Note 13. Income Taxes

As a partnership, OVR was generally not subject to federal or state income tax on its taxable income. OVR’s taxable income and deductions were reported by the partners in their respective returns. Therefore, no income taxes were reported by OVR prior to the closing of the strategic merger on December 19, 2014.

The following table shows the components of the Company’s income tax provision for the years ended December 31, 2015 and 2014 (in thousands):

	Years Ended December 31,
	2015			2014
Current:
Federal	$	—		$	—
State		91			—
Total current		91			—

Deferred:
Federal		(26,214	)		21,803
State		(319	)		302
Total deferred		(26,533	)		22,105
Total income tax (benefit) provision	$	(26,442	)	$	22,105

The following is a reconciliation of taxes computed at the corporate federal statutory income tax rate of 34% to the reported income tax rate provision for the years ended December 31, 2015 and 2014 (in thousands, except percentages):

	Years Ended December 31,
	2015			2014
Net loss before income taxes	$	(143,097	)	$	(6,729	)
Tax benefit computed at Federal statutory rate		(48,653	)		(2,288	)
Non-taxable Oak Valley income prior to merger		—			(4,142	)
Deferred income tax arising from change in tax status of Oak Valley		—			28,347
Non-deductible general and administrative expenses		534			—
Return to accrual		(1,398	)		—
State income taxes, net of Federal benefit		(743	)		188
Valuation allowance		23,818			—
Total income tax (benefit) expense	$	(26,442	)	$	22,105
Effective tax rate		18.5	%		-328.5	%

The Company’s effective tax rate for the year ended December 31, 2015, is approximately 18.5% which is less than the U.S. Federal statutory tax rate primarily due to the increase in valuation allowance in 2015. The impairments recorded by the Company during 2015 reduced the book value of its properties below the tax basis; thereby, giving rise to a significant deferred tax asset associated with its oil and gas properties and putting the Company in an overall net deferred tax asset position prior to any realization assessment. The realizability of the Company’s deferred tax assets is more likely-than-not assured, therefore the Company recorded a valuation allowance to reduce its overall net deferred tax asset portion to zero.

The Company's deferred tax position reflects the net tax effects of the temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax reporting. The deferred income tax provision for 2014 includes an initial charge of $28.3 million attributable to OVR becoming a taxable entity in December 2014, concurrent with the Reverse Acquisition. Significant components of the deferred tax assets and liabilities at December 31, 2015 and 2014 are as follows (in thousands):

	Years Ended December 31,
	2015			2014
Deferred current income tax assets:
Asset retirement obligation	$	—		$	140
Deferred compensation		—			81
Other		—			5
Deferred current income tax assets		—			226
Deferred noncurrent income tax assets (liabilities):
Office and other equipment		(253	)		(381	)
Oil & gas properties		23,177			(29,730	)
Asset retirement obligation		1,788			1,952
Intangible assets		(7	)		130
Unrealized derivative gain		(1,284	)		(1,229	)
Federal net operating loss carryforward		339			—
Other		59			—
Net deferred noncurrent tax assets (liabilities)		23,819			(29,258	)
Valuation allowance		(23,819	)
Net deferred tax asset (liability)	$	—		$	(29,032	)

As of December 31, 2015, the Company has an estimated U.S. net operating loss carryforward of $1.0 million, expiring in 2034 and 2035. The ability to utilize net operating losses and other tax attributes could be subject to a significant limitation if the Company were to undergo an ownership change for the purposes of Section 382 of the US Tax Code. The Company is still evaluating the impact, if any, of potential 382 limitations.

Uncertain Tax Positions

ASC 740, Income Taxes (ASC 740) prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of income tax positions taken or expected to be taken in an income tax return. For those benefits to be recognized, an income tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. As of December 31, 2015, the Company has no material uncertain tax positions. The Company’s uncertain tax positions may change in the next twelve months; however, the Company does not expect any possible change to have a significant impact on its results of operations or financial position.

The Company files a consolidated federal income tax return and various combined and separate filings in several state and local jurisdictions. The Company’s practice is to recognize estimated interest and penalties, if any, related to potential underpayment of income taxes as a component of income tax expense in its Consolidated Statement of Operations. As of December 31, 2015, the Company did not have any accrued interest or penalties associated with any uncertain tax liabilities.

On September 13, 2013, the United States Treasury Department and the Internal Revenue Service issued final tangible property regulations (the tangible property regulations) under provisions that include IRC Sections 162, 167 and 263(a). The tangible property regulations apply to amounts paid to acquire, produce or improve tangible property, as well as dispositions of such property. The general effective date of the tangible property regulations are for tax years beginning on or after January 1, 2014. Based on the Company's analysis management did not consider the impacts of the tangible property regulations to be material to the Company's consolidated financial position, its results of operations, or both.