Provision for Taxes

12 Months Ended

Dec. 31, 2012

Provision for Taxes [Abstract]

PROVISION FOR TAXES

NOTE 9 – PROVISION FOR TAXES

The Company’s income tax (benefit) provision is as follows:

	2012			2011
Current:	$	(58,013	)	$	214,000
Deferred:
Change in Depreciation, depletion and amortization	$	(1,737,000	)	$	(1,645,000	)
Unrealized loss on derivative		(275,000	)		—
Change in other items		(29,000	)		49,000
Change in NOL		(3,564,000	)		2,478,000
Increase in AMT credit		58,000			(214,000	)
Change in valuation allowance		5,547,000			(668,000	)
Total	$	(58,013	)	$	214,000

The income tax benefit of $58,013 for 2012 and provision of $214,000 for 2011 represents a current tax that is for alternative minimum tax (AMT) related to the 2011 sale that will not be offset by the NOL, but will create a deferred tax credit carried forward indefinitely. The income tax provision differs from the amount of income tax determined by applying the U.S. federal and state income tax rates to pretax income from continuing operations for the years ended December 31, 2012 and 2011 primarily due to the utilization of NOL carryforwards, expense related to stock options, intangible drilling costs, availability of AMT credit carryforwards, and the valuation allowance.

At December 31, 2012, Trans Energy had net operating loss carryforwards of approximately $16.7 million that may be offset against future taxable income from 2013 through 2032. Except for an over accrual adjustment, no tax benefit has been reported in the December 31, 2012 and 2011 consolidated financial statements since the potential tax benefit is offset by a valuation allowance of the same amount.

Due to the change in ownership provisions of the Tax Reform Act of 1986, net operating loss carryforwards for Federal income tax reporting purposes are subject to annual limitations. Should a change in ownership occur, net operating loss carryforwards may be limited as to use in future years.

Net deferred tax assets and liabilities consist of the following components as of December 31, 2012 and 2011:

	2012			2011
Deferred tax assets:
NOL carryover	$	5,682,000		$	2,118,000
AMT Credit		606,000			664,000
Unrealized loss on derivative contract		275,000			—
Other		142,000			113,000
Total deferred tax assets		6,705,000			2,895,000
Deferred tax liabilities:
Depreciation, depletion and amortization		(552,000	)		(2,289,000	)
Total deferred tax liabilities		(552,000	)		(2,289,000	)
Valuation allowance		(6,153,000	)		(606,000	)
Net deferred taxes	$	—		$	—