Note 14 – Deferred Tax Assets and Income Tax Provision
The reconciliation of income tax benefit at the U.S. statutory rate of 34% for the year ended December 31, 2016 and for the year ended December 31, 2015 respectively to the Company’s effective tax rate is as follows:
| Year Ended | Year Ended | |||||||
| December 31, 2016 | December 31, 2015 | |||||||
| Statutory federal income tax rate | -34 | % | -34 | % | ||||
| State income tax, net of federal benefits | -6 | % | -6 | % | ||||
| Change in valuation allowance | 40 | % | 40 | % | ||||
| Income tax provision (benefit) | - | % | - | % | ||||
The benefit for income tax is summarized as follows:
| Year Ended December 31, 2016 |
Year Ended December 31, 2015 |
|||||||
| Federal | ||||||||
| Current | $ | -- | $ | -- | ||||
| Deferred | (2,353,000 | ) | (5,395,000 | ) | ||||
| State | ||||||||
| Current | - | -- | ||||||
| Deferred | (415,000 | ) | (952,000 | ) | ||||
| Change in valuation allowance | 2,769,000 | 6,347,000 | ||||||
| Income tax provision (benefit) | $ | - | $ | - | ||||
Deferred tax assets (liabilities) consist of the following
| Year Ended | Year Ended | |||||||
| December 31, 2016 | December 31, 2015 | |||||||
| Net operating loss carry forwards | $ | (11,1880,000 | ) | $ | (8,419,000 | ) | ||
| Warrants issued for services | 288,000 | 230,000 | ||||||
| Impairment of investment | 620,000 | 164,000 | ||||||
| Interest expense on convertible notes | 413,000 | 297,000 | ||||||
| Change in fair value of derivative liability | (52,000 | ) | (54,000 | ) | ||||
| Total gross deferred tax asset/liabilities | (10,064,069 | ) | (7,782,000 | ) | ||||
| Valuation allowance | 10,064,069 | 7,782,000 | ||||||
| Net deferred taxes | $ | - | $ | - | ||||
As of December 31, 2016, the Company had accumulated Federal net operating loss carryovers (“NOLs”) of $25,160,000. These NOLs begin to expire in 2033, and the utilization of NOLs may be subject to limitation under the Internal Revenue Code Section 382 should there be a greater than 50% ownership change as determined under the regulations.
In assessing the realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. Based on the assessment, management has established a full valuation allowance against the entire deferred tax asset relating to NOLs for every period because it is more likely than not that all of the deferred tax asset will not be realized.
The Company files U.S. Federal and various State tax returns that are subject to audit by tax authorities beginning with the year ended December 31, 2013. The Company’s policy is to classify assessments, if any, for tax and related interest and penalties as tax expense.