NOTE 11 – INCOME TAXES

The benefit for income taxes consisted of the following (in thousands):

	Year ended December 31,
	2015			2014		2013
Benefit for income taxes:
Current:
Federal	$	—		$	—	$	—
State		—			—		—
Subtotal		—			—		—
Deferred:
Federal	$	(5,563	)	$	—	$	—
State		(159	)		—		—
Subtotal		(5,722	)
Income tax benefit	$	(5,722	)	$	—	$	—

The difference between the benefit for income taxes and the amount computed by applying the federal statutory income tax rate (34%) to loss before taxes is explained as follows (in thousands):

	Year ended December 31,
	2015			2014			2013
Tax at federal statutory rate	$	(15,785	)	$	(8,982	)	$	(9,052	)
State taxes, net		4,840			(822	)		(4,004	)
Non-deductible stock compensation		1,085			(148	)		(598	)
Research credits		(814	)		(320	)		(280	)
Change in valuation allowance		5,043			9,778			14,261
Other		(91	)		494			(327	)
Income tax benefit	$	(5,722	)	$	—		$	—

Deferred income taxes reflect the net 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 the Company’s deferred tax assets are as follows (in thousands):

	December 31,
	2015			2014
Assets:
Deferred tax assets:
Net operating loss carryforwards	$	93,824		$	90,921
Research and development tax credit carryforwards		9,979			8,646
Stock-based compensation		6,853			8,171
Deferred revenue		4,479			2,690
Other		2,807			2,471
Total deferred tax asset		117,942			112,899
Valuation allowance		(117,942	)		(112,899	)
Net deferred tax assets	$	—		$	—
Liabilities:
Net deferred tax liability related to intangible assets		—			(748	)
Total deferred tax liability	$	—		$	(748	)

In October 2013, we acquired Ceregene. The Company recorded goodwill and intangible assets as part of accounting for the acquisition of Ceregene. A portion of the intangible assets acquired were for the use in a particular research and development project IPR&D and are considered indefinite-lived assets with no tax basis. In 2015, the Company impaired these intangible assets and reversed the corresponding deferred tax liability.

In 2015 the Company received a $14.5 million disgorgement settlement that was recognized as additional paid-in capital. The disgorgement settlement was recognized net of taxes of $9.5 million, which resulted in an income tax benefit of $5.0 million being recognized in the accompanying consolidated statements of operations for the year ended December 31, 2015.

The changes in the fair value of the unrealized gain/loss on securities investment are recorded as a component of accumulated other comprehensive income, net of a provision for income taxes.

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 $5.0 million, $9.8 million and $14.9 million for the years ended December 31, 2015, 2014 and 2013, respectively. As of December 31, 2015, Sangamo had net operating loss carryforwards for federal and state income tax purposes of approximately $351.3 million and $264.3 million, respectively. If not utilized, the net federal and state operating loss carryforwards will start to expire in 2018 and 2016 respectively. The Company also has federal and state research tax credit carryforwards of $7.8 million and $8.2 million, respectively. The federal research credits will begin to expire in 2018 while the state research credits have no expiration date. Utilization of the Company’s net operating loss carryforwards and research tax credit carryforwards may be subject to substantial annual limitations due to the ownership change limitations provided by the Internal Revenue Code and similar state provisions. The annual limitation could result in the expiration of the net operating loss carryforwards and research tax credit carryforwards before utilization.

The Company files federal and state income tax returns with varying statutes of limitations. The tax years from 2000 forward remain open to examination due to the carryover of net operating losses or tax credits. The Company also files a UK income tax return, and the tax years from 2008 and thereafter remain open to examination.

The Company’s practice is to recognize interest and/or penalties related to income tax matters in income tax expense. As of December 31, 2015, the Company had no accrued interest and/or penalties. The unrecognized tax benefits may change during the next year for items that arise in the ordinary course of business. In the event that any unrecognized tax benefits are recognized, the effective tax rate will not be affected.

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

	December 31,
	2015		2014		2013
Beginning balance	$	3,438	$	3,182	$	2,735
Additions based on tax positions related to the current year		557		228		294
Additions for tax positions of prior years		4,335		28		153
Reductions for tax positions of prior years		—		—		—
Ending balance	$	8,330	$	3,438	$	3,182