J. Income Taxes

For the years ended December 31, 2012 and 2011, we recognized $0.9 million and $1.2 million in current federal income tax benefits, respectively. We did not recognize any current federal income tax benefit for the year ended December 31, 2013. The 2012 and 2011 federal income tax benefits were the result of the recognition of corresponding income tax expense associated with the decrease in the unrealized loss on our investments, primarily related to our auction rate securities, which we carried at fair market value during 2012 and 2011. The corresponding income tax expense was recorded in other comprehensive loss. Due to the uncertainty surrounding the realization of favorable tax attributes in future tax returns, we have recorded a full valuation allowance against our otherwise recognizable net deferred tax assets. We did not recognize any federal income tax benefits in 2013.

The reconciliation of the statutory U.S. federal income tax rate to our effective income tax rate is as follows:

	Years Ended December 31,

	2013			2012			2011
Statutory U.S. federal tax rate		(34.0	)%		(34.0	)%		(34.0	)%
State taxes, net of federal benefit		2.4	%		4.2	%		(3.4	)%
Equity-based compensation expense		9.4	%		42.4	%		2.4	%
Permanent items, net		5.3	%		1.2	%		0.4	%
Tax credits		0.5	%		0.8	%		(1.6	)%
Valuation allowance		16.4	%		(19.5	)%		34.7	%


Total tax (benefit) expense		0.0	%		(4.9	)%		(1.5	)%

Deferred tax assets and deferred tax liabilities are recognized based on temporary differences between the financial reporting and tax basis of assets and liabilities using future 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 components of our deferred tax assets and liabilities are as follows (in thousands):

	December 31,

	2013			2012
Assets
Net operating loss carryforwards	$	85,269		$	75,740
Tax credit carryforwards		12,396			12,403
Deferred revenue		20,368			22,315
Equity-based compensation expense		4,176			3,681
Capitalized research & development		39,214			45,137
Intangibles		680
Other		4,371			4,239
Property and Equipment Depreciation		—			1,393
Liabilities
Property, Plant, and Equipment Depreciation		(58	)		—


		166,416			164,908
Valuation allowance		(166,416	)		(164,908	)


Net deferred taxes	$	—		$	—

Due to the uncertainty surrounding the realization of favorable tax attributes in future tax returns, we have recorded a full valuation allowance against our otherwise recognizable net deferred tax assets. The valuation allowance increased by approximately $1.5 million for the year ended December 31, 2013 primarily due to an increase in net operating loss, or NOL, carryforwards, partially offset by a decrease in capitalized research and development expense, deferred revenue, and property and equipment. The valuation allowance decreased by approximately $2.8 million for the year ended December 31, 2012 primarily due to an increase in our net operating loss, or NOL, carryforwards, capitalized research and development expense, and equity-based compensation expense. The valuation allowance increased by approximately $26.8 million for the year ended December 31, 2011 primarily due to an increase in our NOL carryforwards, capitalized research and development expense, and equity-based compensation expense.

At December 31, 2013, we had federal NOL carryforwards of approximately $234.5 million and state NOL carryforwards of up to $118.9 million. We also had federal capital loss carryforwards of $3.3 million to offset future capital gains and an additional $24.6 million and $4.8 million of federal and state NOLs, respectively, not reflected above which were attributable to deductions from the exercise of equity awards. The benefit from these deductions will be recorded as a credit to additional paid-in capital if and when realized through a reduction of taxes paid in cash. Our federal NOLs and our most significant state NOLs expire at various dates through 2033. Our capital loss carryforwards will expire through 2017. In addition, we have federal and state tax credits of approximately $9.3 million and $4.6 million, respectively, to offset future tax liabilities. Our tax credits will expire periodically through 2032 if not utilized.

Utilization of our NOLs and research and development, or R&D, 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 in accordance with Section 382 of the Internal Revenue Code of 1986, or Section 382, as well as similar state provisions. These ownership changes may limit the amount of NOL and R&D credit carryforwards that can be utilized annually to offset future taxable income and taxes, 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. Since our formation, we have raised capital through the issuance of capital stock on several occasions. These financings, combined with the purchasing shareholders' subsequent disposition of those shares, may have resulted in a change of control as defined by Section 382 or could result in a change of control in the future upon subsequent disposition. In May 2011, we conducted an analysis under Section 382 to determine if historical changes in ownership through December 31, 2010 would limit or otherwise restrict our ability to utilize these NOL and R&D credit carryforwards. As a result of this analysis, we do not believe there are any significant limitations on our ability to utilize these carryforwards. However, changes in ownership after December 31, 2010 could affect the limitation in future years. Any limitation may result in expiration of a portion of the NOL or R&D credit carryforwards before utilization.

At December 31, 2013 and 2012, we had no unrecognized tax benefits. We have not, as yet, conducted a study of our R&D credit carryforwards. Such a study could result in an adjustment to our R&D credit carryforwards; however, until a study is completed and any adjustment is known, no amounts are being presented as an uncertain tax position. A full valuation allowance has been provided against our R&D credits 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 consolidated balance sheet or statement of operations if an adjustment were required.

We would recognize both accrued interest and penalties related to unrecognized benefits in income tax expense. We have not recorded any interest or penalties on any unrecognized benefits since inception.

The statute of limitations for assessment by the Internal Revenue Service, or the IRS, and state tax authorities is closed for tax years prior to December 31, 2010, although carryforward attributes that were generated prior to tax year 2010 may still be adjusted upon examination by the IRS or state tax authorities if they either have been or will be used in a future period. We file income tax returns in the U.S. federal and various state jurisdictions. There are currently no federal or state audits in progress.