4.	Income Taxes

Income tax data for the years ended December 31, 2014, 2013 and 2012:


	December 31, 2014			December 31, 2013		December 31, 2012
The components of income from operations before income taxes are as follows:
Domestic	$	(1,151,984	)	$	12,782,598	$	11,175,638
Foreign		12,290,567			10,231,223		95,768

Total	$	11,138,583		$	23,013,821	$	11,271,406

The current and deferred components of the provision for income taxes on operations are as follows:
Current	$	2,480,609		$	4,123,752	$	312,630
Deferred		487,760			2,796,914		(3,197,261	)

Total	$	2,968,369		$	6,920,666	$	(2,884,631	)

The jurisdictional components of the provision for income taxes on operations are as follows:
Federal	$	214,274		$	3,322,032	$	(2,915,673	)
State		(67,383	)		1,305,388		115,307
Foreign		2,821,478			2,293,245		(84,265	)

Total	$	2,968,369		$	6,920,665	$	(2,884,631	)

At December 31, 2014, the Company had net operating loss carryforwards of approximately $43,387,000 and business tax credits carryforwards of approximately $1,782,000 available to reduce future federal income taxes, if any. The cumulative U.S. federal net operating loss includes $6,377,000 related to excess tax deductions from share-based payments, the tax benefit of which will be recognized as an increase to additional paid in capital when the deduction reduces current taxes payable. The net operating loss and business tax credits carryforwards will continue to expire at various dates through December 2032. The net operating loss and business tax credit carryforwards are subject to review and possible adjustment by the Internal Revenue Service and may be limited in the event of certain changes in the ownership interest of significant stockholders.

The Company’s consolidated deferred tax assets (liabilities) consist of the following:


	December 31, 2014			December 31, 2013
Deferred tax assets:
Temporary timing differences	$	3,069,000		$	3,018,000
Net operating loss carryforwards		12,580,000			12,264,000
Tax business credits carryforwards		1,782,000			1,520,000

Total deferred tax assets		17,431,000			16,802,000
Valuation allowance		(17,298,000	)		(16,571,000	)

Net deferred tax assets	$	133,000		$	231,000
Deferred tax liabilities:
Goodwill	$	(251,000	)	$	(44,000	)

Net deferred tax assets (liabilities)	$	(118,000	)	$	187,000

The net change in the total valuation allowance was an increase of $727,000 in the year ended December 31, 2014. The valuation allowance decreased by $1,736,000 for the year ended December 31, 2013 and decreased by $10,169,000 for the year ended December 31, 2012. Prior to 2012, the Company’s U.S. net operating losses (“NOL’s”) and other deferred tax assets were fully offset by a valuation allowance primarily because the Company was in a cumulative loss position and did not have sufficient history of income to conclude that it was more likely than not that the Company would be able to realize the tax benefits of those deferred tax assets. In the fourth quarter of 2012, the Company entered into a three-year cumulative pre-tax income position and concluded that it was more likely than not that it will generate sufficient taxable income in 2013 based on its 2013 projections to realize the tax benefit of a portion of its deferred tax assets. Thus, the Company reversed $3,021,000 of the deferred tax asset valuation allowance in the U.S in the fourth quarter of 2012. The amount was recorded as a benefit for income taxes in the Company’s consolidated statements of operations and comprehensive income. The Company concluded that realization of deferred tax assets beyond December 31, 2013 was not more likely than not as a result of the fact that the Company will not receive royalty payments from Bristol on U.S. net sales of Orencia after December 31, 2013. As of December 31, 2014 the Company continued to maintain a full valuation allowance against its remaining U.S. deferred tax assets.

The reconciliation of the federal statutory rate to the effective income tax rate for the fiscal years ended December 31, 2014, 2013 and 2012 is as follows:


	Period Ended,
	December 31, 2014					December 31, 2013					December 31, 2012
Income before income taxes	$	11,138,583				$	23,013,821				$	11,271,406

Expected tax at statutory rate		3,787,118		34.0	%		7,824,699		34.0	%		3,944,996		35.0	%
Adjustments due to:
Difference between U.S. and foreign tax		(1,470,662	)	(13.2	)%		(1,227,747	)	(5.3	)%		(8,332	)	(0.1	)%
State income and franchise taxes		121,561		1.1	%		1,121,821		4.9	%		357,866		3.2	%
Permanent differences		(171,921	)	(1.5	)%		(298,185	)	(1.3	)%		242,629		2.1	%
Change in valuation allowance		727,157		6.5	%		(508,629	)	(2.21	)%		(7,272,092	)	(64.5	)%
Other		(24,884	)	(0.2	)%		8,707		0.1	%		(149,698	)	(1.3	)%

Provision (benefit) for income taxes	$	2,968,369		26.7	%	$	6,920,666		30.1	%	$	(2,884,631	)	(25.6	)%

The fiscal years ended March 31, 2007 through March 31, 2011 as well as the nine-month fiscal year ended December 31, 2011 and the years ended December 31, 2012, 2013 and 2014 are subject to examination by the federal and state taxing authorities. Currently, a corporate excise tax audit is underway in the Commonwealth of Massachusetts (“the Commonwealth”) for the fiscal years ended March 31, 2008 through 2011, and the nine-month period ended December 31, 2011. For the years ended March 31, 2008 and 2009, two matters have been identified by the Commonwealth in these audits that could result in future assessments. First, the Commonwealth has indicated that it is seeking to disallow up to $713,000 in Research and Development Credits that were generated between 1993 and 2007, and taken as a benefits in 2008 and 2009. Including potential penalties, if any, this assessment could increase to $856,000.

In addition, the Commonwealth has indicated it may apportion to Massachusetts, and therefore tax, certain, although not all, payments received by the Company in connection with our intellectual property settlements with ImClone and Bristol Myers Squibb in 2007 and 2008, respectively. The Commonwealth believes that the full $40 million ImClone payment and the initial $5 million Bristol payment received under these settlements are litigation awards as opposed to royalty payments received for the use of intellectual property, as the Company contends, and therefore are taxable in Massachusetts. However, the Commonwealth agrees with our position that all subsequent Bristol payments received under the settlement are in fact royalty payments and therefore not subject to tax in the Commonwealth. The Company believes the Commonwealth intends to assess up to $1,383,000, or $1,659,000 including potential penalties, in connection with these transactions.

On October 29, 2013, the Company met with the Commonwealth in an attempt to remediate these matters and were not successful. The Company received a Notice of Intent to Assess on this matter on November 16, 2014 and we requested a hearing with the Office of Appeals on December 16, 2014. We presented our case to the Office of Appeals on March 12, 2015 and are now awaiting a response. With respect to the R&D credit, the issue for the Company is that the documentation requested by the Commonwealth would be up to twenty years old and simply no longer exists to the standard the Company now believes the Commonwealth will require. In consideration of these facts, the Company now believes the utilization of credits has not met the “more likely than not” standard for recognition. The Company performed an evaluation of the available documentation, the likelihood of similar matters in other open audit periods, the impact of interest and penalties and other relevant factors and recorded a provision of $800,000 related to this matter for the year ended December 31, 2013.

Conversely, with respect to the apportionment issue, the Company asserts that according to the settlement agreements with ImClone and Bristol, all amounts received were in fact payments in exchange for licenses granted to those entities. The Company further believes the Commonwealth is inconsistent in its approach, taxing some, but not all of the payments received. As such, the Company continues to believe strongly in the legal merits of our position and therefore believe this matter meets the more likely than not standard to be treated as license payments. Accordingly, no further provision has been made for this matter.

While no formal assessments have been made to date, for the years ended March 31, 2010 and 2011, as well as the nine months ended December 31, 2011, the Commonwealth has indicated that it is seeking to disallow certain Research and Development Credits that were generated between 2010 and 2011. The Company performed an evaluation of the available documentation, the likelihood of similar matters in other open audit periods, the impact of interest and penalties and other relevant factors and recorded a provision of $125,000 related to this matter for the year ended December 31, 2014.

At December 31, 2012, the Company had accumulated Federal research credits of $2,160,000, which were not recognized for financial statement purposes as it was not more likely than not that the Company would have sufficient earnings to realize those benefits in addition to the benefits the Company may derive from use of our Net Operating Losses. However, given the uncertainty noted above at the state level in the current year regarding the documentation of our historical research credits and their sustainability under audit, the Company recorded a partial reserve of $1,117,000 against cumulative Federal research credits as of December 31, 2013. As the Federal research credits were not previously recognized for financial statement purposes, the recording of this partial reserve had no impact on net income for the year ended December 31, 2013.

The following is a tabular reconciliation of the total amounts of unrecognized tax benefits:


	December 31, 2014
Unrecognized tax benefits at January 1, 2014	$	1,917,247
Gross increases – tax positions in prior period		125,000
Gross increases – tax positions in current period		38,319

Unrecognized tax benefits at December 31, 2014	$	2,080,566

The amount of unrecognized tax benefits at December 31, 2014 that will impact our effective tax rate are $2,080,566.

For the year ended December 31, 2014, the Company recognized interest and penalties of $139,000. As of December 31, 2014 Repligen have accrued interest and penalties of $274,000 in the consolidated balance sheet.

At December 31, 2014, the Company has not provided for U.S. income taxes or foreign withholding taxes on outside basis differences of foreign subsidiaries of approximately $16,498,000 as it is the Company’s current intention to permanently reinvest these earnings outside the U.S. It is not practical to estimate the additional taxes that may be payable upon repatriation.