11.    Income Taxes

 

The components of the provision for income taxes are as follows:

These tax expenses are included in other expense in the statements of operations.

A summary of the differences between the Company’s effective income tax rate and the federal statutory income tax rate for the years ended December 31, 2017 and 2016 are as follows:

Deferred tax assets are comprised of the following at December 31:

The net change in the valuation allowance for December 31, 2017 was a decrease of  $1,801. 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 Company recorded a full valuation allowance on its deferred tax asset balances in the current year.

Federal and California tax laws impose significant restrictions on the utilization of NOL carryforwards in the event of a change in ownership of the Company, as defined by Code Section 382 (“Section 382”). The Company does not believe a change in ownership, as defined by Section 382, has occurred but a formal study has not been completed.

The Company has NOL carryforwards for federal and California income tax purposes of approximately $16,946 and $8,044, respectively, as of December 31, 2017. The federal NOL carryforwards, if not utilized, will expire beginning in 2032. The state NOL carryforwards, if not utilized, will expire beginning in 2031. Under The U.S. Tax Cuts & Jobs Act, passed into law in December 2017 and effective January 1, 2018, NOLs generated after December 31, 2017 will be carried forward indefinitely with the yearly NOL utilization limited to 80% of taxable income.

As of December 31, 2017, and 2016, the Company had no unrecognized tax benefits and no adjustments to liabilities or operations that were required for uncertain tax positions under ASC 740-10. The Company’s practice is to recognize interest and penalty expenses related to uncertain tax positions in income tax expense, which was zero for the years ended December 31, 2017 and 2016. The Company files income tax returns in the U.S. federal and several state tax jurisdictions.

The Company’s tax years beginning in 2013 remain open for examination by the state tax authorities for four years. The Company’s tax years beginning in 2014 remain open for examination by the federal tax authorities for three years. Tax years beginning in 2012 will remain open for examination from the date of utilization of any NOL or credits. The Company does not have any tax positions for which it is reasonably possible the total amount of gross unrecognized tax benefits will increase or decrease within 12 months of the year-ended December 31, 2017.

The U.S. Tax Cuts & Jobs Act reduced the U.S. corporate income tax rate from 34% to 21%. Consequently, the Company recorded a decrease to deferred taxes to the 21% corporate income tax rate of $2,288, which was offset by valuation allowance for the year ended December 31, 2017.