

Note 14.	Income Taxes

Components of income (loss) before income taxes (in thousands):



	Years Ended December 31,
	2013			2012			2011
United States operations	$	(50,032	)	$	59,807		$	(50,100	)
Foreign operations	(4,055		)	(2,448		)	5,671
Income (loss) before income taxes	$	(54,087	)	$	57,359		$	(44,429	)

Components of income tax expense (benefit) (in thousands):



	Years Ended December 31,
	2013			2012			2011
Current:
United States federal	$	2,460		$	1,372		$	422
State and local	61			(2,957		)	920
Foreign	1,706			(6,221		)	5,314
Total current	4,227			(7,806		)	6,656
Deferred:
United States federal	(1,890		)	22,029			(22,006		)
State and local	51			556			(555		)
Foreign	2,515			(2,261		)	(1,424		)
Total deferred	676			20,324			(23,985		)
Total income tax expense (benefit)	$	4,903		$	12,518		$	(17,329	)

Income tax expense differs from “expected” income tax expense (computed by applying the U.S. federal income tax rate of 35%) due to the following (in thousands):



	Years Ended December 31,
	2013			2012			2011
United States federal tax expense (benefit) at statutory rate	$	(18,930	)	$	20,076		$	(15,550	)
State taxes, net of United States federal tax benefit	(841		)	(1,098		)	1,320
Change in valuation allowance	25,046			2,136			(9,119		)
Non-deductible stock compensation	415			341			571
Impact of non-U.S. jurisdictional tax rate difference	487			313			(368		)
Research and development tax credit	(1,632		)	(1,923		)	(1,372		)
Transfer pricing adjustment	—			—			2,426
Increase (reversal) of unrecognized tax benefits	671			(7,826		)	2,100
Non-U.S. withholding tax	1,805			471			275
Other	(2,118		)	28			2,388
Total income tax expense (benefit)	$	4,903		$	12,518		$	(17,329	)

Net deferred tax assets are comprised of the following (in thousands):



	December 31,
	2013			2012
Deferred tax assets:
United States federal net operating loss carryforwards	$	41,612		$	16,581
Deferred expenses	7,166			8,461
Research and development tax credit carryforwards	23,079			22,101
Alternative minimum tax credit carryforward	3,561			3,698
Net unrealized loss on investments	109			95
Accrued loss on excess office facilities	54			1,340
Stock-based compensation	12,225			13,639
State net operating loss carryforwards	7,392			3,109
Foreign net operating loss carryforwards	37,594			31,087
Deferred revenue	128			357
Equipment, software, and leasehold improvements	2,736			5,042
Intangibles	27			64
Other	4,489			7,769
Gross deferred tax assets	140,172			113,343
Less valuation allowance	128,865			90,799
Gross deferred tax assets, net of valuation allowance	$	11,307		$	22,544
Deferred tax liabilities:
Other intangible assets	$	(3,761	)	$	(688	)
Net unrealized gains and basis differences on investments	(6,912		)	(16,538		)
Other	(560		)	(787		)
Prepaid expenses	(814		)	(1,076		)
Gross deferred tax liabilities	(12,047		)	(19,089		)
Net deferred tax assets (liabilities)	$	(740	)	$	3,455

Income tax receivables were $0.4 million and $8.4 million at December 31, 2013 and 2012, respectively.

In 2013, we continued to provide a valuation allowance on the deferred tax assets that we believe are not more likely than not to be realized. The net change in valuation allowance was a $38.1 million increase and an $8.8 million decrease during the years ended December 31, 2013 and 2012, respectively.

We maintain a valuation allowance of $128.9 million for our deferred tax assets due to uncertainty regarding their realization as of December 31, 2013. The net increase in the valuation allowance since December 31, 2012 of $38.1 million was the result of a $30.6 million increase in current year deferred tax assets for which the Company maintains a valuation allowance on, and a $7.5 million increase due to valuation allowances placed on certain non-U.S. deferred tax assets because it is not more likely than not that the deferred tax asset will be realized.

RealNetworks' U.S. federal net operating loss carryforwards totaled $118.9 million and $47.4 million at December 31, 2013 and 2012, respectively. The increase is mainly due to the current year U.S. taxable loss. The remaining net operating loss carryforwards as of December 31, 2013 are from the U.S. taxable losses in 2010 and 2011 and from acquired subsidiaries that are limited under Internal Revenue Code Section 382. These net operating loss carryforwards expire between 2024 and 2033.

RealNetworks' alternative minimum tax credit carryforward decreased from $3.7 million as of December 31, 2012 to $3.6 million as of December 31, 2013. The alternative minimum tax credit can be carried forward indefinitely.

RealNetworks' U.S. federal research and development tax credit carryforward totaled $23.1 million and $22.1 million at December 31, 2013 and 2012, respectively. The research and development credit carryforwards expire between 2020 and 2033.

As of December 31, 2013 and 2012, we had $4.5 million and $4.0 million of unrecognized tax benefits, respectively. The increase in unrecognized tax benefits is due to federal research & development tax credit carryforwards. The total amount of unrecognized tax benefits that would affect our effective tax rate if recognized was $0.4 million in each of the years ended December 31, 2013 and 2012.

As of December 31, 2013 and December 31, 2012, we had approximately $0.1 million and $0.1 million of accrued interest and penalties related to uncertain tax positions, respectively. To the extent interest and penalties are not assessed with respect to uncertain tax positions, amounts accrued will be reduced and reflected as a reduction of the overall income tax provision. We currently anticipate the expiration of the statute of limitations within the next twelve months that may decrease the Company's total unrecognized tax benefit by an amount up to $0.9 million.

Reconciliation of the beginning and ending balances of the total amounts of unrecognized tax benefits (in thousands):



	Years Ended December 31,
	2013			2012			2011
Balance, beginning of year	$	3,978		$	16,721		$	14,033
Increases related to prior year tax positions	—			416			—
Decreases related to prior year tax positions	(125		)	(94		)	(768		)
Settlements with taxing authorities	—			(13,065		)	—
Increases related to current year tax positions	652			—			3,518
Expiration of the statute of limitations	—			—			(62		)
Balance, end of year	$	4,505		$	3,978		$	16,721