10. Income Taxes
The Company did not recognize a provision (benefit) for income taxes for the years ended December 31, 2017 and 2016 due to consolidated net losses for those periods and net deferred tax assets having a full valuation allowance.
At December 31, 2017 and 2016, the Company had net deferred tax assets principally arising from the net operating loss carry forward for income tax purposes multiplied by an expected tax rate of 27% and 40%, respectively. As management of the Company cannot determine that it is more likely than not that the Company will realize the benefit of the deferred tax assets, a valuation allowance equal to 100% of the net deferred tax asset has been established at December 31, 2017 and 2016.
On December 22, 2017, the United States enacted the Tax Cuts and Jobs Act (the "Act") resulting in significant modifications to existing law. The Company completed the accounting for the effects of the Act during the quarter ended December 31, 2017. The Company did not incur any income tax benefit or provision for the year ended December 31, 2017 as a result of the changes to tax laws and tax rates under the Act. The Company’s net deferred tax asset was reduced by approximately $1.6 million during the year ended December 31, 2017, which consisted primarily of the remeasurement of federal deferred tax assets and liabilities from 35% to 21%.
The significant components of net deferred tax assets at December 31, 2017 and 2016 were as follows:
|
|
| December 31, |
| December 31, |
|
|
| 2017 |
| 2016 |
| Deferred tax asset |
|
|
|
|
| Net operating loss carry forward | $ | 2,909,200 | $ | 4,346,000 |
| Mineral properties |
| 620,500 |
| 920,000 |
| Asset retirement obligation |
| 6,500 |
| 8,000 |
| Stock based compensation |
| 156,600 |
| 176,000 |
| Derivative contracts |
| 136,500 |
| 44,000 |
| Discount on note payable |
| 42,000 |
| 118,000 |
| Total deferred tax assets |
| 3,871,300 |
| 5,612,000 |
| Valuation allowance |
| (3,198,800) |
| (4,712,000) |
|
|
| 672,500 |
| 900,000 |
| Deferred tax liabilities |
|
|
|
|
| Acquisition of mineral interest |
| (60,500) |
| (90,000) |
| Property, plant, and equipment |
| (612,000) |
| (810,000) |
| Total deferred tax liabilities |
| (672,500) |
| (900,000) |
| Net deferred tax asset | $ | 0 | $ | 0 |
At December 31, 2017 and 2016 the Company had net operating loss carry forwards of approximately $10,816,000 and $10,476,000 respectively for both federal and state purposes, which expire in the years 2020 through 2037.
The income tax benefit shown in the financial statements for the years ended December 31, 2017 and 2016 differs from the statutory rate as follows:
|
|
| December 31, 2017 |
| December 31, 2016 | ||
| Provision (benefit) at statutory rate |
| $ | (7,700) |
| $ | (476,000) |
| State taxes, net of federal taxes |
|
| (1,100) |
|
| (68,000) |
| Adjustment of prior year tax estimate to actual |
|
| (36,400) |
|
| 15,000 |
| Change in federal tax rate |
|
| (1,558,400) |
|
|
|
| Increase (decrease) in valuation allowance |
|
| 1,513,200 |
|
| 559,000 |
| Total provision (benefit) |
| $ | 0 |
| $ | 0 |
We are open to examination of our income tax filings in the United States and state jurisdictions for the 2015 through 2017 tax years. Certain tax positions taken in the 2015 through 2017 tax years could result in adjustments to our exploration and development costs for tax purposes. However, such adjustments would not result in a tax provision because they would result in a revision to the net operating loss carry forwards balance. In the event that the Company is assessed penalties and or interest, penalties will be charged to other operating expense and interest will be charged to interest expense.