Comarco Inc

7.	Income Taxes

Income tax expense on a consolidated basis consists of the following amounts:

	Years Ended January 31,
	2017		2016
Federal:
Current	$	—	$	—
Deferred		—		—
State:
Current		5		4
Deferred		—		—
Foreign:
Current		—		—
	$	5	$	4

The effective income tax rate on loss from continuing operations differs from the United States statutory income tax rates for the reasons set forth in the table below (in thousands, except percentages).

	Years Ended January 31,
	2017						2016
	Amount			Percent Pretax Income			Amount			Percent Pretax Income
Income (loss) from operations before income taxes	$	845			100	%	$	(1,346	)		100	%

Computed “expected” income tax benefit on loss from operations before income taxes	$	287			34	%	$	(538	)		40	%
State tax, net of federal benefit		50			6	%		(73	)		5	%
Tax credits		—			0	%		—			0	%
Change in valuation allowance		(337	)		(40	)%		626			(47	)%
Permanent differences		—			0	%		1			0	%
Return to provision adjustments		—			0	%		—			0	%
Change in state tax rate		—			0	%		—			0	%
Other, net		5			0	%		(12	)		0	%
Income tax expense	$	5			0	%	$	4			0	%

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities at

January

31,

2017

and

2016

are as follows (in thousands):

	January 31,
	2017			2016
Deferred tax assets:
Property and equipment, principally due to differing depreciation methods	$	145		$	153
Accruals and reserves		140			145
Net research and manufacturer investment credit carryforwards		2,325			2,325
Net operating losses		13,493			13,832
AMT credit carryforwards		136			136
Stock based compensation		156			140
Other		—			—
Total gross deferred tax assets		16,395			16,731
Less: valuation allowance		(16,395	)		(16,731	)
Net deferred tax assets	$	—		$	—

We have federal and state research and experimentation credit carryforwards of

$1.7

million and

$2.1

million, respectively, which will begin to expire in years

2023

through

2033

for federal purpose. State credit does not have an expiration date. We have a net operating loss carryforward of

$36.0

million for federal and

$29.7

million for state, which will begin to expire in years

2026

through

2035.

In assessing the probability that deferred tax assets will benefit future periods, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income. There was a full valuation allowance for deferred tax assets as of

January

31,

2017

based on management’s overall assessment of risks and uncertainties related to our future ability to realize, and hence utilize, the deferred tax assets.

A reconciliation of the beginning balance of our unrecognized tax benefits and the ending amount of unrecognized tax benefit is as follows (in thousands):

	Unrecognized Tax Benefits
Balance at February 1, 2016	$	767
Additions based on tax positions related to the current year		—
Reductions due to lapses of statute of limitations		—
Tax positions of prior years		—
Balance at January 31, 2017	$	767

The unrecognized tax benefits recorded above, if reversed, would not impact our effective tax rate since we maintain a full valuation allowance against our deferred tax asset. We recognize interest and penalties associated with unrecognized tax benefits in the income tax expense line item of the consolidated statement of operations.

We and our subsidiary, CWT, file income tax returns in the U.S. federal jurisdiction and in certain state jurisdictions. With few exceptions, we are no longer subject to U.S. federal examinations or state income tax examinations by tax authorities for years before

2011in

those jurisdictions where returns have been filed.