Entity information:
 NOTE 11. INCOME TAXES

There was no provision for income taxes for 2016 and 2015 due to a net operating losses and doubt as to the entity’s ability to continue as a going concern resulting in a 100% valuation allowance. Years from 2012 forward are open to IRS examination.

The provision for income taxes differs from the amount computed by applying the federal statutory income tax rate (35%) on operations due primarily to permanent differences attributable to organizational expenses.

 
  
Fiscal Year
Ended
December 31,
 2016
    
Fiscal Year
Ended
December 31,
 2015
  
 
            
Income tax expense computed at statutory rates
  
$
(656,523
)
  
$
(649,815
)
Non-deductible items
    
219,438
      
66,313
  
Change in valuation allowance
    
437,085
      
583,502
  
 
                
Total
  
$
—
    
$
—
  

The components of the net deferred tax asset were as follows:

 
  
December 31, 2015
  
 
  
Gross Values
          
Tax Effect
  
Deferred tax assets
                  
Book impairment
  
$
668,073
    
$
      
$
233,826
  
Net operating loss carryforwards
    
5,911,319
              
2,068,962
  
Asset retirement obligation
    
—
              
—
  
Other
    
—
              
—
  
Total deferred tax assets
    
6,579,392
              
2,302,788
  
 
                        
Deferred tax liabilities
                        
O&G Properties
    
(2,211,892
)
            
(774,162
)
Other
    
—
              
—
  
Total deferred tax liabilities
    
(2,211,892
)
            
(774,162
)
Less: Valuation allowance
    
(4,367,500
)
            
(1,528,626
)
Net deferred tax assets (liabilities)
  
$
—
    
$
      
$
—
  

 
  
December 31, 2016
  
 
  
Gross Values
    
Tax Effect
  
Deferred tax assets
         $    
Book Impairment
  
$
668,073
    
$
233,825
  
Net operating loss carryforwards
    
7,120,879
      
2,492,308
  
Asset retirement obligation
    
—
      
—
  
Other
    
—
      
—
  
Total deferred tax assets
    
7,788,952
      
2,726,133
  
 
                
Deferred tax liabilities
                
O&G Properties
    
(6,496,717
)
    
(2,273,851
)
Other
    
—
      
—
  
Total deferred tax liabilities
    
(6,496,717
)
    
(2,273,851
)
Less: Valuation allowance
    
(1,292,235
)
    
(452,282
)
Net deferred tax assets (liabilities)
  
$
—
    
$
—
  

A valuation allowance has been established to offset deferred tax assets. The Company’s accumulated net operating losses were approximately $7.8 million at December 31, 2016 and begin to expire if not utilized beginning in the year 2032.