16. Income Taxes

The Company is subject to U.S. federal and various state corporate income taxes as well as taxes in foreign jurisdictions where subsidiaries have been established. Loss before provision for income taxes and the provision for income taxes consist of the following for the years ended December 31, 2013, 2012 and 2011:


*In thousands*	2013			2012			2011
Loss before provision for income taxes
Domestic	$	(192,998	)	$	(182,974	)	$	(123,603	)
Foreign		(80,721	)		(37,898	)		—

Total	$	(273,719	)	$	(220,872	)	$	(123,603	)

Provision for income taxes
Current:
Federal	$	—		$	—		$	—
State		216			—			—
Foreign		223			—			—

Total	$	439		$	—		$	—

The Company did not incur a deferred income tax provision or benefit in 2013, 2012 or 2011.

A reconciliation of the federal statutory corporate income tax rate to the effective income tax rate for the years ended December 31, 2013, 2012 and 2011 is as follows:


	2013			2012			2011
Statutory federal income tax rate		(35	)%		(35	)%		(35	)%
State income tax rate, net of federal benefit		(2	)		(4	)		(4	)
Revaluation of warrant liability		—			3			13
Other permanent differences		—			(1	)		—
Foreign rate differential		9			6			—
Change in valuation allowance		28			31			26

Effective tax rate		—	%		—	%		—	%

The components of deferred income taxes were as follows at December 31:


*In thousands*	2013			2012
Deferred tax liabilities:
Intangibles	$	388		$	398
Unrealized currency gain		10,892			7,330

Total deferred tax liabilities		11,280			7,728

Deferred tax assets:
Net operating loss carryforwards		166,951			96,997
Federal and state tax credit carryovers		28,645			19,654
Depreciation		3,607			4,785
Stock-based compensation		7,780			5,491
Other		7,977			3,703

Total deferred tax assets		214,960			130,630

Deferred tax assets, net		203,680			122,902
Valuation allowance		(203,680	)		(122,902	)

Total deferred taxes	$	—		$	—

At December 31, 2013, the Company had available estimated net operating loss carryforwards and research and development credit carryforwards for federal, foreign and state tax reporting purposes as follows:


	Amount		Expiring if not utilized
	(in thousands)
Net operating loss carryforwards:
Federal	$	498,728		2024 through 2033
State	$	90,329		2033
Foreign	$	122,031		2021
Research and development credit carryforwards:
Federal	$	25,882		2018 through 2033
State	$	4,388		2005 through 2028

Included in the federal net operating loss carryforwards above is approximately $50.3 million related to stock-based compensation tax deductions in excess of book compensation expense which will be credited to additional paid-in-capital when such reductions reduce taxes payable. Although these net operating losses are included in the carryforwards above, they are not reflected in the table of deferred tax assets as the excess tax benefits are not yet realized.

During 2012, the Company transferred certain intellectual property rights related to Iclusig to its wholly-owned subsidiary in Switzerland. Although the transfer of intellectual property rights between consolidated entities did not result in any gain in the consolidated results of operations, the Company generated a taxable gain in the U.S. that is substantially offset by existing tax loss and credit carryforwards. Any taxes incurred related to the intercompany transactions are treated as a prepaid tax in the Company’s consolidated balance sheet and amortized to income tax expense over the life of the intellectual property. The amount of tax amortized to the provision for income taxes for the year ended December 31, 2013 is approximately $150,000.

Since the Company has not yet achieved sustained profitable operations, management believes its deferred tax assets do not satisfy the more likely than not realization criteria and has recorded a valuation allowance for all deferred tax assets as of December 31, 2013 and 2012. The valuation allowance increased by $80.8 million in 2013, decreased by $70.5 million in 2012, and increased by $28.5 million in 2011.

The Company does not recognize a tax benefit unless it is more likely than not that the tax position will be sustained upon examination by tax authorities, including resolution of any related appeals or litigation processes, based on the technical merits of the position. The tax benefit recognized for these positions is measured at the largest amount of benefit that is greater than 50 percent likelihood of being realized upon ultimate settlement. Deferred tax assets that do not meet these recognition criteria are not recorded and the Company recognizes a liability for uncertain tax positions that may result in tax payments. The Company recognizes interest and penalties as a component of the provision for incomes taxes. In 2013, the Company recorded approximately $65,000 of interest expense as a component of the provision for income taxes.

In 2013, the Company’s uncertain tax positions increased to approximately $24.7 million, related to certain uncertain tax benefits that arose in 2013 and 2012. Of this amount, the Company has reduced its deferred tax assets and associated valuation allowance by $19.2 million and recorded a long-term liability of $2.0 million. If such unrecognized tax benefits were realized and not subject to valuation allowances, the Company would recognize a tax benefit of $21.2 million. No uncertain tax positions are expected to be resolved within the next twelve months. A reconciliation of the reserve for uncertain tax benefits (including state tax matters without federal benefits) is as follows:


*In thousands*	2013		2012
Uncertain tax positions, beginning of the year:	$	24,404	$	—
Gross increases – tax positions in current period		249		24,404

Uncertain tax positions, end of year	$	24,653	$	24,404

Due to the Company’s historical net operating loss position, the Company’s U.S. federal and Massachusetts tax returns remain open to examination for three years after the Company utilizes that year’s net operating loss carryforward. The Company’s earliest year which generated a net operating loss included in the Company’s current net operating loss carryforward is 2004 for U.S. federal tax purposes. The Company’s Massachusetts state tax returns from 2009 to 2012 remain open to examination. All tax years for foreign subsidiaries are also open to audit in their respective jurisdictions.