10. Income Taxes

Due to ongoing operating losses and the inability to recognize any income tax benefit, there is no provision for income taxes for any periods presented.

Deferred income taxes reflect the net tax effects of 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 our deferred tax assets are as follows:

	As of December 31,
(In thousands)	2015			2014
Deferred tax assets:
Net operating loss carryforwards	$	392,000		$	386,000
Deferred revenues		1,000			2,000
Research and development tax credit carryforwards		53,000			53,000
Other		17,000			18,000

Total deferred tax assets		463,000			459,000
Valuation allowance		(463,000	)		(459,000	)

Net deferred tax assets	$	—		$	—

The differences between the U.S. federal statutory income tax rate to our effective tax rate are as follows:

	Year Ended December 31,
	2015			2014			2013
U.S. federal statutory income tax rate		34.00	%		35.00	%		34.00	%
Non-deductible executive compensation		(1.94	)		(0.16	)		(0.07	)
Stock-based compensation		(0.23	)		(1.11	)		0.28
Federal and state research credits		—			12.66			3.63
Effect of Spin-Off Transaction		—			(203.2	)		—
Other		(0.56	)		(4.04	)		(2.51	)
Change in valuation allowance		(31.27	)		160.85			(35.33	)

Effective tax rate		(0.00	)%		(0.00	)%		(0.00	)%

Realization of deferred tax assets is dependent on future taxable income, if any, the timing and the amount of which are uncertain. Accordingly, the deferred tax assets have been fully offset by a valuation allowance. The valuation allowance increased by $4.7 million in the year ended December 31, 2015, decreased by $103.8 million in the year ended December 31, 2014, and increased by $70.1 million in the year ended December 31, 2013.

The increase in the valuation allowance in the year ended December 31, 2015 was primarily a result of net operating loss carryforwards.

The decrease in the valuation allowance in the year ended December 31, 2014 was primarily a result of the tax impacts of the Spin-Off transaction. In the year ended December 31, 2014, the Company recorded a permanent difference related to the tax gain that was recognized in connection with the Spin-Off, which allowed the Company to utilize approximately $252.7 million of its federal net operating losses. Accordingly, the associated valuation allowance, of $88.6 million, was released. Additionally, as discussed in Note 11 in connection with the Spin-Off, approximately $9.2 million of deferred tax assets were transferred to Theravance Biopharma, Inc. Accordingly, the associated valuation allowance was also decreased.

As of December 31, 2015, we had federal net operating loss carryforwards of approximately $1,174.7 million, which will expire from 2024 through 2035, and federal research and development tax credit carryforwards of approximately $45.2 million, which will expire from 2018 through 2034. We also had state net operating loss carryforwards of approximately $676.5 million expiring in the years 2016 through 2035 and state research tax credits of approximately $32.3 million, which do not expire.

The net operating loss deferred tax asset balances as of December 31, 2015 and 2014 do not include excess tax benefits from stock option exercises. Stockholders' equity will be credited if and when such excess tax benefits are ultimately realized.

Utilization of net operating loss and tax credit carryforwards may be subject to a substantial annual limitation due to ownership change limitations provided by the Internal Revenue Code and similar state provisions. Annual limitations may result in expiration of net operating loss and tax credit carryforwards before some or all of such amounts have been utilized.

Our policy is to recognize interest and/or penalties related to income tax matters in income tax expense. As of December 31, 2015 and 2014, we had no accrued interest or penalties due to our net operating losses available to offset any tax adjustment.

We conducted an analysis through the year ended December 31, 2014 to determine whether an ownership change had occurred since inception. The analysis indicated that two ownership changes occurred in prior years. However, notwithstanding the applicable annual limitations, no portion of the net operating loss or credit carryforwards are expected to expire before becoming available to reduce federal and state income tax liabilities as a result of those identified ownership changes. If we undergo another ownership change, the utilization of the pre-ownership change net operating loss carryforwards or pre-ownership change tax attributes, such as research tax credits, to offset the post-ownership change income may be subject to an annual limitation, pursuant to Section 382 and 383 of the Internal Revenue Code of 1986, as amended. Similar rules may apply under state tax laws.

Uncertain Tax Positions

A reconciliation of the beginning and ending balances of the total amounts of unrecognized tax benefits are as follows (in thousands):

Unrecognized tax benefits as of December 31, 2012	$	52,500
Gross decrease for tax positions for prior years		(565	)
Gross increase in tax positions for current year		5,485

Unrecognized tax benefits as of December 31, 2013		57,420
Gross decrease for tax positions for prior years		(42,650	)
Gross increase in tax positions for current year		689

Unrecognized tax benefits as of December 31, 2014		15,459
Gross increase in tax positions for current year		29

Unrecognized tax benefits as of December 31, 2015	$	15,488

In the event that we are able to recognize these uncertain positions, most of the $15.5 million of the unrecognized benefit would reduce our effective tax rate. We currently have a full valuation allowance against our deferred tax assets, which would impact the timing of the effective tax rate benefit, should any of these uncertain positions be favorably settled in the future. We do not believe it is reasonably possible that our unrecognized tax benefits will significantly change within the next twelve months.

We are subject to taxation in the U.S. and various state jurisdictions. The tax years 1998 and forward remain open to examination by the federal and most state tax authorities due to net operating loss and overall credit carryforward positions.