10. INCOME TAXES

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)	2016			2015
Deferred tax assets
Net operating loss carryforwards	$	417,000		$	392,000
Deferred revenues		1,000			1,000
Research and development tax credit carryforwards		53,000			53,000
Other		13,000			17,000

Total deferred tax assets		484,000			463,000
Valuation allowance		(484,000	)		(463,000	)

Net deferred tax assets	$	—		$	—

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

	As of December 31,
	2016			2015			2014
U.S. federal income tax rate		35.00	%		34.00	%		35.00	%
Non-deductible executive compensation		1.55			(1.94	)		(0.16	)
Stock-based compensation		0.09			(0.23	)		(1.11	)
Federal and state research credits		—			—			12.66
Effect of Spin-Off Transaction		—			—			(203.20	)
Other		(0.29	)		(0.56	)		(4.04	)
Change in valuation allowance		(36.19	)		(31.27	)		160.85

Effective tax rate		0.16	%		—	%		—	%

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 $20.6 million in the year ended December 31, 2016, increased by $4.7 million in the year ended December 31, 2015, and decreased by $103.8 million in the year ended December 31, 2014.

The increase in the valuation allowance in the year ended December 31, 2016 was primarily due to early adoption of the FASB issued ASU 2016-09, Improvements to Employee Share-Based Payment Accounting, ("ASU 2016-09"), for which we recognized additional excess stock option tax benefits of $46.9 million in net operating loss carryforwards.

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

As of December 31, 2016, we had federal net operating loss carryforwards of approximately $1.1 billion, which will expire from 2025 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 $674.3 million expiring in the years 2017 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, 2016 include excess tax benefits from stock option exercises due to early adoption of ASU 2016-09.

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, 2016 and 2015, we had no accrued interest or penalties.

We conducted an analysis through the year ended December 31, 2015 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, 2013	$	57,420
Gross decrease for tax positions for prior years		(42,650	)
Gross increase in tax portions for 2014		689

Unrecognized tax benefits as of December 31, 2014		15,459
Gross increase in tax portions for 2015		29

Unrecognized tax benefits as of December 31, 2016 and 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 1999 and forward remain open to examination by the federal and most state tax authorities due to net operating loss and overall credit carryforward positions.