NOTE 14. INCOME TAXES

The provision for (benefit from) income taxes consists of the following (in thousands):

	2014			2013			2012
Current:
Federal	$	(2,853	)	$	60,874		$	(19	)
State		11			3,593			(75	)
Foreign		—			3			3

		(2,842	)		64,470			(91	)

Deferred:
Federal	$	80,293		$	(97,690	)	$	—
State		3,895			(5,513	)		—
Foreign		—			—			—

		84,188			(103,203	)		—

Total provision (benefit) for income taxes	$	81,346		$	(38,733	)	$	(91	)

A reconciliation of income taxes at the statutory federal income tax rate to the actual tax rate included in the statements of operations is as follows (in thousands):

	2014		2013			2012
Tax at federal statutory rate	$	74,588	$	1,603		$	(10,454	)
State tax, net of federal benefit		3,903		(3,177	)		(48	)
Foreign tax		—		3			3
Research Credit		—		(258	)		—
Net Operating Losses not benefited (benefited)		—		(17,510	)		9,094
Stock Based Compensation		366		923			1,038
Non deductible meals and entertainment		440		442			131
Non-deductible other expense		2,049		(133	)		145
Change in Valuation Allowance		—		(20,626	)		—

Total	$	81,346	$	(38,733	)	$	(91	)

During 2014, the Company provided for income tax expense of approximately $81.3 million which primarily related to the recognition for financial statement purposes the deferred revenue related to the 2013 PDL transaction.

During 2013, we recognized an income tax benefit of approximately $38.7 million which resulted primarily from our reversal of a valuation allowance on all of our U.S. federal deferred tax assets and most of our state deferred tax assets. Our 2013 effective tax rate from continuing operations was (846)%. The tax benefit represents a reversal of a valuation allowance on a significant portion of our U.S. federal and state deferred assets resulting in a deferred tax benefit of $103.2 million, offset by a current income tax provision of $64.5 million.

The Company's tax benefits for the year ended December 31, 2012 was due to Federal and state refundable credits offset by foreign taxes withheld on royalty revenue related to the Company's agreement with LG by the Republic of Korea.

On January 2, 2013, the enactment of the American Taxpayer Relief Act of 2013 extended retroactively through the end of calendar 2013 the U.S. federal research and development credit which had expired on December 31, 2011. As a result, an income tax benefit for the year ended December 2013 includes the tax benefit for the reinstatement of the 2012 federal research tax credit.

As of December 31, 2014, the Company had net operating loss carry forwards for federal income tax purposes of approximately $11.0 million, which expire in the years 2021 through 2032. Net operating loss carryforwards for state income tax purposes were approximately $106.0 million, which expire in the years 2017 through 2033 and state research and development tax credits were approximately $1.4 million which have no expiration date.

Utilization of the Company's net operating loss and credit carryforwards may be subject to a substantial annual limitation due to ownership change limitations provided by the Internal Revenue Code of 1986 and similar state provisions. The annual limitation may result in the expiration of net operating losses and credits before utilization.

Deferred income taxes reflect the 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):

	2014			2013
Deferred Tax Assets:
Net operating loss carryforwards	$	5,390		$	4,237
Tax carryforwards		80			133
In-process research and development		330			665
Deferred revenue		—			88,248
Intangibles		3,282			1,363
Other, net		14,180			11,226

Total deferred tax assets		23,262			105,872
Convertible Debt		(41,940	)		—
Valuation allowance for deferred tax assets		(4,310	)		(2,670	)

Deferred tax (liabilities) assets, net	$	(22,988	)	$	103,202

Management regularly assesses the ability to realize deferred tax assets based on the weight of all available evidence, including such factors as the history of recent earnings and expected future taxable income on a jurisdiction by jurisdiction basis. Management determined that a valuation allowance was no longer needed for a substantial portion of the deferred tax assets based on an assessment of the relative impact of all positive and negative evidence as of December 31, 2014, including an evaluation of cumulative income in recent years, future sources of taxable income exclusive of reversing temporary differences, and significant risks and uncertainties related to our business. The valuation allowance increased by $1.6 million, decreased by $39.8 million and increased by $7.8 million during the years ended December 31, 2014, 2013 and 2012 respectively.

At December 31, 2014, the portion of the federal and state net operating loss carryforwards related to stock option deductions is approximately $11 million for federal and $13.9 million for state, which is not included in the Company's gross or net deferred tax assets. Pursuant to ASC 718-740-25-10, the tax effect of the stock option benefit of approximately $4.7 million will be recorded to equity when they reduce cash taxes payable in the future.

The Company files income tax returns in the United States federal jurisdiction and in various states, and the tax returns filed for the years 1996 through 2013 and the applicable statutes of limitation have not expired with respect to those returns. Because of net operating loss carryovers, substantially all of the Company's tax years remain open to examination.

Interest and penalties, if any, related to unrecognized tax benefits would be recognized as income tax expense by the Company. At December 31, 2014, the Company had approximately $0.3 million and $0.1 million of accrued interest and penalties associated with any unrecognized tax benefits.

The following table summarizes the activity related to our unrecognized tax benefits for the three years ended December 31, 2014 (in thousands):

Unrecognized tax benefits—January 1, 2012	$	3,573
Gross increases—current year tax positions		21

Unrecognized tax benefits—December 31, 2012	$	3,594
Gross increases—current year tax positions		174
Gross increases—prior year tax positions		111

Unrecognized tax benefits—December 31, 2013	$	3,879
Gross increases—current year tax positions		27
Gross increases—prior year tax positions		1,273

Unrecognized tax benefits—December 31, 2014	$	5,179

The total amount of unrecognized tax benefit that would affect the effective tax rate is approximately $5.2 million at December 31, 2014.

Though our unrecognized tax benefits may change during the next year for items that arise in the ordinary course of business, we do not expect any such change to be significant. As of December 31, 2014, the Company anticipates that the balance of gross unrecognized tax benefits will decrease by $0.1 million due to the expiration of the applicable statute of limitation over the next 12 months.