INCOME TAXES

On December 22, 2017, the Tax Reform Act was signed into law. The legislation significantly changes U.S. tax law by, among other things, lowering the U.S. corporate income tax rate from a maximum of 35% to a flat 21% rate, effective January 1, 2018. As a result of the decrease in the corporate income tax rate, we revalued our ending net deferred tax assets at December 31, 2017, but did not recognize any incremental income tax expense in 2017 due to the revaluation of the valuation allowance.

On December 22, 2017, the SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118”) to address the application of U.S. GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Tax Reform Act. We provisionally recognized the incremental tax impacts related to the revaluation of deferred tax assets and liabilities and our reassessment of uncertain tax positions and valuation allowances and included these amounts in our Consolidated Financial Statements for the year ended December 31, 2017. We completed our accounting for all of the enactment-date income tax effects of the Tax Reform Act during the fourth quarter of 2018 with no further changes.

The components of income tax (benefit) expense for the years ended December 31, 2018 and 2017 are as follows:



	December 31, 2018			December 31, 2017
Current federal tax (expense)/benefit	$	(137,212	)	$	—
Deferred federal tax (expense)/benefit	137,212			274,423
Total federal tax (expense)/benefit	$	—		$	274,423

Reconciliation between the amount determined by applying the U.S. federal income tax rate of 21% and 34% to pretax income from continuing operations as a result of the following for the years ended December 31, 2018 and 2017, respectively:



	December 31, 2018			December 31, 2017
Statutory tax on book income	$	(417,000	)	$	(2,860,000	)
Permanent differences	(46,000		)	135,000
Change in expected tax rate	—			6,897,408
Change in valuation allowance	967,000			(3,672,000		)
Prior year return true up	(504,000		)	(774,831		)
Income tax expense (benefit)	$	—		$	(274,423	)

The tax effect of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 2018 and 2017 are presented below:



	December 31, 2018			December 31, 2017
Deferred tax assets:
Alternative minimum tax credits	$	137,000		$	274,000
Accrued bonus and stock based compensation	358,000			225,000
Intangible assets	1,368,000			1,013,000
Bad debt reserve	175,000			344,000
Contribution carryover	26,000			18,000
Disallowed interest expense IRC Section 163(j)	190,000			—
Net operating loss carry forwards	12,500,000			11,670,000
Less valuation allowance	(12,109,000		)	(11,142,000		)
Total deferred tax assets	$	2,645,000		$	2,402,000

	December 31, 2018			December 31, 2017
Deferred tax liabilities:
Accelerated tax depreciation	$	(2,444,000	)	$	(2,128,000	)
Contingent liability	3,000			—
Vertex Recovery Management LA	(67,000		)	—
Total deferred tax liabilities	$	(2,508,000	)	$	(2,128,000	)

Net deferred tax assets	$	137,000		$	274,000

The Company provides a valuation allowance when it is more likely than not that some portion of the deferred tax assets will not be realized. Management assesses the available positive and negative evidence to estimate if sufficient future taxable income will be generated to utilize the existing deferred tax assets. Based on this evaluation, as of December 31, 2018, a valuation allowance of approximately $12,109,000 has been recorded on the net deferred tax assets in order to measure only the portion of the deferred tax assets that more than likely not will be realized. As of December 31, 2017, a valuation allowance of $11,142,000 was recorded against the net deferred tax asset not expected to be realized.

The Company is subject to examination by Federal and State tax authorities for fiscal years 2014 through 2018, except for utilization of net operating losses.

At December 31, 2018, the Company had federal net operating loss carry-forwards ("NOLs") of approximately $59.5 million. IRC Sections 382 and 383 provide an annual limitation with respect to the ability of a corporation to utilize its tax attributes against future U.S. taxable income in the event of a change in ownership. The net operating loss carry-forwards at December 31, 2018 reflect a reduction of approximately $32.5 million as a result of an ownership change triggering event in May 2016, as defined under IRC Section 382. The net operating loss carryforward will begin to expire in 2026. Those arising in tax years after 2017 can be carried forward indefinitely.