9. Income Taxes

The components of the Company’s income (loss) before income taxes were as follows:


	Years Ended December 31,
	2015			2014			2013
	(in thousands)
Domestic	$	(68,919	)	$	(31,807	)	$	(26,574	)
Foreign		2,654			1,605			922

Total income (loss) before income taxes	$	(66,265	)	$	(30,202	)	$	(25,652	)

The components of income tax expense are as follows (in thousands):


	Years Ended December 31,
	2015		2014		2013
Current:
Federal	$	—	$	—	$	—
State		34		2		(6	)
Foreign		1,132		476		368

Total current		1,166		478		362
Deferred:
Federal		—		—		—
State		—		—		—
Foreign		—		—		—

Total deferred		—		—		—

Total income tax expense	$	1,166	$	478	$	362

Income tax expense differs from the amount computed by applying the statutory federal income tax rate as follows:


	Years Ended December 31,
	2015			2014			2013
Tax at statutory federal rate		34.0	%		34.0	%		34.0	%
State tax, net of federal benefit		0.0	%		0.0	%		0.0	%
Other		(3.5	)%		(5.3	)%		(3.4	)%
Foreign rate differential		(0.5	)%		0.2	%		(0.2	)%
Tax credits		1.6	%		2.0	%		4.2	%
Change in valuation allowance		(33.4	)%		(32.5	)%		(36.0	)%

Total		(1.8	)%		(1.6	)%		(1.4	)%

The tax effects of temporary differences and carryforwards that give rise to significant portions of deferred tax assets are as follows:


	Years Ended December 31,
	2015			2014			2013
	(in thousands)
Net operating loss carryforwards	$	56,340		$	37,977		$	29,491
Tax credits		5,236			3,713			2,937
Depreciation		13			29			8
Stock-based compensation		1,857			471			371
Accruals and reserves		3,617			1,215			1,363
Other		313			262			98

Deferred tax assets		67,376			43,667			34,268
Other		(345	)		—			—

Deferred tax liabilities		(345	)		—			—
Valuation allowance		(67,031	)		(43,667	)		(34,268	)

Net deferred tax assets	$	—		$	—		$	—

The Company has established a full valuation allowance against its deferred tax assets due to the uncertainty surrounding realization of these assets.

The Company’s deferred tax assets do not include the excess tax benefit related to stock-based compensation that are a component of its federal and state net operating loss carryforwards in the amount of $28.4 million as of December 31, 2015. The excess tax benefit reflected in the Company’s net operating loss carryforwards will be accounted for as a credit to stockholders’ equity, if and when realized. In determining if and when excess tax benefits have been realized, the Company has elected to utilize the with-and-without approach with respect to such excess tax benefits.

Realization of deferred tax assets is dependent upon future earnings, if any, the timing and amount of which are uncertain. Accordingly, the net deferred tax assets have been fully offset by a valuation allowance. The valuation allowance increased by $23.4 million, $9.4 million and $10.0 million for the years ending December 31, 2015, 2014 and 2013, respectively.

As of December 31, 2015, the Company had net operating loss carryforwards (NOLs) for federal and state income tax purposes of approximately $187.8 million and $73.2 million, respectively. The federal NOLs begin expiring in 2026, and the state NOLs begin expiring in 2016.

As of December 31, 2015, the Company had research and development credit carryforwards of approximately $4.1 million and $3.1 million for federal and California state income tax purposes, respectively. The federal credit carryforward begins expiring in 2026, and the state credits carry forward indefinitely.

Under Section 382 of the Internal Revenue Code of 1986, as amended, the Company’s ability to utilize NOLs or other tax attributes such as research tax credits, in any taxable year may be limited if the Company experiences, or has experienced, an “ownership change.” A Section 382 “ownership change” generally occurs if one or more stockholders or groups of stockholders, who own at least 5% of the Company’s stock, increase their ownership by more than 50 percentage points over their lowest ownership percentage within a rolling three-year period. Similar rules may apply under state tax laws. As a result of the Company’s June 2015 underwritten public offering, the Company experienced a Section 382 “ownership change.” The Company currently estimates that this “ownership change” will not inhibit its ability to utilize its NOLs. The Company may, in the future, experience one or more additional Section 382 “ownership changes.” If so, the Company may not be able to utilize a material portion of its NOLs and tax credits, even if the Company achieves profitability.

The earnings of the Company’s foreign subsidiaries are not considered permanently reinvested. As a result, the Company has provided for residual U.S. tax on its foreign subsidiary unremitted earnings net of a foreign tax credit deferred tax asset as of December 31, 2015. The net amount of deferred tax liability is considered insignificant. The timing of the potential remittance of these earning is uncertain at December 31, 2015.

The Company had unrecognized tax benefits (“UTBs”) of approximately $3.8 million as of December 31, 2015. All of the deferred tax assets associated with these UTBs are fully offset by a valuation allowance. The following table summarizes the activity related to UTBs (in thousands):


Balance at January 1, 2013	$	654
Increases related to current year tax provisions		228
Increases related to prior year tax provisions		183

Balance at December 31, 2013		1,065
Increases related to current year tax provisions		220
Increases related to prior year tax provisions		677

Balance at December 31, 2014		1,962
Increases related to current year tax provisions		813
Increases related to prior year tax provisions		1,069

Balance at December 31, 2015	$	3,844

All of these UTBs, if recognized, would affect the effective tax rate before consideration of the valuation allowance.

In accordance with ASC 740, Income Taxes, the Company is classifying interest and penalties as a component of tax expense. There was no interest or penalties accrued at December 31, 2015, December 31, 2014, and December 31, 2013.

The Company files U.S. federal and state income tax and foreign income tax returns with varying statues of limitations. The Company’s tax years from inception in 2006 will remain open to examination due to the carryover of the unused NOLs and tax credits. The Company does not have any tax audits or other proceedings pending.

The Company does not expect any material changes to the estimated amount of liability associated with its uncertain tax positions within the next twelve months.