Chicken Soup for the Soul Entertainment, Inc.

Note 13 – Income Taxes

The Company’s current and deferred income tax (benefit) provision are as follows:

	Year Ended December 31,
	2017		2016
Current provision (benefit):
Federal	$	-	$	-
States		-		-
Total current provision		-		-
Deferred (benefit) provision:
Federal		(142,000)		355,000
States		(40,000)		84,000
Total deferred (benefit) provision		(182,000)		439,000
Total (benefit) provision for income taxes	$	(182,000)	$	439,000

The (benefit) provision for income taxes is different from amounts computed by applying U.S. statutory rates to consolidated earnings before taxes. The significant reason for these differences is as follows:

	Year Ended December 31,
	2017		2016
Expected tax provision — Income taxes computed at Federal statutory rate (35% for 2017; 34% for 2016)	$	7,912,000	$	414,000
Increase (decrease) in tax expense resulting from:				-
Gain on bargain purchase		(8,512,000)		-
Amortization of debt discount		303,000		-
State and local taxes		(12,000)		85,000
Tax on pre-incorporation income of predecessor		-		(177,000)
Programming costs		(178,000)		-
Acquisition-related costs		204,000		-
Film library		130,000		-
Other		(29,000)		117,000
Actual tax (benefit) provision	$	(182,000)	$	439,000

Deferred income taxes reflect the temporary differences between the financial statement carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, adjusted by the relevant tax rate. The components of deferred tax assets and liabilities are as follows:

	December 31,
	2017 (1)		2016

Deferred tax assets:
Net operating loss carry-forwards	$	318,000	$	481,000
Acquisition-related costs		584,000		-
Film library		371,000		-
Other liabilities		-		36,000
Total deferred tax assets		1,273,000		517,000
Deferred tax liabilities:
Programming costs		1,389,000		886,000
Other assets		141,000		70,000
Total deferred tax liabilities		1,530,000		956,000
Net deferred tax liability	$	257,000	$	439,000

(1)	The Company adjusted its federal deferred income tax assets and liabilities as of December 31, 2017 to reflect the reduction in the U.S. statutory federal corporate income tax rate from 35% to 21% resulting from the provisions of the 2017 Tax Cut and Jobs Act.

The Company has approximately $1,515,000 of net operating losses; $1,389,000 of which expire in 2036 and $126,000 of which expire in 2017. The ultimate realization of the net operating losses is dependent upon future taxable income, if any, of the Company and may be limited in any one period by alternative minimum tax rules.

Internal Revenue Code Section 382 imposes limitations on the use of net operating loss carryovers when the stock ownership of one or more 5% stockholders (stockholders owning 5% or more of the Company’s outstanding capital stock) has increased by more than 50 percentage points. Public trading of company stock poses a risk of an ownership change beyond the control of the Company that could trigger a limitation of the use of the loss carryover.