Note 8 — Income Tax

 

The Company’s deferred tax assets are as follows:

 

		12/31/2016				12/31/2015				12/31/2014
Deferred tax asset
Net operating loss carryforward		$	297,723			$	105,804			$	529
Unrealized loss on securities			-				-				-
Business combination expenses			-				-				-
Total deferred tax assets			297,723				105,804				529
Valuation Allowance			(297,723	)			(105,804	)			(529	)
Deferred tax asset, net of allowance		$	-			$	-			$	-

 

The income tax provision (benefit) consists of the following:

 

		Year Ended 12/31/16				Year Ended 12/31/15				Year Ended 12/31/14
Federal
Current		$	-			$	-			$	-
Deferred			(147,797	)			(89,484	)			(450	)
State and Local
Current			-				-				-
Deferred			(44,121	)			(15,791	)			(79	)
Change in valuation allowance			191,918				105,275				529
Income tax provision (benefit)		$	-			$	-			$	-

 

The Company has a net operating loss (“NOL”) of approximately $699,208. These NOLs expire beginning in 2034. The ultimate realization of the net operating loss is dependent upon future taxable income, if any, of the Company and may be limited in any one period by applicable tax rules. Although management believes that the Company will have sufficient future taxable income to absorb the net loss carryovers before the expiration of the carryover period, there may be circumstances beyond the Company’s control that limit such utilization. Accordingly, management has determined that full valuation allowances of the deferred tax asset are appropriate as of December 31, 2016.

 

Internal Revenue Code Section 382 imposes limitations on the use of NOL carryovers when the stock ownership of one or more 5% shareholders (shareholders owning more than 5% of the Company’s outstanding capital stock) has increased on a cumulative basis more than 50 percentage points within a period of two years. Management cannot control the ownership changes occurring as a result of public trading of the Company’s Common Stock. Accordingly, there is a risk of an ownership change beyond the control of the Company that could trigger a limitation of the use of the loss carryover.

 

The Company files income tax returns in the U.S. federal jurisdiction and various state and local jurisdictions and is subject to examination by the various taxing authorities. The Company considers New York to be a significant state tax jurisdiction. The Company’s federal, state and local income taxes for the year beginning in 2014 remains subject to examination.

 

In assessing the realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which temporary differences representing net future deductible amounts become deductible. Management considers the scheduled reversal of deferred tax assets, projected future taxable income and tax planning strategies in making this assessment. After consideration of all of the information available, Management believes that significant uncertainty exists with respect to future realization of the deferred tax assets and has therefore established a full valuation allowance. For the year ended December 31, 2016, the change in the valuation allowance was approximately $192,000. 

 

A reconciliation of the statutory tax rate to the Company’s effective tax rates as of December 31, 2016 is as follows:

 

		Year Ended 12/31/16				Year Ended 12/31/15				Year Ended 12/31/14
Statutory federal income tax rate			-34.0	%			-34.0	%			-34.0	%
State taxes, net of federal tax benefit			-8.6	%			-6.0	%			-6.0	%
Change in valuation allowance			42.6	%			40.0	%			40.0	%
Income tax provision (benefit)			0.0	%			0.0	%			0.0	%