Note 6 - Income Taxes

12 Months Ended

Dec. 31, 2018

Notes to Financial Statements

Income Tax Disclosure [Text Block]

Note

6

–

INCOME TAXES

On

December 

22,

2017,

the United States enacted the Tax Cuts and Jobs Act (“the Act”), which made significant changes that affect the Company. Among other provisions, the Act lowered the U.S. Federal corporate tax rate to

21%,

effective

January 

1,

2018.

The Act is a comprehensive tax reform bill containing a number of other provisions that either currently or in the future could impact the Company. The Company completed the analysis of the Act and did

not

experience a material change due to the transition impacts. Any changes that do arise due to changes in interpretations of the Act, legislative action to address questions that arise because of the Act, changes in accounting standards for income taxes or related interpretations in response to the Act, or any updates or changes to estimates the Company has utilized to calculate the transition impacts will be disclosed in future periods as they arise. The effect of certain limitations effective for the tax year

2018

and forward, specifically related to the deductibility of executive compensation and interest expense, have been evaluated.

Components of deferred taxes are as follows:

	December 31,
	2018			2017
Assets:
Net Leasehold Impairment Reserves	$	127,906		$	189,867
Gas Balance Receivable		32,352			32,352
Long-Lived Asset Impairment		936,272			945,399
Deferred Geological and Geophysical Expense		38,367			47,539
Other		224,670			266,141
Total Assets		1,359,567			1,481,298
Liabilities:
Receivables		72,807			59,561
Intangible Drilling Costs		1,741,413			1,614,470
Depletion, Depreciation and Other		755,618			725,317
Total Liabilities		2,569,838			2,399,348
Net Deferred Tax Liability	$	(1,210,271	)	$	(918,050	)

The increase in the deferred tax liability for

2018

reflected in the above table is primarily the result of the increase in intangible drilling costs.

The following table summarizes the current and deferred portions of income tax expense:

	Year Ended December 31,
	2018			2017
Current Tax Provision/(Benefit):
Federal	$	96,443		$	10,362
State		(784	)		167
Total Current Provision		95,659			10,529
Deferred Tax Provision/(Benefit)		292,221			(593,111	)
Total Provision/(Benefit)	$	387,880		$	(582,582	)

The total income tax provision/(benefit) expressed as a percentage of income before income tax, excluding effect of change in federal income tax rate discussed below, was

14%

for

2018

and

5%

for

2017.

These amounts differ from the amounts computed by applying the statutory U.S. federal enacted income tax rate of

21%

for

2018

and

2017

as summarized in the following reconciliation:

	Year Ended December 31,
	2018			2017
Computed Federal Tax Provision	$	567,330		$	35,035
Increase (Decrease) in Tax From:
Allowable Depletion in Excess of Basis		(192,979	)		(51,533	)
Dividend Received Deduction		(305	)		(618	)
State Income Tax Provision/(Benefit)		784			(167	)
Federal Income Tax Rate Change		---			(577,797	)
Other		13,050			12,498
Income Tax Provision/(Benefit)	$	387,880		$	(582,582	)
Effective Tax Rate		14	%		5	%

Excess federal percentage depletion, which is limited to certain production volumes and by certain income levels, reduces estimated taxable income projected for any year. When a provision for income taxes is recorded, federal excess percentage depletion benefits decrease the effective tax rate. When a benefit for income taxes is recorded, federal excess percentage depletion benefits increase the effective tax rate. The benefit of federal excess percentage depletion is

not

directly related to the amount of pre-tax income recorded in a period. Accordingly, in periods where a recorded pre-tax income is relatively small or a pre-tax loss, the proportional effect of these items on the effective tax rate

may

be significant.