11. Income Taxes

No provision for U.S. income taxes exists due to tax losses incurred in all periods presented. All losses incurred were U.S. based. Significant components of the Company’s deferred tax assets are as follows (in thousands):

 

		December 31
		2016				2015
Deferred tax assets:
Federal and state net operating loss carryforwards		$	88,111			$	79,966
Capitalized research and development			22,272				22,287
Federal and state tax credit carryforwards			8,141				7,571
Stock based compensation			2,080				1,384
Other			974				628
Total deferred tax assets			121,578				111,836
Valuation allowance			(121,578	)			(111,836	)
Net deferred tax assets		$	—			$	—

Realization of the net deferred tax assets is dependent upon future taxable income, if any, the amount and timing of which is uncertain. Based on the weight of available positive and negative objective evidence, management believes it more likely than not that the Company’s deferred tax assets are not realizable. Accordingly, the net deferred tax assets have been fully offset by a valuation allowance. The net valuation allowance increased by $9.7 million during the year ended December 31, 2016 and increased $9.8 million during the year ended December 31, 2015.

The following is a reconciliation of the expected statutory federal income tax provision to the actual income tax provision (in thousands):

 

		December 31
		2016				2015
Expected income tax benefit at federal statutory tax rate		$	(9,068	)		$	(5,280	)
Change in valuation allowance			9,775				9,815
State income taxes, net of federal benefit			(458	)			(618	)
Permanent items			196				(3,542	)
Research credits			(445	)			(375	)
Income tax (benefit) expense		$	—			$	—

Pursuant to Internal Revenue Code (“IRC”), Section 382 and 383, use of the Company’s U.S. federal and state net operating loss and research and development income tax credit carryforwards may be limited in the event of a cumulative change in ownership of more than 50.0% within a three-year period. The Company completed an analysis under IRC Sections 382 and 383 through December 21, 2007 and determined that the Company’s net operating losses and research and development credits were subject to limitations due to changes in ownership through December 31, 2007. The net operating loss carryforwards reflected in the deferred tax assets at December 31, 2016 have been adjusted to reflect Section 382 limitations resulting from the ownership change. As the Company was in a net operating loss position for the years 2008-2016, the Company has not performed any additional analysis for IRC Sections 382 and 383 and there is a risk that additional changes in ownership could have occurred since December 31, 2007. If a change in ownership were to have occurred, additional net operating loss and tax credit carryforwards could be eliminated or restricted. If eliminated, the related asset would be removed from the deferred tax asset schedule with a corresponding reduction in the valuation allowance.

As of December 31, 2016, the Company has federal net operating loss carryforwards of $229.1 million and state net operating loss carryforwards of $175.1 million to offset future taxable income, if any. In addition, the Company has federal research and development tax credit carry forwards of $7.7 million and state research and development tax credit carryforwards of $6.3 million. If not utilized, the federal net operating loss and tax credit carryforwards will expire beginning in 2024 through 2036 and the state net operating loss carryforwards will expire beginning in 2017 through 2036. The state tax credit will carry forward indefinitely.

The following table summarizes activity related to the Company’s gross unrecognized tax benefits (in thousands):

 

		Total
Balances as of December 31, 2014		$	1,991
Increases related to prior year tax positions			—
Increases related to 2015 tax positions			136
Balances as of December 31, 2015		$	2,127
Increases related to prior year tax positions			—
Increases related to 2016 tax positions			159
Balances as of December 31, 2016		$	2,286

The unrecognized tax benefits, if recognized, would not have an impact on the Company’s effective tax rate assuming the Company continues to maintain a full valuation allowance position. Based on prior year’s operations and experience, the Company does not expect a significant change to its unrecognized tax benefits over the next twelve months. The unrecognized tax benefits may increase or change during the next year for unexpected or unusual items for items that arise in the ordinary course of business.

The Company files income tax returns in the U.S. federal and California jurisdiction and is not currently under examination by federal, state, or local taxing authorities for any open tax years. The tax years 1998 through 2016 remain open to examination by the major taxing authorities.