17. Income Taxes

9 Months Ended

Sep. 30, 2015

Income Tax Disclosure [Abstract]

Income Taxes

Income Tax Expense

Our income tax expense consisted of the following:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2015			2014			2015			2014
Current:
Federal	$	(37,620	)	$	(1,395	)	$	(122,863	)	$	(152,759	)
State		(36,102	)		(20,804	)		(148,656	)		(146,033	)
Deferred:
Federal		(614,681	)		-			(2,507,231	)		-
State		-			-			-			-
	$	(688,403	)	$	(22,199	)	$	(2,778,750	)	$	(298,792	)

The state of Texas has a Texas margins tax (“TMT”), which is a form of business tax imposed on gross margin to replace the state’s prior franchise tax structure. Although TMT is imposed on an entity’s gross margin rather than on its net income, certain aspects of TMT make it similar to an income tax.

Deferred Income Taxes

Under Section 382 of the Internal Revenue Code of 1986, as amended (“IRC Section 382”), a corporation that undergoes an “ownership change” is subject to limitations on its use of pre-change NOL carryforwards to offset future taxable income. Within the meaning of IRC Section 382, an “ownership change” occurs when the aggregate stock ownership of certain stockholders (generally 5% shareholders, applying certain look-through rules) increases by more than 50 percentage points over such stockholders' lowest percentage ownership during the testing period (generally three years). In general, the annual use limitation equals the aggregate value of common stock at the time of the ownership change multiplied by a specified tax-exempt interest rate.  We experienced ownership changes in 2005 in connection with a series of private placements, and in 2012 as a result of a reverse acquisition.  The 2012 ownership change will subject NOL carryforwards to an annual use limitation, which will significantly reduce our ability to use them to offset taxable income in periods following the 2012 ownership change.  The amount of NOLs subject to such limitations is approximately $18.7 million.  As a result of the limitation under IRC Section 382, the annual use limitation is $638,196 per year, the effect of which will result in approximately $6.7 million in NOL carryforwards expiring unused.

At September 30, 2015, approximately $3.3 million of net deferred tax asset remained available for future use, reflecting use of approximately $5.4 million of net operating loss carryforwards through the period.  At September 30, 2015, approximately $9.6 million of NOLs generated prior to the 2012 ownership change remain available for future use.  At September 30, 2015, approximately $7.9 million of NOLs generated subsequent to the 2012 ownership change remained available for future use and are not subject to an annual use limitation under IRC Section 382.

Deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting and income tax purposes.  The following table shows significant components of our deferred tax assets and liabilities:

	September 30,			December 31,
	2015			2014
Deferred tax assets:
Net operating loss and capital loss carryforwards	$	8,221,505		$	10,067,144
Start-up costs (Nixon Facility)		1,545,033			1,648,036
Asset retirement obligations liability/deferred revenue		859,819			869,821
AMT credit and other		236,389			85,467
Total deferred tax assets		10,862,746			12,670,468
Deferred tax liabilities:
Fair market value adjustments		(46,116	)		(46,116	)
Unrealized hedges		(45,271	)		(168,606	)
Basis differences in property and equipment		(5,220,754	)		(4,425,318	)
Total deferred tax liabilities		(5,312,141	)		(4,640,040	)
Deferred tax assets, net		5,550,605			8,030,428
Valuation allowance		(2,270,322	)		(2,270,322	)
	$	3,280,283		$	5,760,106

The following table shows our current and noncurrent deferred tax assets (liabilities):

	September 30,			December 31,
	2015			2014
Current deferred tax liabilities	$	5,162,781		$	(168,236	)
Noncurrent deferred tax assets, net		387,824			8,198,664
Deferred tax assets, net		5,550,605			8,030,428
Valuation allowance		(2,270,322	)		(2,270,322	)
	$	3,280,283		$	5,760,106

Valuation Allowance

As of each reporting date, management considers new evidence, both positive and negative, that could impact management’s view with regard to future realization of deferred tax assets.  As of September 30, 2015 and December 31, 2014, management determined that sufficient positive evidence existed to conclude that it was more likely than not that net deferred tax assets of approximately $3.3 million and $5.8 million, respectively, were realizable, and as a result, reflected a valuation allowance accordingly.

Uncertain Tax Positions

We have adopted the provisions of the FASB ASC guidance on accounting for uncertainty in income taxes. The guidance clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements. The guidance also prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The standard also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.

As part of this guidance, we record income tax related interest and penalties, if applicable, as a component of the provision for income tax benefit (expense). However, there were no amounts recognized relating to interest and penalties in the consolidated statements of income for the three and nine months ended September 30, 2015 and 2014. Furthermore, none of our federal and state income tax returns are currently under examination by the Internal Revenue Service (“IRS”) or state authorities. As of September 30, 2015, fiscal years 2011 and later remain subject to examination by the IRS and fiscal years 2009 and later remain subject to examination by the state of Texas. We believe there are no uncertain tax positions for both federal and state income taxes.