U.S. NeuroSurgical Holdings, Inc.

Note H – Taxes

A reconciliation of the tax provision calculated at the statutory federal income tax rate with amounts reported follows:

	Year Ended December 31,
	2016		2015

Income tax at the federal statutory rate	$	299,000	$	220,000
State income tax, net of federal taxes		29,000		21,000
Permanent differences		14,000		14,000
Other		-		(3,000	)

Income tax (benefit) provision	$	342,000	$	252,000

Items which give rise to deferred tax assets and liabilities are as follows:

	December 31,
	2016			2015
Deferred tax asset:
Net operating loss	$	342,000		$	463,000
Basis difference in unconsolidated entities		-			32,000
		342,000			495,000

Deferred tax liability:
Basis difference in unconsolidated entities		(31,000	)		-
Deferred gain on disposal of gamma knife		(716,000	)		(716,000	)
Excess of depreciation over book depreciation		(186,000	)		(82,000	)
Net effect of conversion from the accrual basis of accounting to the cash basis of accounting for tax purposes primarily related to accounts receivable, prepaid expense, deferred revenue, and accounts payable		(245,000	)		(191,000	)
Net deferred tax liability	$	(836,000	)	$	(494,000	)

At December 31, 2016, the Company had loss carryforwards of $915,000, which may be offset against future taxable income. If not used, the carryforwards will begin to expire in 2025. There was no current tax expense for the years ended December 31, 2016 or 2015. The Company incurred a Federal deferred tax expense of $312,000 and $230,000 for the years ended December 31, 2016 and 2015, respectively. The Company incurred a state deferred tax expense of $30,000 and $22,000 for the years ended December 31, 2016 and 2015, respectively.

The Company files income tax returns in the U.S. federal jurisdiction and the State of Maryland. With few possible exceptions, the Company is no longer subject to U.S. or state income tax examinations by tax authorities for years before 2013.