(14) INCOME TAXES

The components of income tax expense attributable to continuing operations consist of the following:

	Year Ended December 31,
	2016			2015			2014
	(In thousands)
Income tax benefit (provision):
Federal	$	45,518		$	46,598		$	43,536
State		7,268			10,642			7,328
Foreign		1,124			—			—
Expiration of Net Operating Losses and Research & Development Tax Credits		—			(155	)		(2,302	)

		53,910			57,085			48,562
Deferred tax valuation allowance		(53,910	)		(57,085	)		(48,562	)

	$	—		$	—		$	—

A reconciliation between the amount of reported income tax and the amount computed using the U.S. Statutory rate of 34% follows:

	2016			2015			2014
	(In thousands)
Pre-tax loss	$	(128,530	)	$	(127,197	)	$	(118,080	)


Loss at Statutory Rates		(43,700	)		(43,247	)		(40,147	)
Difference in Foreign Tax Rates		150			—			—
Research and Development Credits		(5,203	)		(4,935	)		(4,126	)
State Taxes		(7,268	)		(10,642	)		(7,328	)
Other		2,111			1,584			737
Expiration of Net Operating Losses and Research & Development Tax Credits		—			155			2,302
Change in Valuation Allowance		53,910			57,085			48,562

Income tax (benefit) provision	$	—		$	—		$	—

The Company incurred a foreign pre-tax loss of $3.7 million during the year ended December 31, 2016. Deferred tax assets and liabilities are recognized based on temporary differences between the financial reporting and tax basis of assets and liabilities using future expected enacted rates. A valuation allowance is recorded against deferred tax assets if it is more likely than not that some or all of the deferred tax assets will not be realized.

The principal components of the deferred tax assets and liabilities at December 31, 2016 and 2015, respectively, are as follows:

	December 31, 2016			December 31, 2015
	(In thousands)
Gross Deferred Tax Assets
Net Operating Loss Carryforwards	$	174,555		$	180,777
Foreign Net Operating Loss Carryforwards		1,124			—
Tax Credit Carryforwards		32,306			35,895
Deferred Research and Development Expenses		109,520			48,608
Stock-based Compensation		12,362			8,393
Fixed Assets		1,526			2,017
Deferred Revenue		1,418			1,703
Accrued Expenses and Other		894			219

		333,705			277,612
Gross Deferred Tax Liabilities
Other Acquired Intangibles		(2,868	)		(3,382	)
IPR&D Intangibles		(28,054	)		(4,661	)

		(30,922	)		(8,043	)

Total Deferred Tax Assets and Liabilities		302,783			269,569
Deferred Tax Assets Valuation Allowance		(330,837	)		(274,230	)

Net Deferred Tax Asset (Liability)	$	(28,054	)	$	(4,661	)

The net deferred tax liability of $28.1 million and $4.7 million at December 31, 2016 and 2015, respectively relates to the temporary differences associated with the IPR&D intangible assets acquired in the Kolltan and CuraGen acquisitions, respectively, which are not deductible for tax purposes. Since the IPR&D intangible assets are indefinite-lived, the related deferred tax liability cannot be netted against definite-lived deferred tax assets to reduce the valuation allowance required.

As of December 31, 2016, the Company had the following federal net operating loss ("NOL") carryforwards:


	•	Prior to the merger of the Company and AVANT, $33.0 million was generated by the Company which expire at various dates starting in 2023 and going through 2028;
	•	Prior to the merger of the Company and AVANT, $101.2 million, net of expirations and utilization, was generated by AVANT which expire at various dates starting in 2018 and going through 2028;
	•	Following the merger of the Company and AVANT, $356.7 million was generated by the combined company which expire at various dates starting in 2028 and going through 2036; and
	•	Prior to its acquisition by the Company, $518.3 million was generated by CuraGen.
	•	Prior to its acquisition by the Company, $110.5 million was generated by Kolltan Pharmaceuticals, Inc.

As of December 31, 2016, the Company had foreign net operating loss carryforwards of $3.7 million which can be carried forward indefinitely.

As of December 31, 2016, the Company has an additional $17.7 million of federal and state net operating losses not reflected above, that are attributable to stock option exercises which will be recorded as an increase in additional paid in capital on the balance sheet once they are "realized" in accordance with ASC 718.

As of December 31, 2016, the Company had federal and state net operating loss carryforwards of $458.5 million and $344.9 million, respectively, which may be available to offset certain future income tax liabilities and begin to expire in 2018 and 2028, respectively. As of December 31, 2016, the Company also had federal and state research and development tax credit carryforwards of $26.1 million and $9.4 million, respectively, which may be available to offset future income tax liabilities and begin to expire in 2018 and 2017, respectively. Utilization of the net operating loss carryforwards and research and credit carryforwards may be subject to a substantial annual limitation under Section 382 of the Internal Revenue Code of 1986 due to ownership changes that have occurred previously or that could occur in the future. These ownership changes may limit the amount of carryforwards that can be utilized annually to offset future taxable income. 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% over a three-year period. The Company has estimated the amounts of net operating loss and research and development tax credit carryforwards which will expire unutilized as a result of its estimated annual limitations under Section 382, and has excluded those amounts from the carryforward amounts disclosed in this paragraph and in the deferred tax assets and liabilities table included in this footnote. The Company has concluded Section 382 studies through 2015 for Celldex generated NOLs.

The Company as a stand-alone company experienced a change in ownership in October 2007. As a result of the ownership changes in October 2007, utilization of the Company's NOLs prior to October 2007 is subject to an annual limitation of $4.5 million on $28.3 million of NOLs generated before that date. As a result of the ownership changes in June 2009 and December 2009, there is an annual limitation amount of $6.0 million on $67.7 million of NOLs generated before that date. As a result of the ownership change in December 2013, there is an annual limitation amount of $77.0 million on $178.7 million of NOLs generated before that date. Any unused annual limitation may be carried over to later years, and the amount of the limitation may, under certain circumstances, be subject to adjustment if the fair value of the Company's net assets are determined to be below or in excess of the tax basis of such assets at the time of the ownership change, and such unrealized loss or gain is recognized during the five year period after the ownership change. However, the Company has not completed a 382 study to assess whether a change of control has occurred for the NOLs it has acquired in its various acquisitions, including most recently Kolltan, or whether there have been multiple changes of control since inception, particularly within the ownership of acquired entities prior to their acquisition by the Company, due to the significant complexity and cost associated with such a study. If the Company or its acquired entities have experienced additional changes of control, as defined by Section 382, at any time since inception, utilization of the net operating loss carryforwards or research and development tax credit carryforwards could be subject to additional annual limitations under Section 382, which are determined by first multiplying the value of the Company's stock at the time of the ownership change by the applicable long-term tax-exempt rate, and then could be subject to additional adjustments, as required. Any additional limitations may result in expiration of a portion of the net operating loss carryforwards or research and development tax credit carryforwards before utilization. Further, until a study is completed and any additional limitations are known, no amounts are being presented as an uncertain tax positions.

The Company applies the authoritative guidance on account for and disclosure of uncertainty in income tax positions which requires the Company to determine whether an income tax position of the Company is more likely than not to be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. For income tax positions meeting the more likely than not threshold, the tax amount recognized in the financial statements is reduced to the largest benefit that has a greater than 50% likelihood of being realized upon the ultimate settlement with the relevant taxing authority. At December 31, 2016 and 2015, we had no unrecognized tax benefits. A full valuation allowance has been provided against our deferred tax assets and liabilities and, if an adjustment for unrecognized tax benefits 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.

Massachusetts, New Jersey and Connecticut are the three states in which the Company primarily operates or has operated and has income tax nexus. The Company is not currently under examination by these or any other jurisdictions for any tax year. For federal and state jurisdictions, all years which generated net operating losses and/or tax credit carryforwards remain subject to examination to the extent those carryforwards are utilized in a subsequent period.

The Company has evaluated the positive and negative evidence bearing upon the realizability of its net deferred tax assets, which are comprised principally of net operating loss carryforwards, capitalized R&D expenditures and R&D tax credit carryforwards. The Company has determined that it is more likely than not that it will not recognize the benefits of federal and state deferred tax assets and, as a result, a full valuation allowance was maintained at December 31, 2016 against the Company's net deferred tax assets. The net increase in the valuation allowance during the year ended December 31, 2016 primarily related to an increase in deferred tax assets for research and development expenses which have been deferred for tax purposes.