NOTE 11 – INCOME TAXES
The following table presents the current and deferred tax provision for federal and state income taxes for the years ended December 31, 2016 and 2015.
| Year Ended December 31, | ||||||||
| 2016 | 2015 | |||||||
| Current tax provision | ||||||||
| Federal | $ | - | $ | - | ||||
| State | 2,940 | 2,543 | ||||||
| Total | $ | 2,940 | $ | 2,543 | ||||
| Deferred tax provision (benefit) | ||||||||
| Federal | (382,631 | ) | (227,080 | ) | ||||
| State | (76,619 | ) | (32,542 | ) | ||||
| Valuation allowance | 459,250 | 259,622 | ||||||
| Total | ||||||||
| Total provision for income taxes | $ | 2,940 | $ | 2,543 | ||||
Current taxes in 2016 and 2015 consist primarily of minimum state taxes.
Reconciliations of the U.S. federal statutory rate to the actual tax rate for the years ended December 31, 2016 and 2015 are as follows:
| Year Ended December 31, | ||||||||
| 2016 | 2015 | |||||||
| US federal statutory income tax rate | 30 | % | 30 | % | ||||
| State tax - net of benefit | 4 | % | 4 | % | ||||
| 34 | % | 34 | % | |||||
| Permanent differences | 2 | % | (14 | )% | ||||
| Reserves and accruals | (21 | )% | (15 | )% | ||||
| Changes in deferred tax assets | 32 | % | (5 | )% | ||||
| Other | (9 | )% | 7 | % | ||||
| Increase in valuation allowance | (38 | )% | (7 | )% | ||||
| Effective tax rate | 0 | % | 0 | % | ||||
The components of the Company’s deferred tax assets for federal and state income taxes as of December 31, 2016 and 2015 consisted of the following:
| 2016 | 2015 | |||||||
| Deferred income tax assets | ||||||||
| Net operating loss carryforwards | $ | 7,927,043 | $ | 7,593,325 | ||||
| Reserves and accruals | 321,448 | 195,916 | ||||||
| Valuation allowance | (8,248,491 | ) | (7,789,241 | ) | ||||
| $ | - | $ | - | |||||
The Company’s deferred tax assets consist primarily of net operating loss (“NOL”) carry forwards of approximately $7,927,000 and $7,593,000 at December 31, 2016 and 2015, respectively. At December 31, 2016, the Company had NOL carry forwards for Federal and California income tax purposes totaling approximately $23.4 million and $22.2 million, respectively. At December 31, 2015, the Company had NOL carry forwards for Federal and California income tax purposes totaling approximately $22.3 million and $22.3 million, respectively. The Company’s valuation allowance increased by approximately $459,000 for the year ended December 31, 2016, and increased by approximately $260,000 for the year ended December 31, 2015. Federal and California NOL’s have begun to expire and fully expire in 2036. For federal tax purposes these carry forwards expire in twenty years beginning in 2026.
Income tax reporting primarily relates to the business of the parent company Blue Fire Ethanol Fuels, Inc. which experienced a change in ownership on June 27, 2006. A change in ownership requires management to compute the annual limitation under Section 382 of the Internal Revenue Code. The amount of benefits the Company may receive from the operating loss carry forwards for income tax purposes is further dependent, in part, upon the tax laws in effect, the future earnings of the Company, and other future events, the effects of which cannot be determined.
The Company has identified the United States Federal tax returns as its “major” tax jurisdiction. The United States Federal return years 2014 through 2016 are still subject to tax examination by the United States Internal Revenue Service; however, we do not currently have any ongoing tax examinations. The Company is subject to examination by the California Franchise Tax Board for the years ended 2013 through 2016 and currently does not have any ongoing tax examinations.
In addition, the Company is not current in their federal and state income tax filings prior to the reverse acquisition. The Company has assessed and determined that the effect of non filing is not expected to be significant, as Sucre has not had active operations for a significant period of time.