NOTE 9 — INCOME TAXES
The Company has had losses to date, and therefore has paid no income taxes. There is no temporary timing difference in the recognition of income and expenses for financial reporting and tax purposes, and there is no permanent difference. The Company follows Accounting Standards Codification subtopic 740-10, “Accounting for Income Taxes” (“ASC 740-10”) which requires the recognition of deferred tax liabilities and assets for the expected future tax consequences of events that have been included in the financial statement or tax returns. Under this method, deferred tax liabilities and assets are determined based on the difference between financial statements and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Temporary differences between taxable income reported for financial reporting purposes and income tax purposes include, but not limited to, accounting for intangibles, debt discounts associated with convertible debt, equity based compensation and depreciation and amortization.
At March 31, 2017, the Company has available for federal income tax purposes a net operating loss carry forward of approximately $4,014,000, which expire in the year 2036, that may be used to offset future taxable income. Management has provided a valuation reserve against the full amount of the net operating loss benefit, since the Company has no earnings history; it is more likely than not that the benefits will not be realized. Based upon the change in ownership rules under section 382 of the Internal Revenue Code of 1986, if in the future the Company issues common stock or additional equity instruments convertible in common shares which result in an ownership change exceeding the 50% limitation threshold imposed by that section, all of the Company’s net operating losses carry forwards may be significantly limited as to the amount of use in particular years. All or a portion of the remaining valuation allowance may be reduced in future years based on an assessment of earnings sufficient to fully utilize these potential tax benefits. Management has not evaluated if an ownership change has occurred but has provided a full valuation reserve.
At March 31, 2017 and 2016, the significant components of the deferred tax assets (liabilities) are summarized below:
| 2017 | 2016 | |||||||
| Deferred tax assets: | ||||||||
| Net operating loss carryover | $ | 1,636,000 | $ | 1,468,000 | ||||
| Valuation allowance | (1,636,000 | ) | (1,468,000 | ) | ||||
| Net deferred tax assets | $ | - | $ | - | ||||
| Statutory federal income tax rate | (35 | )% | (35 | )% | ||||
| State income taxes, net of federal taxes | (6 | )% | (6 | )% | ||||
| Valuation allowance | 41 | % | 41 | % | ||||
| Effective income tax rate | 0 | % | 0 | % | ||||
The Company has not filed its tax returns for prior years and is in the process of bringing its filings current. Tax returns for all years are subject to audit by the taxing authorities.
Management does not believe that the Company has any material uncertain tax positions requiring recognition or measurement in accordance with the provisions of ASC 740. Accordingly, the adoption of these provisions of ASC 740 did not have a material effect on the Company’s financial statements. The Company’s policy is to record interest and penalties on uncertain tax positions, if any, as income tax expense.