INCOME TAXES

12 Months Ended

Dec. 31, 2014

INCOME TAXES

INCOME TAXES

10. INCOME TAXES

Our total provision (benefit) from income taxes consists of the following for the years ended December 31, 2014 and 2013:

(in thousands)	2014		2013
Current income tax provision (benefit):
Federal	$	4,818	$	20
State		273		-
Total		5,091		20
Deferred income tax provision (benefit):
Federal		2,113		635
State		154		(221)
Total		2,267		414
Change in valuation allowance		(16,726)		(414)
Tax provision (benefit) from continuing operations		(9,368)		20
Tax provision from discontinued operation		-		38
Total provision (benefit) for income taxes	$	(9,368)	$	58

The difference between our expected income tax provision (benefit) from applying federal statutory tax rates to the pre-tax income (loss) from continuing operations and actual income tax provision (benefit) from continuing operations relates primarily to the effect of the following:

	As of December 31,
	2014		2013
US Federal statutory rate	35.0	%	35.0	%
State taxes, net of Federal benefit	1.0	%	1.0	%
Non-deductible expenses	-	%	245.9	%
Change in valuation allowance	(86.5)	%	(300.4)	%
Change in tax rates and other	(1.2)	%	34.6	%
Stock-based compensation – windfall tax benefits	4.0	%	-	%
Other	(0.7)	%	-	%
Total income tax provision (benefit)	(48.4)	%	16.1	%

Deferred income taxes reflect the net tax effects of differences between the bases of assets and liabilities for financial reporting and income tax purposes. Our deferred income tax assets and liabilities consisted of the following:

(in thousands)	As of December 31,
	2014		2013
Deferred tax assets:
Accruals and advances	$	2,149	$	802
Bond hedge		12,677		-
Accruals for chargebacks and returns		1,107		358
Net operating loss carryforward		11,798		16,409
Other		1,292		418
Total deferred tax assets	$	29,023	$	17,987
Deferred tax liabilities:
Depreciation	$	(587)	$	(220)
Debt discount		(11,892)		-
Intangible assets		(467)		(526)
Other		(496)		(374)
Total deferred tax liabilities	$	(13,442)	$	(1,120)
Valuation allowance		(142)		(16,867)
Total deferred tax asset (liability), net	$	15,439	$	-

As of December 31, 2014, we had Federal net operating loss carryforwards of approximately $32.9 million, which expire beginning in 2018, and a portion of which arose as a result of the Merger. The utilization of the net operating loss carryforwards are limited in future years as prescribed by Section 382 of the U.S. Internal Revenue Code; our current annual limitation of the Federal net operating loss is approximately $11.2 million per year.

We are required to establish a valuation allowance for deferred tax assets if, based on the weight of available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. We consider the projected future taxable income and tax planning strategies in making this assessment. Based upon the level of historical taxable income and projections for future taxable income in previous periods, we had provided a full valuation allowance as of December 31, 2013. In the fourth quarter of 2014, we determined that certain deferred tax assets that had previously been reserved would now more likely than not be realized through the generation of future taxable income and, as a result, recognized an income tax benefit of $16.7 million related to the reversal of the majority of the valuation allowance. As of December 31, 2014, we have provided a valuation allowance against certain state net operating loss carryforwards of approximately $0.1 million.

We are subject to income taxes in numerous jurisdictions in the U.S. Significant judgment is required in evaluating our tax positions and determining our provision for income taxes. We establish liabilities for tax-related uncertainties based on estimates of whether, and the extent to which, additional taxes will be due. These liabilities are established when we believe that certain positions might be challenged despite our belief that our tax return positions are fully supportable. We adjust these liabilities in light of changing facts and circumstances, such as the outcome of a tax audit. The provision for income taxes includes the impact of changes to the liability that is considered appropriate. We identified no material uncertain tax positions as of December 31, 2014 and 2013.

We are subject to income tax audits in all jurisdictions for which we file tax returns. Tax audits by their nature are often complex and can require several years to complete. Neither ANI Pharmaceuticals, Inc. nor any of its subsidiaries is currently under audit in any jurisdiction. All of our income tax returns remain subject to examination by tax authorities due to the availability of net operating loss carryforwards.