MAGNEGAS CORP

NOTE 14 - INCOME TAX

Income tax expense (benefit) consist of the following for the years ended December 31, consist of the following:

U.S. federal	2016		2015
Current:		--		--
Deferred		(3,900,000)		(2,180,600)
State and local
Current		--
Deferred		(400,000)		(259,300)
Total		(4,300,000)		(3,439,900)

Change in valuation allowance		4,300,000		3,439,900
Income Tax Provision		-		-

The reconciliation between the U.S. statutory federal income tax rate and the Company’s effective rate for the years ended December 31, 2016 and 2015 is as follows:

	2016			2015
U.S. federal statutory rate		34.00	%		34.00	%
State income taxes, net of federal benefit		2.41	%		3.45	%
State rate change
Other permanent items		-10.41	%		-3.50	%
Other		-1.46			--	%
Change in valuation allowance		-24.55	%		-33.95	%
Effective rate		0.00	%		0.00	%

As of December 31, 2016 and 2015, the Company’s deferred tax assets (liabilities) consisted of the effects of temporary differences attributable to the following:

Deferred tax assets	2016		2015
Net Operating Loss carryover	$	16,000,000	$	11,943,000
Stock-based compensation		900,000		324,000
Other		600,000		733,000
Total deferred tax asset		17,300,000		13,000,000
Less reserve for allowance		17,300,000		13,000,000
Total Deferred tax asset net of valuation allowance	$	-	$	-

The Company files income tax returns in the U.S. federal and various state jurisdictions. As of December 31, 2016 and 2015, the Company has federal and state net operating loss carryforwards each of $42,374,000 and $31,616,000, respectively. As of December 31, 2016, the tax returns for the years from 2013 through 2016 remain open to examination by the Internal Revenue Service and various state authorities. ASC 740, “Income Taxes” requires that a valuation allowance be established when it is “more likely than not” that all, or a portion of, deferred tax assets will not be recognized. A review of all available positive and negative evidence needs to be considered, including the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies. After consideration of all the information available, management believes that uncertainty exists with respect to future realization of its deferred tax assets and has, therefore, established a full valuation allowance as of December 31, 2016 and 2015. For the year ended December 31, 2016 the change in valuation allowance was $4,300,0.

As of December 31, 2016 and 2015, the Company has evaluated and concluded that there were no material uncertain tax positions requiring recognition in the Company’s financial statements. The Company’s policy is to classify assessments, if any, for tax related interest as income tax expenses. No interest or penalties were recorded during the years ended December 31, 2016 and 2015. The Company does not expect its unrecognized tax benefit position to change during the next twelve months.