Our provision for income taxes comprised the following (expense) benefit during the years ended December 31:
| 2016 | 2015 | |||||||
| Current: | ||||||||
| Federal | $ | - | $ | - | ||||
| State | - | (5,754 | ) | |||||
| Total current | - | (5,754 | ) | |||||
| Deferred: | ||||||||
| Federal | - | 1,760,000 | ||||||
| State | - | 206,000 | ||||||
| Total deferred | - | 1,966,000 | ||||||
| Total income tax provision | $ | - | $ | 1,960,246 | ||||
Total income tax (expense) benefit differed from the amounts computed by applying the U.S. Federal statutory tax rates and estimated state rates to pre-tax income for the years ended December 31, 2016 and 2015 as follows:
| 2016 | 2015 | |||||||
| Statutory rate (benefit) | (34 | %) | (34 | %) | ||||
| State taxes, net of federal benefit | (2 | %) | (2 | %) | ||||
| Permanent differences | 1 | % | - | |||||
| Change in valuation allowance on deferred tax assets | 35 | % | 21 | % | ||||
| Effective rate (benefit) | (0 | %) | (15 | %) | ||||
Deferred tax assets and liabilities are the result of temporary differences between the financial statement carrying values and tax bases of assets and liabilities. The Company’s deferred tax assets were reduced in full by a valuation allowance due to our determination that it is more likely than not that some or all of the deferred tax assets will not be realized in the future. Significant components of net deferred tax assets and liabilities are:
| December 31, | ||||||||
| 2016 | 2015 | |||||||
| Deferred tax assets: | ||||||||
| Asset retirement obligation | $ | 569,000 | $ | 663,000 | ||||
| Allowance for doubtful accounts | 87,000 | 87,000 | ||||||
| Stock compensation and other | (4,000 | ) | 25,000 | |||||
| Alternative minimum tax credit carryforward | 157,000 | 157,000 | ||||||
| Difference in depreciation, depletion and capitalization methods – oil and gas properties | 555,000 | 897,000 | ||||||
| Net operating loss carryforward | 2,216,000 | 876,000 | ||||||
| Total deferred tax assets | 3,580,000 | 2,705,000 | ||||||
| Valuation allowance on deferred tax assets | (3,580,000 | ) | (2,705,000 | ) | ||||
| Total deferred tax assets, net of valuation allowance | - | - | ||||||
| Deferred tax liability: | ||||||||
| Difference in depreciation, depletion and capitalization methods – oil and gas properties | - | - | ||||||
| Total deferred tax liabilities | - | - | ||||||
| Net deferred tax liability | $ | - | $ | - | ||||
Our net deferred tax assets and liabilities are recorded as follows:
| 2016 | 2015 | |||||||
| Non-current asset | $ | - | $ | - | ||||
| Non-current liability | - | - | ||||||
| Total | $ | - | $ | - | ||||
The Company had no material uncertain tax positions as of December 31, 2016 and 2015.
At December 31, 2016, the Company expects to have net operating loss carryforwards of approximately $6.2 million which expire at various dates from December 31, 2034 to 2036.
The Company recorded impairment expense of $53,899 and $10,057,633 on our proved and unproved oil and natural gas properties during the years ended December 31, 2016 and 2015, respectively. As a result, our deferred tax assets exceeded our deferred tax liabilities. Since it is more likely than not that the tax benefits will not be utilized, the Company established a valuation allowance of $3,580,000 and $2,705,000 against our deferred tax assets for the years ended December 31, 2016 and 2015, respectively.
The Company’s policy regarding income tax interest and penalties is to record those items as general and administrative expense. During the years ended December 31, 2016 and 2015, there were no significant income tax interest and penalty items in the income statement, nor as a liability on the balance sheet at December 31, 2016 and 2015.
The Company files income tax returns in the U.S. federal jurisdiction and various state jurisdictions. Generally, the Company is no longer subject to U.S. federal or state income tax examination by tax authorities for years before 2013. The Company is not currently involved in any income tax examinations.