
      
8.8
  
Other
    
22.1
      
23.5
  
Total deferred tax assets
    
190.1
      
160.1
  
Valuation allowance
    
(190.1
)
    
(160.1
)
Net deferred tax assets
  
$
-
    
$
-
  

The net increase (decrease) in the valuation allowance was $30.0 million, $(74.0) million and $(6.0) million for the years ended December 31, 2014, 2013 and 2012, respectively.

As of December 31, 2014, the Company had federal net operating loss carry-forwards of approximately $292.3 million and state net operating loss carry-forwards of approximately $132.3 million to offset future taxable income. The net operating loss carry-forwards include $5.2 million which relates to stock option deductions that will be recognized through additional paid in capital when utilized.  As such, these deductions are not reflected in the Company’s deferred tax assets.  No federal net operating loss carry-forward expired in 2014, 2013 and 2012. California net operating losses of $54.3 million, $16.8 million, and $10.4 million expired in the years 2014, 2013 and 2012, respectively.

Accounting standards provide for the recognition of deferred tax assets if realization of such assets is more likely than not.  Based upon the weight of available evidence, which includes the Company’s historical operating performance and carry-back potential, the Company has determined that total deferred tax assets should be fully offset by a valuation allowance.

Based on an analysis under Section 382 of the Internal Revenue Code (which subjects the amount of pre-change NOLs and certain other pre-change tax attributes that can be utilized to an annual limitation), the Company experienced ownership changes in 2009 and 2012 which substantially limit the future use of its pre-change Net Operating Losses (“NOLs”) and certain other pre-change tax attributes per year.  The Company has excluded the NOLs and R&D credits that will expire as a result of the annual limitations in the deferred tax assets as of December 31, 2014. To the extent that the Company does not utilize its carry-forwards within the applicable statutory carry-forward periods, either because of Section 382 limitations or the lack of sufficient taxable income, the carry-forwards will expire unused.

The Company files income tax returns in the U.S. federal jurisdiction, State of California, and Ireland. The Internal Revenue Service has completed an audit of the Company's 2009 and 2010 federal income tax returns which resulted in no change. The Company’s federal income tax returns for tax years 2012 and beyond remain subject to examination by the Internal Revenue Service.  The Company’s California and Irish income tax returns for tax years 2010 and beyond remain subject to examination by the Franchise Tax Board and Irish Revenue Commissioner. In addition, all of the net operating losses and research and development credit carry-forwards that may be used in future years are still subject to adjustment.

     The following table summarizes the Company's activity related to its unrecognized tax benefits (in thousands):

   
2014
    
2013
    
2012
  
Balance at January 1
  
$
4,274
    
$
4,104
    
$
-
  
Increase related to current year tax position
    
720
      
164
      
49
  
Increase related to prior year tax position
    
509
      
6
      
4,055
  
Balance at December 31
  
$
5,503
    
$
4,274
    
$
4,104
  

As of December 31, 2014, the Company had a total of $4.0 million of net unrecognized tax benefits, none of which would affect the effective tax rate upon realization. The Company currently has a full valuation allowance against its U.S. net deferred tax assets which would impact the timing of the effective tax rate benefit should any of these uncertain tax positions be favorably settled in the future.
 
The Company does not expect the unrecognized tax benefits to change significantly over the next twelve months. The Company will recognize interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense. As of December 31, 2014, the Company has not accrued interest or penalties related to uncertain tax positions.