NOTE 15. INCOME TAXES

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


	2016		2015		2014
Current:
Federal	$	1,087	$	(1,679)	$	(2,853)
State		140		160		11
		1,227		(1,519)		(2,842)
Deferred:
Federal	$	16,291	$	(39,459)	$	80,293
State		6,700		(6,521)		3,895
		22,991		(45,980)		84,188
Total (benefit) provision for income taxes	$	24,218	$	(47,499)	$	81,346

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):


	2016		2015		2014
Tax at federal statutory rate	$	(22,580)	$	(43,133)	$	74,588
State tax, net of federal benefit		(748)		(2,615)		3,903
Research credit		(902)		(438)		—
Stock based compensation		1,435		848		366
Non-deductible meals and entertainment		955		729		440
Non-deductible other expense		1,426		846		2,049
Change in valuation allowance		44,632		(3,736)		—
Total	$	24,218	$	(47,499)	$	81,346

During 2016, the Company provided for income tax expense of approximately $24.2 million principally due to the recording of a full valuation allowance against our deferred tax assets.

During 2015, the Company recognized an income tax benfit of approximately $47.5 million.

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.

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 and December 31, 2016.

As of December 31, 2016, the Company had net operating loss carry forwards for federal income tax purposes of approximately $11.8 million, which begin to expire in 2020. Net operating loss carryforwards for state income tax purposes were approximately $138.6 million, which begin to expire in 2017. The Company had federal and California state research and development credit carryforwards of $1.3 million and $2.2 million, respectively. The federal research and development credit will begin to expire in 2035 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):


	2016		2015
Deferred tax assets:
Net Operating Losses		6,810	$	6,414
Tax Credit Carryforwards		1,452		753
In-Process Research & Development		180		253
Intangibles		46,184		34,802
Stock-based compensation		4,992		3,312
Reserves and other accruals not currently deductible		17,294		15,016
Total deferred tax assets		76,912		60,550
Valuation allowance for deferred tax assets		(45,206)		(574)
		31,706		59,976
Deferred tax liabilities
Convertible Debt		(31,706)		(36,985)
Net deferred tax asset (liability)	$	-	$	22,991

In 2016, the Company recorded a valuation allowance of $44.6 million to offset, in full, the benefit related to its net deferred tax assets as of December 31, 2016 because realization of the future benefits is uncertain. The Company reviewed both, positive evidence such as, but not limited to, the projected availability of future taxable income and negative evidence such as the history of cumulative loses in recent years. The Company will continue to assess the realizability of its deferred tax assets on a quarterly basis, and assess whether an additional reserve or a release of the valuation allowance is required in future period.

The valuation allowance increased by $44.6 million, decreased by $3.7 million, and increased by $1.6 million during the years ended December 31, 2016, 2015 and 2014 respectively.

At December 31, 2016, the portion of the federal and state net operating loss carryforwards related to stock option deductions is approximately $11.8 million for federal and $20.8 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 $5.2 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 2015 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, 2016, the Company had approximately $1.0 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, 2016 (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
Gross increases—current year tax positions		240
Gross increases—prior year tax positions		8,761
Unrecognized tax benefits— December 31, 2016	$	14,687

The total amount of unrecognized tax benefit that would affect the effective tax rate is approximately $12.2 million as of December 31, 2016 and $5.7 million as of December 31, 2015.

The Company does not expect a significant change to its unrecognized tax benefits over the next twelve months. The unrecognized tax benefits may increase or change during the next year for items that arise in the ordinary course of business.