NEVADA GOLD & CASINOS INC

Note 7.

Income Taxes

Income taxes are accounted for using an asset and liability approach for financial accounting and reporting for income taxes. Under this approach, deferred tax assets and liabilities are recognized based on anticipated future tax consequences, using currently enacted tax laws, attributable to differences between financial statement carrying amounts of assets and liabilities and their respective tax basis. We record current income taxes based on our current taxable income, and we provide for deferred income taxes to reflect estimated future tax payments and receipts. We account for tax credits under the flow-through method, which reduces the provision for income taxes in the year the tax credits first become available. We reduce deferred tax assets by a valuation allowance when, based on our estimates, it is more likely than not that a portion of those assets will not be realized in a future period.

We recognize the impact of uncertain tax positions in our financial statements only if that position is more likely than not of not being sustained upon examination by the taxing authority. Should interest and penalty be incurred as a result of a review of our income tax returns, we will record the interest and penalty in accordance with applicable guidance.

Deferred tax assets and liabilities presented on the balance sheet are as follows:

		April 30, 2017			April 30, 2016
Deferred tax asset		$	1,557,470		$	2,348,299

A summary of our deferred tax assets and liabilities is presented in the table below:

	April 30, 2017		April 30, 2016
Deferred tax assets:
Net operating loss carryforwards	$	345,678	$	5,284
Tax credit carryforwards		437,896		352,709
Stock options		246,726		237,937
Impairment of notes receivable and land		2,101,288		2,644,330
Revenue not recognized for tax reporting and other		187,770		172,135
Accrued expenses		104,580		198,273
Other		15,396		100,138
Total deferred tax assets		3,439,334		3,710,806
Deferred tax liabilities:
Amortization of intangibles		(1,404,551)		(1,024,020)
Fixed assets		(263,072)		(127,956)
Prepaid expenses		(214,241)		(210,531)
Total deferred tax liabilities		(1,881,864)		(1,362,507)
Net deferred tax assets	$	1,557,470	$	2,348,299

At April 30, 2017, we have $6.3 million in note receivables that have been fully reserved for book purposes, but not yet deducted on the tax return. We also have deferred tax assets of approximately $0.4 million related to general business credits and $0.1 million related to Alternative Minimum Tax credits. The net operating losses and general business credits can be carried forward and applied to offset taxable income for 20 years; they will begin to expire in 2032. The Alternative Minimum Tax credit can be carried forward indefinitely and will offset future regular tax liabilities.

We have analyzed our income tax filing positions in all jurisdictions and believe our income tax filing positions and deductions will be sustained on audit and do not anticipate any adjustments which will result in a material change to our financial position. As of the time of this filing, no income tax examinations are currently being undertaken by any jurisdiction.

Reconciliations between the statutory federal income tax expense rate of 34.0% in the fiscal years ended April 30, 2017 and 2016, and our effective income tax rate as a percentage of pre-tax book income, is as follows:

	Year Ended
	April 30, 2017				April 30, 2016
	Percent		Dollars		Percent		Dollars

Income tax expense at statutory federal rate		34.0	$	460,630		34.0	$	857,664
Impairment of nondeductible goodwill		27.6		374,500		11.3		283,900
Non-deductible expenses		2.8		37,933		2.3		59,006
Utilization of general business credits		(6.3)		(85,187)		(2.8)		(71,051)
Adjustment to deferred balances		-		-		3.0		76,157
Tax return to provision adjustments		0.2		2,953		0.6		15,821
Income tax expense at effective income tax rate		58.3	$	790,829		48.4	$	1,221,497