13.INCOME TAXES

 

Allocation of the federal and state income taxes between current and deferred portions for the years ended December 31, 2017, 2016 and 2015 are as follows:

 

 

The reasons for the differences between the statutory federal income tax and the actual income tax provision (benefit) for the years ended December 31, 2017, 2016 and 2015 are summarized as follows:

 

 

The tax effects of each item that give rise to deferred taxes at December 31, 2017 and 2016 are as follows:

 

 

A summary of the change in the net deferred tax asset (liability) for the years ended December 31, 2017, 2016 and 2015 is as follows:

 

 

 

The Tax Act of 2017 was enacted on December 22, 2017, resulting in changes in U.S. corporate tax rates, business-related exclusions, deductions and credits. Enactment of Tax Act of 2017 required the Company to reflect the changes associated with the law's provisions in its consolidated financial statements as of the enactment date. Accordingly, the Company revalued its deferred tax assets and liabilities and recorded a net reduction in the Company’s net deferred tax asset and an additional income tax provision in the amount of $243,000 in the Company’s Consolidated Financial Statements. 

 

The Company’s income tax returns are subject to review and examination by federal and state taxing authorities.  The Company is currently open to audit under the applicable statutes of limitations by the Internal Revenue Service (“IRS”) and Massachusetts Department of Revenue for the years ended December 31, 2014 through 2017.

 

At December 31, 2017, the Bank had a net operating loss carryforward in the state of New Hampshire of $3.3 million related to the acquisition of MMC. The recorded deferred tax asset is $5,000 at December 31, 2017.  The net operating loss expires on December 31, 2024.  The state of New Hampshire limits the use of acquired net operating losses that can be used by the Bank each year based on Internal Revenue Code 382.  This limitation is $550,000 per year.  Management believes it is more likely than not that it will be able to utilize the New Hampshire net operating loss carryforward prior to expiration.

 

The Company may carryforward charitable contributions to the succeeding five taxable years. The utilization of the charitable contribution carryforward may not exceed 10% of taxable income as defined by the federal taxation laws. At December 31, 2017, the Company had a charitable contribution carryforward for federal income tax purposes of $3.2 million. This carryforward was generated from the Company’s creation of the Foundation to which it contributed 385,450 shares of its common stock and $965,000 in cash in connection with the offering in June 2016.  Management believes it is more likely than not that it will utilize the benefit over the five year carryforward period.

 

During 2017, federal and state amended tax returns were filed that requested tax refunds of approximately $3.2 million.  These refunds reflected the change in the tax basis of certain assets not reflected on the original tax return filings. In addition, net operating loss carryforwards and related uncertain tax benefits were recognized in the 2016 tax return filings. The amended 2016 tax return filings reflect "unrecognized tax benefits", which are defined as the aggregate differences between tax return positions and the benefits recognized in the Consolidated Financial Statements. Interest on the 2016 uncertain tax positions was reflected in the determination of tax expense for 2017. Federal tax refunds for years 2014 and 2015 in the amount of $826,000 and $1.3 million, respectively, were received during January 2018.

At December 31, 2017, the balance of unrecognized tax benefits, the amount of related interest accrued and what management believes to be the range of reasonably possible changes in the next 12 months, are:

 

 

 

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some or all of the deferred tax assets will not 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 level of historical taxable income and projections for future taxable income over the periods the deferred tax assets are expected to be deductible, management believes it is more likely than not that its deferred tax assets are realizable.  It should be noted, however, that factors beyond management’s control, such as the general economy and real estate values, can affect future levels of taxable income, and no assurance can be given that sufficient taxable income will be generated to fully absorb gross deductible temporary differences.