Note 9. Income Taxes

The Company accounts for its deferred tax assets and liabilities, including excess tax benefits of share-based payments, based on the tax ordering of deductions to be used on its tax returns. The tax effects of temporary differences that give rise to significant portions of deferred tax assets and deferred tax liabilities is as follows:

Prior to the fourth quarter of 2017, the company maintained a valuation allowance equal to the potential benefit of the net deferred tax assets as it was more likely than not that such assets would not be realized. During the fourth quarter of 2017, the Company re-evaluated the realization of its net deferred tax assets and determined that such assets were likely to be fully realized. As such, the Company reversed its previously recognized valuation allowance and recorded a related income tax benefit of $4,425,000

The Tax Cuts and Jobs Act (the “Act”) was enacted on December 22, 2017. The Act reduces the U.S federal corporate tax rate from 35% to 21%. Accordingly, the Company has modified the value of the deferred tax assets and liabilities including the net operating loss carryover at December 31, 2017. Prior to enactment of the new tax reform, the Company had total net deferred tax assets of $4,086,910 at December 31, 2017. Taking the new tax reform into consideration, the total net deferred tax assets was $2,710,000 at December 31, 2017.

Internal Revenue Code Section 382 limits the ability to utilize net operating losses if a 50% change in ownership occurs over a three year period. Such limitation of the net operating losses may have occurred but we have not analyzed it at this time as the deferred tax asset is fully reserved. The Company believes it has approximately $2.4 million of federal net operating loss carry-forwards that are available to offset future taxable income that expire in various years through 2034. The state net operation loss carry-forward was fully utilized in the tax year 2015.

Significant components of the (provision) benefit for income tax as follows:

The Company is subject to federal and state taxes. A reconciliation of the Company’s effective income tax rate to the federal statutory rate is as follows: