Support.com 2014 Annual Report Download - page 60

Table of Contents
The net valuation allowance decreased by approximately $2.0 and $5.7 million during the years ended December 31, 2014 and 2013, respectively. As of December 31, 2014, $4.8 million of the valuation
allowance against federal and state net operating loss carryfowards relates to the tax benefit of stock option exercises prior to 2006 that, when realized, will be recorded as a credit to additional paid in capital rather
than as a reduction of the provision for income taxes. As of December 31, 2014, the Company had Federal and state net operating loss carryforwards of approximately $120.0 million and $64.5 million, respectively.
The Federal net operating loss and credit carryforwards will expire at various dates beginning in 2020 through 2034, if not utilized. The state net operating loss carryforwards will expire at various dates beginning in
2015 through 2034, if not utilized.
The Company also had Federal and state research and development credit carryforwards of approximately $2.8 million and $2.4 million, respectively. The federal credits expire in varying amounts between
2020 and 2031. The state research and development credit carryforwards do not have an expiration date.
Utilization of net operating loss carryforwards and credits may be subject to substantial annual limitation due to the ownership change limitations provided by the Internal Revenue Code of 1986, as amended
and similar state provisions. The annual limitation may result in the expiration of net operating losses and credits before utilization.
ASC 740-10 clarifies the accounting for uncertainties in income taxes by prescribing guidance for the recognition, de-recognition and measurement in financial statements of income tax positions taken in
previously filed tax returns or tax positions expected to be taken in tax returns, including a decision whether to file or not to file in a particular jurisdiction. ASC 740-10 requires the disclosure of any liability created for
unrecognized tax benefits. The application of ASC 740-10 may also affect the tax bases of assets and liabilities and therefore may change or create deferred tax liabilities or assets.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):
Year Ended December 31,
2014 2013 2012
Balance at beginning of year $ 2,502 $ 3,637 $ 3,210
Increase related to prior year tax positions 2 98 507
Decrease related to prior year tax positions (89) (1,349) —
Increase related to current year tax positions 181 162 18
Settlements with tax authorities — — —
Decrease related to lapse of statute of limitations (136) (46) (98)
Balance at end of year $ 2,460 $ 2,502 $ 3,637
The Company’s total amounts of unrecognized tax benefits that, if recognized, that would affect its tax rate are $0.5 million and $0.5 million as of December 31, 2014 and 2013, respectively.
The Company’s policy is to include interest and penalties related to unrecognized tax benefits within its provision for (benefit from) income taxes. The Company had $176,000 accrued for payment of interest and
penalties related to unrecognized tax benefits as of December 31, 2014. The Company had $111,000 and $80,000 accrued for payment of interest and penalties related to unrecognized tax benefit as of December 31,
2013 and 2012, respectively.
As of December 31, 2014, the amount of recognized tax benefit where it is reasonably possible that a significant change may occur in the next 12 months is approximately $41,000. The change would result
from expiration of a statute of limitations in a foreign jurisdiction.
The Company files federal, state and foreign income tax returns in jurisdictions with varying statutes of limitations. Due to its net operating loss carryforwards, the Company’s income tax returns generally remain
subject to examination by federal and most state authorities. In our foreign jurisdictions, the 2007 through 2013 tax years remain subject to examination by their respective tax authorities.
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