13. Income Taxes

For the years ended December 31, 2016, 2015 and 2014, the Company did not record a provision for federal or state income taxes as it has incurred cumulative net operating losses since inception.

A reconciliation of the U.S. statutory income tax rate to the Company's effective tax rate is as follows for the years ended December 31, 2016, 2015 and 2014:

	Year Ended December 31,
	2016			2015			2014
Federal income tax (benefit) at statutory rate		34.00	%		34.00	%		34.00	%
Permanent differences		(0.85	)		(0.86	)		(1.29	)
Federal research and development credits and adjustments		2.43			2.64			2.70
State income tax, net of federal benefit		5.70			5.77			6.03
Other		(0.40	)		0.28			(0.15	)
Change in valuation allowance		(40.88	)		(41.82	)		(41.29	)

Effective income tax rate		—	%		—	%		—	%

The Company's deferred tax assets consisted of the following (in thousands):

	Year Ended December 31,
	2016			2015
Deferred tax assets
Net operating loss carryforwards	$	48,682		$	35,042
Tax credit carryforwards		4,833			3,762
Capitalized research and development		3,394			4,087
Capitalized legal expenses		1,597			1,464
Other differences		1,335			815

Total deferred tax assets		59,841			45,170
Valuation allowance		(59,841	)		(45,170	)

Net deferred tax assets	$	—		$	—

The Company recorded increases to the valuation allowance of $14.7 million, $13.6 million and $9.0 million during the years ended December 31, 2016, 2015 and 2014, respectively, due primarily to an increase in the net operating loss carryforwards and tax credits.

In assessing the realizability of deferred tax assets, the Company considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which the temporary differences representing net future deductible amounts become deductible. Due to the Company's history of losses and expectation of future losses, the deferred tax assets were fully offset by a valuation allowance at December 31, 2016 and 2015.

As of December 31, 2016, the Company had approximately $124.7 million of federal and $123.1 million of state net operating loss carryforwards to offset future taxable income, if any. Such net operating loss carryforwards expire at varying times through the year 2036, if not utilized. Included in the federal and state net operating losses are deductions attributable to excess tax benefits from the disqualifying disposition of incentive stock options and the exercise of non-qualified stock options of $0.5 million. The Company will record these off-balance sheet net operating losses and the related valuation allowance to retained earnings upon the adoption of ASU 2016-09 in 2017. Company also had approximately $3.9 million of federal and $1.5 million of state tax credit carryforwards available to reduce future tax liabilities as of December 31, 2016, which will expire at varying times through the year 2036.

The Internal Revenue Code of 1986, as amended (the "Code"), provides for a limitation of the annual use of net operating losses and other tax attributes (such as research and development tax credit carryforwards) following certain ownership changes (as defined by the Code) that could limit the Company's ability to utilize these carryforwards. At this time, the Company has not completed a study to assess whether an ownership change under Section 382 of the Code has occurred, or whether there have been multiple ownership changes since the Company's formation, due to the costs and complexities associated with such a study. The Company may have experienced various ownership changes, as defined by the Code, as a result of past financing transactions. Accordingly, the Company's ability to utilize the aforementioned carryforwards may be limited. Additionally, U.S. tax laws limit the time during which these carryforwards may be applied against future taxes. Therefore, the Company may not be able to take full advantage of these carryforwards for federal or state income tax purposes.

As of December 31, 2016 and 2015, the Company did not have any significant unrecognized tax benefits.

As of December 31, 2016, the Company had not accrued interest or penalties related to uncertain tax positions. The Company's tax returns for the years ended December 31, 2008 through December 31, 2016 are still subject to examination by major tax jurisdictions. The Company will recognize interest and penalties, if any, related to uncertain tax positions in income tax expense.