NOTE 6 - INCOME TAXES

12 Months Ended

Dec. 31, 2015

NOTE 6 - INCOME TAXES

Deferred tax assets and liabilities reflect the net tax effect of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and amounts used for income tax purposes. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.

Significant components of the Company’s deferred assets and liabilities at December 31, 2015 and 2014, respectively, are as follows:

	2015			2014
Deferred Tax Assets (Liabilities):
Statutory Depletion Carry Forward	$	555,093		$	672,480
Net Operating Loss		4,651,428			4,568,737
Other		1,247,829			939,061
Share-Based Compensation		96,536			70,921
Capital Loss / AMT Credit Carry Forward		18,915			76,410
Charitable Contributions Carry Forward		21,644			16,602
Allowance for Doubtful Accounts		887,418			681,052
Oil and Gas Properties and Fixed Assets		4,980,324			4,828,214
	$	12,459,187		$	11,853,477
Valuation Allowance		(12,459,187	)		(11,853,477	)
Net Deferred Tax Asset	$	-		$	-

Deferred Tax Assets:
Current	$	150,845		$	126,499
Non-current		(150,845	)		(126,499	)
Deferred Tax Liabilities:
Current
Non-current
Net Deferred Tax Asset	$	-		$	-

At the end of 2014, management reviewed the realizability of the Company’s net deferred tax assets. Due to the Company’s cumulative losses in recent years, Royale and its management concluded that it is not “more-likely-than-not” its deferred tax assets will be realized. As a result, the Company recorded a full valuation allowance against the net deferred tax assets in 2014. At the end of 2015, management reviewed the reliability of the Company’s net deferred tax assets, and due to the Company’s continued cumulative losses in recent years, Royale and its management concluded it is not “more-likely-than-not” its deferred tax assets will be realized. As a result, the Company will continue to record a full valuation allowance against the deferred tax assets in 2015. The Company will assess the realizability of the deferred tax assets at least yearly and make appropriate updates as needed. The Company had statutory percentage depletion carry forwards of approximately $1.4 million at December 31, 2015. The depletion has no expiration date. The Company also has a net operating loss carry forward of approximately $11.6 million at December 31, 2015, which will begin to expire in 2027.

A reconciliation of Royale Energy's provision for income taxes and the amount computed by applying the statutory income tax rates at December 31, 2014 and 2013, respectively, to pretax income is as follows:

	2015			2014

Tax (benefit) computed at statutory rate of 34%	$	(683,678	)	$	(731,630)

Increase (decrease) in taxes resulting from:

State tax / percentage depletion / other		957			-
Other non-deductible expenses		1,478			1,665
Change in valuation allowance		681,243			729,965
Provision (benefit)	$	-		$	-

The components of the Company’s tax provision are as follows:

	2015		2014

Current tax provision (benefit) – federal	$	-		-
Current tax provision (benefit) – state		-		-
Deferred tax provision (benefit) – federal		-		-
Deferred tax provision (benefit) – state		-		-

Total provision (benefit)	$	-		-

In January 2007, Royale adopted additional provisions from the Income Taxes Topic of the FASB Accounting Standards Codification, which clarified the accounting for uncertainty in income taxes recognized in an entity’s financial statements and prescribes a recognition threshold and measurement attribute for financial statement disclosure of tax positions taken or expected to be taken on a tax return. As a result of our implementation of the Topic at the time of adoption and at December 31, 2015, the Company did not recognize a liability for uncertain tax positions. Currently, the only differences between our financial statements and our income tax returns relate to normal timing differences such as depreciation, depletion and amortization, which are recorded as deferred taxes on our balance sheets. We do not expect our unrecognized tax benefits to change significantly over the next 12 months. The tax years 2011 through 2014 remain open to examination by the taxing jurisdictions in which we file income tax returns.