(10)Income Taxes 

For the years ended December 31, 2017 and 2016, the components of income tax (expense) benefit are as follows:

Income tax (expense) benefit amounted to $(2,365,476) and $5,074,439 for the years ended December 31, 2017 and 2016, respectively (an effective rate of 124% for 2017 and (7,851)% for 2016).  A reconciliation of the provision for income taxes with amounts determined by applying the statutory U.S. federal income tax rate to income before income taxes is as follows:

As of December 31, 2016, following four consecutive years of pretax earnings and with the expectation of future earnings, management removed 100% of the valuation allowance against the net deferred tax assets and recognized a corresponding income tax benefit. 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 our deferred tax assets and liabilities are as follows:

At December 31, 2017, we have available unused net operating loss carryforwards of approximately $7,047,000 for federal purposes and none for state purposes that may be applied against future taxable income and that, if unused, expire beginning in 2025.

Utilization of the net operating loss carryforwards may be subject to a substantial annual limitation due to ownership change limitations provided by the Internal Revenue Code under section 382.  The annual limitation may result in the expiration of net operating loss carryforwards before utilization. Our federal net operating loss carryforwards will begin to expire in 2025.

In December 2017, the Tax Cuts and Jobs Act (the “Act”) was signed into law. The Act amends the Internal Revenue Code to reduce tax rates and modify policies, credits, and deductions for individuals and businesses. For businesses, the Act reduces the corporate federal tax rate from a maximum of 35% to a flat 21% rate. The rate reduction took effect on January 1, 2018. At that time the Company had a net deferred tax asset, before tax effect, of approximately $11.6 million. The Company uses the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.

The Company’s net deferred tax asset of approximately $4.6 million was determined at the date of the rate change based on the Company’s then-current enacted federal tax rate of 34%. As a result of the reduction in the corporate income tax rate from 34% to 21% under the Act, the Company revalued its net deferred tax asset resulting in a reduction in value of approximately $1.5 million, which is recorded as a discrete charge to income tax expense in the Company’s consolidated statement of operations for the year ended December 31, 2017.

The Act contains various other rules that may apply to the Company. 100% bonus depreciation is allowable on certain qualifying assets placed in service after September 27, 2017, the Act denies a deduction for certain entertainment expenditures incurred after December 31, 2017, and net operating losses incurred after this date are subject to certain new limitations. The Company’s current year income tax provision takes these new rules into account to the extent they are applicable.

We evaluate our tax positions each reporting period to determine the uncertainty of such positions based upon one of the following conditions: (1) the tax position is not ‘‘more likely than not’’ to be sustained, (2) the tax position is ‘‘more likely than not’’ to be sustained, but for a lesser amount, or (3) the tax position is ‘‘more likely than not’’ to be sustained, but not in the financial period in which the tax position was originally taken. We have evaluated our tax positions for all jurisdictions and all years for which the statute of limitations remains open. We have determined that no liability for unrecognized tax benefits and interest was necessary.