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VITAE PHARMACEUTICALS, INC filed this Form S-1/A on 08/28/2014
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Vitae Pharmaceuticals, Inc.

Notes to the Financial Statements (Continued)

For the Years Ended December 31, 2013 and 2012

11. Income Taxes (Continued)

        The Company's policy is to recognize interest and penalties accrued on any unrecognized tax benefits within the provision for income taxes on the statement of comprehensive income (loss). As of the date of adoption of ASC 740-10, the Company did not have interest or penalties accrued for any unrecognized tax benefits and there was no interest expense recognized for the years ended December 31, 2013 and 2012.

        The reconciliation of the income tax benefit computed at statutory rates to the Company's recorded tax benefit is as follows:

  Year Ended December 31,  
  2013   2012  

Federal income tax (benefit), statutory rates

  $ 406,664   $ 78,080  

State income tax, net of federal benefit

    109,786     50,876  

Research and development tax credits

    (1,140,768 )   (58,079 )


    185,519     196,763  

Income tax (benefit) expense

    (438,799 )   267,640  

Valuation allowance

    438,799     (267,640 )

Income tax benefit

  $   $  

        The tax effects of temporary differences that give rise to deferred tax assets and deferred tax liabilities are as follows:

  December 31,  
  2013   2012  

Long-term deferred tax assets:


Net operating loss carryforwards (federal and state)

  $ 27,545,207   $ 26,730,300  

Research and development tax credits

    5,286,077     4,145,308  

Property and equipment

    989,923     1,010,821  

Other accruals

    92,476     95,929  

Deferred revenue


Impairment of cost method investments

    1,499,352     1,499,352  

Capitalized research

    14,104,291     15,512,298  

Total gross long-term deferred tax assets

    49,517,326     49,078,527  

Less valuation allowance

    (49,517,326 )   (49,078,527 )

  $   $  

        At December 31, 2013, the Company had a federal net operating loss carryforward of approximately $66,382,000 to offset future federal taxable income. Federal net operating loss and research and development tax credit carryforwards begin to expire in 2024 and 2021, respectively. At December 31, 2013 and 2012, the Company recorded a deferred tax asset of approximately $49,517,000 and $49,079,000, respectively, arising from the carryforward of the net operating losses and deferred expenses. During the year ended December 31, 2013, the Company revised its estimate of federal Research and Development ("R&D") Tax Credits available for the years 2003 through 2012. As a result, federal R&D Tax Credits were reduced by approximately $929,000 for the year ended December 31, 2012. The Company recorded a