Income Taxes

The income tax provision is as follows:



	Year Ended December 31,
In thousands	2019			2018
Current income tax (benefit) expense
Federal	$	(591	)	$	(1,100	)
State	(464		)	291
Total current income tax benefit	(1,055		)	(809		)
Deferred tax (benefit) expense
Federal	(20,989		)	7,686
State	673			(85		)
Valuation allowance	8,876			—
Total deferred income tax (benefit) expense	(11,440		)	7,601
Total income tax (benefit) expense	$	(12,495	)	$	6,792

The following table provides a reconciliation of Lonestar's actual income tax provision amounts from the expected income tax provision amount by applying the U.S. federal statutory corporate income tax rate of 21% for the years ended December 31, 2019 and 2018, respectively:



	Year Ended December 31,
In thousands	2019			2018
Expected income tax expense (benefit) at statutory rate	$	(24,258	)	$	5,489
Permanent differences	(48		)	123
Return to provision adjustment	2,567			1,119
Change in valuation allowance	8,876			—
Other	368			61
Actual income tax (benefit) expense	$	(12,495	)	$	6,792

Significant components of the Company's deferred tax assets and liabilities as of December 31, 2019 and 2018 are as follows:



	December 31,
In thousands	2019			2018
Deferred tax assets
Net operating loss carryforward	$	27,025		$	17,765
Stock-based compensation	922			1,973
Intangibles	257			304
Derivative instruments	606			—
Interest expense limitation	19,243			2,254
Organizational expenses and other	3,306			4,477
Total deferred tax assets	$	51,359		$	26,773
Deferred tax liabilities
Oil and gas properties, and other property and equipment, principally due to intangible drilling costs	$	(43,414	)	$	(34,332	)
Derivative instruments	—			(4,811		)
Net deferred tax assets (liabilities)	7,945			(12,370		)
Valuation allowance for deferred tax assets	(8,876		)	—
Net deferred tax liability, net of valuation allowance	$	(931	)	$	(12,370	)

The net operating loss carryforward as of December 31, 2019, approximates $128.6 million and begins to expire in 2030 with the exception of $49.9 million related to fiscal years 2018 and 2019, which has no expiration, however, they are limited to usage of 80% of income.

On December 22, 2016, the Company completed a public offering of 13.8 million of its Class A common stock. A change of ownership, as defined under the provisions of IRC Section 382 occurred on this date. As a result, a portion of our net operating loss and tax credit carryforwards will be limited in future periods. IRC Section 382 places limitations on the amount of taxable income which may be offset by tax carryforward attributes, such as net operating losses or tax credits after a change of ownership event. As a result of this ownership change, certain of our accumulated net operating losses will be subject to an annual limitation regarding their utilization against taxable income in future periods. The 2016 change creates an estimated annual utilization limit of approximately $1.0 million on our ability to utilize net operating losses generated prior to the ownership change event. Built-in gains associated with our deferred tax attributes on the date of the ownership change may increase the net operating loss utilization limit in future periods, allowing additional utilization of net operating losses generated prior to the date of the ownership change. Due to the ownership change and the resulting limitation on the utilization of net operating loss generated prior to the change, an estimated $141.7 million of the net operating loss carryforwards were written off in 2016. As of December 31, 2019, the Company has approximately $8.7 million of percentage depletion carryover which has no expiration.

On June 15, 2017, the Company entered into an amended and restated purchase agreement with Chambers Energy Capital III, LP (“Chambers”) where the Company closed transactions issuing Chambers 5,400 shares of Series A-1 Preferred Stock and 74,600 shares of Series A-2 Preferred Stock. These transactions created an additional change of ownership under the provision of Section 382 of the IRC. The 2017 change creates an additional estimated annual utilization limit of approximately $0.8 million on our ability to utilize net operating losses generated subsequent to the 2016 change in ownership, but prior to the June, 2017 change in ownership.

If the Company were to experience another ownership change in future periods, the net operating loss carryforwards may be subject to additional utilization limits.

The Company files income tax returns in the United States federal jurisdiction and in various state jurisdictions. As of December 31, 2019, there are no examinations of federal or state jurisdictions in progress. The Company’s income tax returns related to fiscal years ended December 31, 2010 through 2019 remain open to possible examination by the tax authorities. The Company has not recorded any interest or penalties associated with uncertain tax positions.

Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to reverse. The Company's deferred tax assets exceeded its deferred tax liabilities at December 31, 2019 primarily due to tax consequences of the impairment of the Company's Brazos properties during the fourth quarter; as a result, the Company established a valuation allowance against most of the deferred tax assets during the fourth quarter of 2019. With the exception of a $0.6 million deferred tax asset retained for existing refundable AMT credit carryovers (see below), the Company retained a full valuation allowance of $8.9 million at December 31, 2019 due to uncertainties regarding the future realization of its deferred tax assets. The valuation allowance will continue to be recognized until the realization of future deferred tax benefits is determined to be more likely than not. The Company recorded a deferred tax liability of $1.5 million at December 31, 2019 related to State taxes.

As of December 31, 2019, the Company had AMT credit carryovers of $0.6 million that are expected to be fully refunded by 2022.

The deductibility of interest expense for tax years beginning in January 1, 2018 has been limited to 30% of earnings before interest, taxes, depreciation, and amortization for the four years ending 2021. Deductibility of interest expense for tax years beginning in January 1, 2022 will then be limited to 30% of earnings before interest and taxes thereafter. For the years ended December 31, 2019 and 2018, our deductible interest expense was limited which resulted in a $19.2 million and $2.3 million deferred tax asset, respectively.