Note 18. Income Taxes 

 

For the years ended December 31, 2017 and 2016, the loss from continuing operations before income taxes consists of the following:

 

 

Income tax expense attributable to continuing and discontinued operations for the years ended December 31, 2017 and 2016 consisted of the following:

 

 

 

Income tax expense attributable to continuing operations differed from the amounts computed by applying the applicable United States federal income tax rate to loss from continuing operations before taxes on income as a result of the following:

 

 

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred tax assets and liabilities as of December 31, 2017 and 2016 are as follows:

 

 

The Company assesses the need for a valuation allowance related to its deferred income tax assets by considering whether it is more likely than not that some portion or all of the deferred income tax assets will not be realized. A valuation allowance has been recorded against the Company’s deferred income tax assets, as it is in the opinion of management that it is more likely than not that the net operating loss carryforwards (“NOL”s) will not be utilized in the foreseeable future.

 

The valuation allowance as of December 31, 2017 is $41,209, which will be reduced if and when the Company determines that the deferred income tax assets are more likely than not to be realized.

 

The following table presents the changes to the valuation allowance during the years presented:

 

 

As of December 31, 2017, the Company’s estimated aggregate total NOLs were $159,007 for U.S. federal purposes, expiring 20 years from the respective tax years to which they relate. The NOL amounts are presented before Internal Revenue Code, Section 382 limitations (“Section 382”). The Tax Reform Act of 1986 imposed substantial restrictions on the utilization of NOL and tax credits in the event of an ownership change of a corporation. Thus, the Company’s ability to utilize all such NOL and credit carryforwards may be limited. The NOLs available post-merger that the Company completed in 2012 that are not subject to limitation amount to $119,406. The remaining NOLs of $39,601 are subject to the limitation of Section 382. The annual limitation is approximately $2,000.

 

The Company files its tax returns in the U.S. federal jurisdiction, as well as in various state and local jurisdictions. XpresSpa Group has open tax years for 2014 through 2016. As of December 31, 2017, all tax years for the Company’s subsidiary Innovate/Protect, Inc. are still open. The Company’s Israeli subsidiary filed its income tax returns in Israel prior to closing the business in the first quarter of 2014; there are no open tax years.

 

 

As a result of the reduction to the corporate tax rate, the Company was required to remeasure its deferred tax assets and liabilities and any associated adjustment to the valuation allowance. As the Company was in a full valuation allowance in both 2017 and 2016, the net impact to the financial statements associated with the rate change was immaterial.

 

In response to the Tax Act, the SEC staff issued guidance (SAB 118) on accounting for the tax effects of the new legislation. The guidance provides a one-year measurement period for companies to complete the accounting. The Company reflected the income tax effects of those aspects within the financial statements as provisional amounts and will continue to evaluate the impact on its financial statements as it expects Treasury to provide additional guidance and the Company will continue to pursue additional documentation to either confirm or further refine the anticipated impact of the Tax Act on the organization's financial statements.