Income Taxes

12 Months Ended

Dec. 31, 2018

Income Tax Disclosure [Abstract]

Income Taxes

Note 8 – Income Taxes

The provision for income taxes consists of the following:

	For the Year Ended
	December 31,
	2018			2017
Current income tax expense (benefit)	$	(150,000	)	$	—
Deferred income tax benefit		—			—
Total income tax expense (benefit)	$	(150,000	)	$	—

The effective income tax rate on continuing operations varies from the statutory federal income tax rate as follows:

	For the Years Ended
	December 31,
	2018			2017
Federal income tax rate		(21.0	)%		(34.0	)%
State income tax rate		(4.4	)		(4.4	)
Revaluation of deferred tax assets based on changes in enacted tax laws		—			386.2
Change in valuation allowance		26.4			(347.8	)
AMT Credit carryforward		(34.3	)		—
Other, net		(1.0	)		—
Effective tax rate		(34.3	)%		—	%

The significant temporary differences and carry-forwards and their related deferred tax asset (liability) and deferred tax asset valuation allowance balances are as follows:

	For the Years Ended
	December 31,
	2018			2017
	(in thousands)
Deferred tax assets:
Accruals and other	$	940		$	900
Asset retirement obligations		435			435
Note payable discounts and derivatives		(510	)		(460	)
Stock-based compensation		1,190			1,190
Alternative minimum tax credit carry-forward		—			150
Net operating loss carry-forward		16,930			16,885
Gross deferred tax assets		18,985			19,100
Less valuation allowance		(18,985	)		(19,100	)
Deferred tax asset	$	—		$	—

The effective income tax rate on income (loss) before income tax benefit varies from the statutory federal income tax rate primarily due to the Tax Cuts and Jobs Act (the “Act”) enacted on December 22, 2017. The Act significantly changed U.S. corporate income tax laws by, among other things, reducing the U.S. corporate income tax rate to 21% starting in 2018.

Under the Act, corporations are no longer subject to the AMT, effective for taxable years beginning after December 31, 2017. However, where a corporation has an AMT Credit from a prior taxable year, the corporation still carries it forward and may use a portion of it as a refundable credit in any taxable year beginning after 2017 but before 2022. Generally, 50% of the corporation’s AMT Credit carried forward to one of these years will be claimable and refundable for that year. In tax years beginning in 2021, however, the entire remaining carryforward generally will be refundable. The Company has generated an AMT credit carryforward during prior years totaling $150,000 which previously was reported as income taxes payable on the Company’s balance sheet and the corresponding deferred tax asset was fully reserved based on all available evidence, the Company considered it more likely than not that all of the AMT tax credit carryforward would not be realized. Based on the provisions of the new Act, the Company now considers it more likely than not that all of the AMT tax credit carryforward will be realized. Accordingly, the Company has recognized an income benefit of $150,000 during the year ended December 31, 2018 as it reduced the corresponding income taxes payable to zero as of December 31, 2018. The Company will receive no cash from the elimination of this AMT tax credit carryforward as the Company had not previously paid the AMT tax rather it recorded the income tax liability on the accompanying balance sheet.

The Company has incurred operating losses in recent years and it continues to be in a three-year cumulative loss position at December 31, 2018. Accordingly, the Company determined there was not sufficient positive evidence regarding its potential for future profits to outweigh the negative evidence of our three-year cumulative loss position under the guidance provided in ASC 740. Therefore, it determined to continue to provide a 100% valuation allowance on its net deferred tax assets. The Company expects to continue to maintain a full valuation allowance until it determines that it can sustain a level of profitability that demonstrates its ability to realize these assets. To the extent the Company determines that the realization of some or all of these benefits is more likely than not based upon expected future taxable income, a portion or all of the valuation allowance will be reversed.

For income tax purposes, the Company has net operating loss carry-forwards of approximately $66,845,000, which expire from 2025 through 2038.

The Company has not completed the filing of tax returns for the tax years 2012 through 2017. Therefore, all such tax returns are open to examination by the Internal Revenue Service.

The Internal Revenue Code contains provisions under Section 382 which limit a company’s ability to utilize net operating loss carry-forwards in the event that it has experienced a more than 50% change in ownership over a three-year period. Management has not completed its review of whether such ownership changes have occurred, and whether the Company currently is subject to an annual limitation or the possibility of the complete elimination of the net operating loss carry- forwards might have occurred. In addition, the Company may be further limited by additional ownership changes which may occur in the future.

As discussed in Note 1, “Summary of Significant Accounting Policies,” tax positions are evaluated in a two-step process. Management first determines whether it is more likely than not that a tax position will be sustained upon examination. If a tax position meets the more-likely-than-not recognition threshold, it is then measured to determine the amount of benefit to recognize in the financial statements. The tax position is measured as the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement. Management has identified no tax positions taken that would meet or exceed these thresholds and therefore there are no gross interest, penalties and unrecognized tax expense/benefits that are not expected to ultimately result in payment or receipt of cash in the financial statements.