NOTE 15. INCOME TAXES

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

	2015			2014			2013
Current:
Federal	$	(1,679	)	$	(2,853	)	$	60,874
State		160			11			3,593
Foreign		—			—			3

		(1,519	)		(2,842	)		64,470

Deferred:
Federal	$	(39,459	)	$	80,293		$	(97,690	)
State		(6,521	)		3,895			(5,513	)
Foreign		—			—			—

		(45,980	)		84,188			(103,203	)

Total (benefit) provision for income taxes	$	(47,499	)	$	81,346		$	(38,733	)

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):

	2015			2014		2013
Tax at federal statutory rate	$	(43,133	)	$	74,588	$	1,603
State tax, net of federal benefit		(2,615	)		3,903		(3,177	)
Foreign tax		—			—		3
Research credit		(438	)		—		(258	)
Net operating losses not benefited (benefited)		—			—		(17,510	)
Stock based compensation		848			366		923
Non-deductible meals and entertainment		729			440		442
Non-deductible other expense		846			2,049		(133	)
Change in valuation allowance		(3,736	)		0		(20,626	)

Total	$	(47,499	)	$	81,346	$	(38,733	)

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.

In December 2015, the enactment of the Protecting Americans from Tax Hikes (PATH) Act of 2015 made the federal R&D credit permanent under section 41. As a result, an income tax benefit has been recorded for the year ended December 31, 2015.

As of December 31, 2015, the Company had net operating loss carry forwards for federal income tax purposes of approximately $11.0 million, which expire in the years 2020 and 2021. Net operating loss carryforwards for state income tax purposes were approximately $131.9 million, which expire in the years 2017 through 2033. The Company had federal and California state research and development credit carryforwards of $0.6 million and $1.7 million, respectively. The federal research and development credit will begin to expire in 2032 and the California state research and development credit has no expiration.

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):

	2015			2014
Deferred tax assets:
Net Operating Losses		6,414		$	5,390
Tax Credit Carryforwards		753			80
In-Process Research & Development		253			330
Intangibles		34,802			3,282
Stock-based compensation		3,312			1,843
Reserves and other accruals not currently deductible		15,016			12,337

Total deferred tax assets		60,550			23,262
Valuation allowance for deferred tax assets		(574	)		(4,310	)

		59,976			18,952
Deferred tax liabilities
Convertible Debt		(36,985	)		(41,940	)

Net deferred tax asset (liability)	$	22,991		$	(22,988	)

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, 2015, 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 decreased by $3.7 million, increased by $1.6 million, and decreased by $39.8 million during the years ended December 31, 2015, 2014 and 2013 respectively.

At December 31, 2015, the portion of the federal and state net operating loss carryforwards related to stock option deductions is approximately $11.0 million for federal and $19.6 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 $5.5 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 1997 through 2014 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, 2015, the Company had approximately $0.66 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 two years ended December 31, 2015 (in thousands):

Unrecognized tax benefits—January 1, 2014	$	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
Gross increases—current year tax positions		454
Gross increases—prior year tax positions		53

Unrecognized tax benefits—December 31, 2015	$	5,686

The total amount of unrecognized tax benefit that would affect the effective tax rate is approximately $5.7 million as of December 31, 2015 and $5.2 million as of 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.