Note L—Income Taxes



The Company operates predominantly in the United States and is subject to corporate net income taxes for federal and state purposes.  The Company sold its minimal operations in Europe in April 2017.  These taxes were not considered material to the overall financial statements. Tax expense (benefit) is computed in total on combined continuing and discontinued operations, then separately for continuing operations which is subtracted from that total. The remainder is shown as tax expense for discontinued operations. The components of income tax expense (benefit) included in the statements of continuing operations are as follows:







The differences between applicable income tax expense (benefit) from continuing operations and the amounts computed by applying the statutory federal income tax rate of 34% for 2017, 2016 and 2015, respectively, are as follows:







Deferred income taxes are provided for the temporary difference between the financial reporting basis and the tax basis of the Company’s assets and liabilities.  Cumulative temporary differences recognized in the financial statement of position are as follows:







The Company has a federal net operating loss carryforward of approximately $21.1 million that will begin to expire in 2035.  The Company has approximately $54.6 million of state net operating losses from several states that will expire at varying times over the next 20 years.  Additionally, the Company has alternative minimum tax credits of $3.0 million to offset taxable income in the future. The corporate alternative tax was repealed effective for tax years beginning after 2017 and any unused AMT credits will be recovered as a refundable credit in tax years 2018 through 2021. The refundable credit amount is equal to 50 percent of the excess of the minimum tax credits available for the tax year over the computed regular tax liability for the years 2018 through 2020. In 2021 the remainder of any tax credits will be refunded. Therefore, the full amount of the available AMT credits at December 31, 2017 will be recovered not later than 2021.



Management assesses all available positive and negative evidence to determine whether it is more likely than not that the Company will be able to recognize the existing deferred tax assets.  The majority of valuation allowances reversed in 2017 with the remaining valuation allowance reflecting capital losses in Walnut Street. The remaining valuation allowance will likely reverse only to the extent that recoveries exceed any potential future losses in Walnut Street. The federal and state valuation allowance at December 31, 2017 and 2016, respectively, was $10.0 million and $25.0 million. 



A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:

 





Management does not believe these amounts will significantly increase or decrease within 12 months of December 31, 2017.  The total amount of unrecognized tax benefits, if recognized, will impact the effective tax rate.

The Company files federal and state returns in jurisdictions with varying statutes of limitations. An examination of the 2011-2014 Company’s federal tax returns by the Internal Revenue Service is currently in process. Tax years after 2015 remain subject to examination by the federal authorities and 2013 and after remain subject to examination by most of the state tax authorities. The Company recognizes interest accrued and penalties related to unrecognized tax benefits in income tax expense for all periods presented.  To date, no amounts of interest or penalties relating to unrecognized tax benefits have been recorded.



The U.S. Tax Cuts and Jobs Act (“Tax Act”) was enacted on December 22, 2017 and introduces significant changes to U.S. income tax law. Effective in 2018, the Tax Act reduces the U.S. statutory tax rate from 35% to 21%. Due to the timing of the enactment and the complexity involved in applying the provisions of the Tax Act, we have made reasonable estimates of the effects and recorded provisional amounts in our financial statements for the year ended December 31, 2017. As we collect and prepare necessary data, and interpret any additional guidance issued by the U.S. Treasury Department, the IRS or other standard-setting bodies, we may make adjustments to the provisional amounts. Those adjustments may materially impact the provision for income taxes and the effective tax rate in the period in which the adjustments are made. The accounting for the tax effects of the enactment of the Tax Act will be completed in 2018.