Note 12. Federal Income Taxes 



The temporary differences which give rise to significant portions of deferred tax assets and liabilities at December 31 are as follows:





In assessing the realizability of deferred tax assets, Management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized.  The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during periods in which those temporary differences become deductible.  Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment.  Based on the level of historical taxable income and projections for future taxable income over the periods in which the deferred tax assets are deductible, Management believes it is more likely than not that the Bank will realize the benefits of these deferred tax assets other than those for which a valuation allowance has been recorded. 



The components of the provision for Federal income taxes attributable to income from operations were as follows:





For the years ended December 31, 2017,  2016, and 2015, the income tax provisions are different from the tax expense which would be computed by applying the Federal statutory rate to pretax operating earnings.  A reconciliation between the tax provision at the statutory rate and the tax provision at the effective tax rate is as follows:





In 2017, income tax expense and the effective tax rate increased due to the write-down of net deferred tax assets as a result of the passage of the Tax Cuts and Jobs Act of 2017 (the Act). The Act reduced the federal corporate income tax rate to 21%, effective January 1, 2018, from the Corporation’s statutory rate of 34% in prior periods.   With the passage of the Act, net deferred tax assets were required to be revalued using the new rate of 21%.  The Corporation recorded additional income tax expense of $2.3 million in 2017 as a result of the revaluation of net deferred tax assets.    The Corporation has determined that the accounting for the Tax Cuts and Jobs Act is final as of December 31, 2017.



At December 31, 2017, the Corporation had a capital loss carryover of $823 thousand, with $663 thousand expiring in 2018.  This loss carryover can only be offset with capital gains for federal income tax purposes.  The tax benefit of this carryover is $173 thousand, and the Corporation has recorded a valuation allowance of $173 thousand against the capital loss carryover.



The Corporation recognizes interest accrued related to unrecognized tax benefits and penalties in income tax expense for all periods presented.  No penalties or interest were recognized in 2017, 2016 or 2015.  The Corporation has no uncertain tax positions at December 31, 2017.  The Corporation is no longer subject to U.S. Federal examinations by tax authorities for the years before 2014.