Deferred tax assets of approximately $6,273,000 and $8,997,000 at December 31, 2017 and 2016, respectively, relate principally to net operating loss carry-forwards of $22,374,000 and $21,406,000, respectively, and research and development credit carry-forwards of $1,500,000. A valuation allowance has been established for the full amount of the deferred tax assets as a result of the significant uncertainty regarding their ultimate realization. The aggregate valuation allowance decreased by $2,724,000 in 2017 and increased $239,000 in 2016. The decrease in 2017 is due to a decrease in federal corporate income tax rates from 39% to 21%, due to the passage of the Tax Cuts and Jobs Act of 2017 (the “Act”).

The net operating loss carry-forwards and the research and development carry-forwards expire as follows:

 

Year		Net Operating Loss Carry-forward			Research and Development Credit Carry-forward
2018		$	8,949,000		$	935,000
2019			5,810,000			565,000
2020			275,000			-
2022			267,000			-
2023			514,000			-
2024-2037			6,559,000			-

 

The Company’s ability to utilize such net operating loss, research and development credit carry-forwards and equity losses on investments is subject to certain conditions and may be subject to certain limitations in the future due to ownership changes, as defined by rules enacted with the Act. The Company’s tax provision for each year represents an amount for New York state tax on capital.

On December 22, 2017, the Act was signed into law. The Act reduces the corporate tax rate to 21% from 35%, among other changes including the transition of the U.S. international taxation from a worldwide tax system to a territorial tax system, limitation of the tax deductibility of interest expense, acceleration of expensing of certain business assets and reductions in the amount of executive pay that could qualify as a tax deduction. It could also require the Company to write down its deferred tax assets based on the change in the federal income tax rate. These changes have been reflected within the consolidated financial statements.

 

The Company follows the provision of FASB guidance for accounting for uncertainty in income taxes. The guidance requires the Company to recognize the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting this standard, the amount recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority. As of December 31, 2017 and 2016, the Company had no unrecognized tax benefits. As a result, no interest or penalties were accrued for unrecognized tax benefits during the years. The Company’s open tax years are 2014, 2015 and 2016.