16. Income Taxes
The Company accounts for income taxes under FASB Codification Topic 740-10-25 (“ASC 740-10-25”). Under ASC 740-10-25, 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 bases. 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. Under ASC 740-10-25, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
The provision for income tax expense (recovery) is comprised the following amounts:
| 2015 | 2015 | |||||||
| Expected income tax (recovery) expense at the statutory rate of 34% | $ | 5,900,630 | $ | (9,236,217 | ) | |||
| Tax effect of expenses that are not deductible for tax purposes (net of other amounts deductible for tax purposes) | 3,984 | 186 | ||||||
| Change in valuation allowance | (5,904,6140 | 9,236,031 | ||||||
| Provision for income taxes | $ | - | $ | - | ||||
The components of deferred income tax in the accompanying balance sheets are as follows:
| Deferred income tax asset: | 2016 | 2015 | ||||||
| Net operating loss carry-forwards | $ | 8,660,075 | $ | 1,269,221 | ||||
| Section 195 Startup Costs | 1,393,346 | 1,393,346 | ||||||
| Other | - | - | ||||||
| Debt Discount | (1,183,375 | ) | (1,543,179 | ) | ||||
| Derivative Liability | (4,451,538 | ) | 9,157,681 | |||||
| Mineral Property | - | 46,053 | ||||||
| Valuation allowance | (4,418,508 | ) | (10,323,122 | ) | ||||
| Deferred income taxes | $ | - | $ | - | ||||
As of December 31, 2016 and December 31, 2015, the Company had net operating loss carryforwards for U.S. federal income tax purposes of approximately $9,236,000 and $3,197,000 million, respectively. A portion of the federal amount, $1,710,000, is subject to an annual limitation of approximately $17,000 as a result of a change in the Company’s ownership through February 2013, as defined by Federal Internal Revenue Code Section 382 and the related income tax regulations. As a result of the 20-year federal carryforward period and the limitation, approximately, $1,400,000 of the net operating loss will expire unutilized. These net operating loss carry-forwards will expire through the year ending 2036.
The valuation allowance was established to reduce the deferred tax asset to the amount that will more likely than not be realized. This is necessary due to the Company’s continued operating losses and the uncertainty of the Company’s ability to utilize all of the net operating loss carry-forwards before they will expire through the year 2035.
The net change in the valuation allowance for the year ended December 31, 2015 was an approximate increase of $9,236,031.
The Company is subject to income tax in the U.S. federal jurisdiction. The Company has not been audited by the U.S. Internal Revenue Service in connection with income taxes. The Company’s tax years beginning with the year ended June 30, 2010 through December 31, 2015 generally remain open to examination by the Internal Revenue Service until its net operating loss carryforwards are utilized and the applicable statutes of limitation have expired.