7. Income Taxes

Current income tax expense (benefit) attributable to continuing operations consists of the following for the years ended December 31, 2014, 2013, and 2012.


	Years Ended December 31,
	2014		2013		2012
Federal		—		—		—
State		—		—		—
Total		—		—		—

The Company’s effective income tax rate differs from the statutory federal income tax rate as follows for the years ended December 31, 2014, 2013, and 2012.

	Years Ended December 31,
	2014			2013			2012
Federal tax provision (benefit) rate		(34.0	)%		(34.0	)%		(34.0	)%
State tax provision, net of federal provision		(7.0	)		(4.8	)		(3.5	)
Permanent items		(3.6	)		3.4			0.8
Federal research and development credits		(1.0	)		(1.7	)		—
Expiration of tax attribute		10.9			—			—
Valuation allowance		34.7			37.1			36.7
Effective income tax rate		—	%		—	%		—	%

The Company’s deferred tax assets consist of the following:

	December 31,
	2014			2013
Deferred tax assets:
Net operating loss carryforwards	$	35,449,695		$	32,253,602
Research and development credit carryforwards		1,855,586			1,735,265
Accrued expenses		657,132			493,075
Stock-based compensation		590,006			565,077
Other		13,506			1,061,212
Total gross deferred tax assets		38,565,925			36,108,231
Valuation allowance		(38,565,925	)		(36,108,231	)
Net deferred tax assets	$	—		$	—

At December 31, 2014, the Company has federal and state net operating loss carryforwards (“NOL”) of $105.4 million and $24 million, respectively, as well as federal and state tax credits of $1.2 million and $1.0 million, respectively, which may be available to reduce future taxable income and the related taxes thereon. This amount includes tax benefits of $3.9 million and $71,000 attributable to NOL and tax credit carryforwards, respectively, that result from the exercise of employee stock options. The tax benefit of these items will be recorded as a credit to additional paid-in capital upon realization of the deferred tax asset or reduction in income taxes payable. The federal NOL’s begin to expire in 2019 and the state NOL’s begin to expire in 2015. The federal and state research and development credits both begin to expire in 2018.

In accordance with the provisions of the Income Taxes topic of the Codification, the Company has evaluated the positive and negative evidence bearing upon the realizability of its deferred tax assets, which are comprised principally of net operating losses. Management has determined that it is more likely than not that the Company will not recognize the benefits of federal and state deferred tax assets and, as a result, a valuation allowance of approximately and $38.6 million and $36.1 million has been established at December 31, 2014 and 2013, respectively. Utilization of the NOL and research and development credit carryforwards may be subject to a substantial annual limitation due to ownership change limitations that have occurred previously or that could occur in the future, as provided by Section 382 of the Internal Revenue Code of 1986, as well as similar state provisions. Ownership changes may limit the amount of NOL and tax credit carryforwards that can be utilized to offset future taxable income and tax, respectively. In general, an ownership change, as defined by Section 382, results from transactions increasing the ownership of certain shareholders or public groups in the stock of a corporation by more than 50 percentage points over a three-year period. If the Company has experienced a change of control, utilization of its NOL or tax credits carryforwards would be subject to an annual limitation under Section 382. Any limitation may result in expiration of a portion of the NOL or research and development credit carryforwards before utilization. Subsequent ownership changes could further impact the limitation in future years. Further, until a study is completed and any limitation known, no amounts are being presented as an uncertain tax position. A full valuation allowance has been provided against the Company’s NOL carryforwards and research and development credit carryforwards and, if an adjustment is required, this adjustment would be offset by an adjustment to the valuation allowance. Thus, there would be no impact to the balance sheet or statement of operations if an adjustment were required.