13. Income Taxes

The provision for income taxes consists of the following:


	Year Ended December 31,
	2016		2015
Deferred:
Federal	$	(757,955)	$	(2,529,455)
State and local		(328,867)		169,266
		(1,086,822)		(2,360,189)
Valuation allowance		1,086,822		2,360,189
	$	—	$	—

The provision for income taxes varies from the amount determined by applying the U.S. federal statutory rate to income before income taxes as a result of the following:


	Year Ended December 31,
	2016		2015
U.S. statutory income tax rate	34.0	%	34.0	%
State and local taxes, net of federal tax benefit	1.0	%	1.9	%
Permanent differences between book and tax	(15.9)	%	5.6	%
Deferred tax adjustments	(5.9)	%	(9.3)	%
State rate adjustments	7.4	%	(0.1)	%
Valuation allowance	(20.6)	%	(32.1)	%
Effective income tax rate	—	%	—	%

Included in permanent differences between book and tax in the above table are the impacts of the non-deductible mark-to-market activity associated with convertible debt and warrants as well as permanent differences such as nondeductible meals and entertainment. The state rate adjustments are a result of changes in apportionment and various state rate law changes.

The components of the deferred tax asset are as follows:


	December 31,
	2016		2015
Current accruals	$	1,638,298	$	1,687,951
Deferred revenue		126,631		269,797
Depreciation and amortization		2,131,933		2,269,341
Deferred compensation		1,464,533		1,389,832
Net operating loss carryovers		33,943,745		32,744,557
Deferred tax assets		39,305,140		38,361,478
Valuation allowance		(39,000,095)		(37,912,693)
Net deferred tax assets before deferred tax liabilities		305,045		448,785
Accounting method changes		(305,045)		(448,785)
Net deferred tax assets	$	—	$	—

Under Section 382 and 383 of the Internal Revenue Code of 1986, as amended, or the “Code”, if a corporation undergoes an “ownership change,” the corporation’s ability to use its pre-change net operating loss carryforwards and other pre-change tax attributes, such as research tax credits, to offset its post-change income may be limited. In general, an “ownership change” will occur if there is a cumulative change in our ownership by “5-percent shareholders” that exceeds 50 percentage points over a rolling three-year period. Similar rules may apply under state tax laws. Following significant ownership changes during 2013, the Company initiated a review of the availability of its U.S. net operating loss carryforwards. As a result of this review, it was determined that approximately $290 million of the Company’s federal net operating loss carryovers would expire unused due to the limitation under IRC Section 382. The Company reduced the net operating loss carryover and corresponding valuation allowance as a result of these limitations. The remaining net operating loss carryforwards following the ownership change have been assigned a full valuation allowance against all deferred tax assets.

In assessing the realizability of deferred tax assets, the Company considers whether it is more likely than not that some portion 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. The Company considers projected future taxable income and tax planning strategies in making this assessment. Based upon the level of historical taxable losses, and projections for future periods over which the deferred tax assets are deductible, the Company determined that a 100% valuation allowance of deferred tax assets was appropriate. The valuation allowance for deferred tax assets includes amounts for which subsequently recognized tax benefits will be applied directly to the contributed capital.

As of December 31, 2016, we had gross federal net operating loss carryforwards of approximately $95.6 million. The federal net operating loss carryforwards reflect accumulated book losses reduced for the 2013 IRC Section 382 ownership change limitation of $290 million and approximately $86 million of book/ tax differences and expiration of unused carryforwards. The federal net operating loss carryforwards will expire between 2030 and 2036. As of December 31, 2016, we had state net operating loss deferred tax assets of approximately $1.5 million which will expire at various dates between 2017 and 2036 if not utilized.

The Company files income tax returns in the U.S. federal jurisdiction and various state and local jurisdictions. As the Company has a federal net operating loss carryforward from the year ended December 31, 1997 forward, all tax years from 1997 forward are subject to examination. As states have varying carryforward periods, and the Company has recently entered into additional states, the states are generally subject to examination for the previous 10 years or less.

The Company recognizes interest accrued, if any, net of tax and penalties, related to unrecognized tax benefits as components of income tax provision as applicable. As of December 31, 2016 accrued interest and penalties were less than $0.1 million.

At December 31, 2016 and 2015, the Company had approximately $0.1 million and $0.3 million, respectively, in reserves for uncertain tax positions.