13. Income Taxes

The Company did not have taxable income for the years ended December 31, 2018, and 2017.

A reconciliation of the statutory U.S. Federal income tax and the income tax provision included in the accompanying consolidated statements of operations is as follows (in thousands):


Year Ended December 31, 2018	Total
Statutory rate		21	%
Tax (benefit) expense at statutory rate	$	326
State income tax (benefit) expense		95
Permanent difference		1
Return to provision		152
Net change in deferred tax asset valuation allowance		(591)
Total income tax provision (benefit)	$	(17)



Year Ended December 31, 2017	Total
Statutory rate		34	%
Tax (benefit) expense at statutory rate	$	(278)
State income tax (benefit) expense		(42)
Permanent difference		1
Impact of 2017 Tax Act		5,319
Other		14
Net change in deferred tax asset valuation allowance		(5,256)
Total income tax provision (benefit)	$	(242)

Management has evaluated the positions taken in connection with the tax provisions and tax compliance for the years included in these financial statements. The Company believes that all of the positions it has taken will prevail on a more likely than not basis. As such no disclosure of such positions was deemed necessary. Management continuously estimates its ability to recognize a deferred tax asset related to prior period net operating loss carry forwards based on its anticipation of the likely timing and adequacy of future net income.

At December 31, 2018, federal net operating loss carryforwards amounted to approximately $35.6 million, of which $34.6 million expires between 2019 and 2037 which can offset 100% of taxable income and $1 million that has an indefinite carryforward period which can offset 80% of taxable income per year. The total net deferred tax asset was $130,000 at December 31, 2018 and $242,000 at 2017. In 2018, the Company released a portion of the allowance related to its MTC as a result of the 2017 Tax Act. The Company recorded an allowance on the remaining deferred tax asset at December 31, 2018 primarily due to cumulative losses incurred during the 3 years ended December 31, 2018. The Company recorded a full allowance against the deferred tax asset net of the AMT credit at December 31, 2017 primarily due to cumulative losses incurred during the 3 years ended December 31, 2017. The total valuation allowance December 31, 2018 was $11.5 million, and $12.1 million at December 31, 2017. As the Company adopted ASU 2016-09 during the first quarter of 2017, the excess tax benefits associated with certain stock compensation deductions that have not been previously recognized were recorded to retained earnings net of valuation allowance. The effect on the valuation allowance on this adoption was an increase of $687,000 recorded to retained earnings.

Our open tax years include all returns filed for 2015 and later. In addition, any of the Company’s NOLs for tax reporting purposes are still subject to review and adjustment by both the Company and the IRS to the extent such NOLs should be carried forward into an open tax year.

Comprehensive tax reform legislation enacted in December 2017, commonly referred to as the Tax Cuts and Jobs Act (the “2017 Tax Act”), made significant changes to U.S. federal income tax laws. The 2017 Tax Act, among other things, reduces the corporate income tax rate to 21%, repeal of the corporate Alternative Minimum tax, partially limits the deductibility of business interest expense and net operating losses, and allows the immediate deduction of certain new investments instead of deductions for depreciation expense over time. The Company had not completed its determination of the accounting implications of the 2017 Tax Act on its tax accruals. However the Company has reasonably estimated the effects of the 2017 Tax Act and recorded provisional amounts in its financial statements as of December 31, 2017. The Company recorded the following provisional amounts for the effects of the 2017 Tax Act.

Beginning January 1, 2018, the U.S. corporate income tax rate was be 21%. The Company was required to recognize the impacts of this rate change on its deferred tax assets and liabilities in the period enacted. The provisional tax effect of the change in tax rate was a decrease to the deferred tax asset of $5.3 million. However, as the Company has a full valuation allowance on its net deferred tax asset, the deferred tax recognized due to the change in rate will be offset with a change in the valuation allowance. Therefore, there was no overall impact to the Financial Statements in 2017 due to this change in rate.

The 2017 Tax Act also repealed the corporate AMT for tax years beginning on or after January 1, 2018 and provides for existing alternative minimum tax credit carryovers to be refunded beginning in 2018. The Company has approximately $260,000 in refundable credits, and it expects that a substantial portion will be refunded between 2018 and 2021. As 50% of the credit will be refunded when we file the 2018 tax return, this amount is recorded as a current accounts receivable on the Balance Sheet at December 31, 2018, with balance of this refund recorded as a non-current accounts receivable.

The ultimate impact of the 2017 Tax Act may differ from the provisional amounts recorded due to additional information becoming available, changes in interpretation of the 2017 Tax Act as well as additional regulatory guidance that may be issued. The company completed its review of the 2017 Tax Act in 2018, and there were no material changes in the measurement period.

The Company’s deferred tax assets and liabilities are as follows: (in thousands)



	Year Ended December 31,
	2018		2017
Net deferred tax assets – current:
Bad debt	$	—	$	—
Valuation allowance		—		—
Total deferred tax assets – current	$	—	$	—

Net deferred tax assets (liabilities) – noncurrent:
Net operating loss carryforwards	$	9,675	$	8,187
Oil and gas properties		1,327		2,735
Property, Plant and Equipment		(163)		419
Asset retirement obligation		592		616
Tax credits		130		260
Miscellaneous		45		92
Valuation allowance		(11,476)		(12,067)
Total deferred tax assets – noncurrent	$	130	$	242

Net deferred tax asset	$	130	$	242