Note 15 – Income Taxes

Income tax expense (benefit) consisted of the following:



	For the Calendar Year
	2011		2010

Current:
Federal	$	-	$	-
State		-		4,356

Total current		-		4,356

Deferred income taxes		310,783		(160,485)

Income tax expense (benefit)	$	310,783	$	(156,129)


Income tax benefit is allocated as follows:
To continuing operations	$	-	$	4,356
To shareholders’ equity		310,783		(160,485)

Income tax expense (benefit)	$	310,783	$	(156,129)

The gross amounts of deferred tax assets and deferred tax liabilities are as follows:


	December 31,
Deferred tax assets:	2011			2010
Allowance for loan losses	$	314,650		$	123,634
Net operating loss carry forward		1,521,684			1,172,995
Organization and start-up expenses		656,931			709,839
Stock options and warrants		104,608			81,834
State tax credits		66,000			33,000
Unrealized loss on securities available for sale		-			220,466
Accrued bonuses		-			61,898
Other		14,094			7,873
Gross deferred tax assets		2,677,967			2,411,539
Valuation allowance		(2,594,647	)		(2,112,096	)
Net deferred tax assets		83,320			299,443

Deferred tax liabilities:
Unrealized gain on securities available for sale		90,317			-
Accumulated depreciation		35,089			39,337
Capitalized loan costs and fees, net		19,816			15,948
Prepaid expense		28,415			23,692
Total deferred tax liabilities		173,637			78,977

Net deferred tax asset (liability)	$	(90,317	)	$	220,466

Deferred tax assets represent the future tax benefit of deductible differences and, if it is more likely than not that a tax asset or a portion of a deferred tax asset will not be realized, a valuation allowance is required to reduce the recorded deferred tax assets to net realizable value. As of December 31, 2011 and 2010, management has recorded a valuation allowance associated with continuing operations. Net deferred tax liabilities are recorded in other liabilities on the Company’s consolidated balance sheets.

The Company has a net operating loss for Federal income tax purposes of $4,465,221 as of December 31, 2011. This net operating loss begins to expire in the year 2029.

Tax returns for 2008 and subsequent years are subject to examination by taxing authorities.

A reconciliation between the income tax expense and the amount computed by applying the Federal statutory rate of 34% to income before income taxes follows:



	For the Calendar Year
	2011			2010

Tax benefit at Federal statutory rate	$	(434,576	)	$	(683,668)
Stock-based compensation		13,470			14,046
State tax credits		(33,000	)		(33,000)
Valuation allowance		482,551			705,297
Tax-exempt interest		(30,136	)		(6,939)
Other		1,691			8,620

Income tax expense	$	-		$	4,356

The Company has analyzed the tax positions taken or expected to be taken in its tax returns and concluded it has no liability related to uncertain tax positions in accordance with ASC 740-10. The Company’s policy is to classify any interest or penalties recognized in accordance with ASC 740-10 as interest expense or noninterest expense, respectively.