| Income Taxes | Note 9 - Income Taxes The Company and its domestic subsidiaries file a consolidated federal income tax return. The Company recognizes both the current and deferred tax consequences of all transactions that have been recognized in the condensed consolidated financial statements, calculated based on the provisions of enacted tax laws, including the tax rates in effect for current and future years. Net deferred tax assets are recognized immediately when a more likely than not criterion is met; that is, a greater than 50% probability exists that the tax benefits will actually be realized sometime in the future. The components of income tax expense (benefit) are as follows: (in thousands) Three Months Ended September 30, Nine Months Ended September 30, 2015 2014 2015 2014 Federal – current $ - $ 250 $ - $ 731 State – current 38 387 105 1,211 Total current 38 637 105 1,942 Federal – deferred (518 ) (460 ) (1,226 ) (1,422 ) State - deferred - - - - Change in valuation allowance 518 460 1,226 1,422 Total deferred - - - - Income tax expense (benefit) $ 38 $ 637 $ 105 $ 1,942 The components of pretax income (loss) and the difference between income taxes computed at the statutory federal rate and the provision for income taxes are as follows: (in thousands) Three Months Ended September 30, Nine Months Ended September 30, 2015 2014 2015 2014 Income (loss) before income taxes $ (1,479 ) $ (1,315 ) $ (3,502 ) $ (4,062 ) Tax expense (benefit): Tax at statutory federal rate $ (518 ) $ (460 ) $ (1,226 ) $ (1,422 ) State income taxes 38 30 105 140 Federal interest - 250 - 731 State interest - 357 - 1,071 Permanent items - - - - Other - - - - Change in valuation allowance 518 460 1,226 1,422 Income tax expense (benefit) $ 38 $ 637 $ 105 $ 1,942 A reconciliation of the United States federal statutory rate to the Company's effective income tax rate is as follows: Three Months Ended September 30, Nine Months Ended September 30, 2015 2014 2015 2014 Tax at statutory federal rate 35.0% 35.0% 35.0% 35.0% State income taxes (2.8)% (2.3)% (3.0)% (3.5)% Federal interest 0.0% (19.0)% 0.0% (18.0)% State interest 0.0% (27.2)% 0.0% (26.3)% Permanent differences, tax credits and other adjustments - - - - Other - - - - Change in valuation allowance (35.0)% (35.0)% (35.0)% ) (35.0)% Effective income tax rate (2.8)% (48.5)% (3.0)% (47.8)% The Company has not been notified of any other potential tax audits by any federal, state or local tax authorities. As such, the Company believes the statutes of limitations for the assessment of additional federal and state tax liabilities are generally closed for tax years prior to 2011. Interest and/or penalties related to underpayments of income taxes, or if applicable on uncertain tax positions, would be included as a component of income tax expense (benefit). The accompanying financial statements do not include any amounts for penalties. State income tax amounts for the three months and nine months ended September 30, 2015, reflects a provision for a minimum tax on capital imposed by the state jurisdictions. State income tax amounts for the three months and nine months ended September 30, 2014, included accrued state interest expense for uncertain tax positions and a provision for a minimum tax on capital imposed by the state jurisdictions. Pursuant to the accounting principles with regard to recognition of uncertain tax positions, (ASC 740-10, Accounting for Income Taxes In connection with the uncertain tax position reserve in 2014, the Company accrued federal and state interest expense for the potential underpayment of 2012 taxes. The interest expense was included as a component of income tax expense (benefit) in the consolidated condensed statement of operations and as a component of the uncertain tax position reserve in the consolidated condensed balance sheets. A roll forward of the uncertain tax positions reserve, excluding accrued federal and state interest is as follows: (in thousands) September 30, 2015 December 31, 2014 Uncertain tax position reserve excluding accrued interest, at beginning of period $ - $ 34,157 Federal uncertain tax position reserve excluding accrued interest - (18,429 ) State uncertain tax position reserve excluding accrued interest - (15,728 ) Uncertain tax position reserve excluding accrued interest, at end of period $ - $ - The interest expense related to the uncertain tax positions is as follows: (in thousands) Three Months Ended Nine Months Ended September 30, 2015 September 30, 2014 September 30, 2015 September 30, 2014 Federal $ - $ 250 $ - $ 731 State jurisdictions - 357 - 1,071 Interest expense - taxes $ - $ 607 $ - $ 1,802 The utilization of certain carryforwards and carrybacks is subject to limitations under U.S. federal income tax laws. Based on the Company's federal tax returns as filed, the Company estimates it has federal NOL carryforwards and federal alternative minimum tax credit carryforwards ("AMT Credits"), available to reduce future federal taxable income which would expire if unused, as indicated below. The federal NOL carryforwards as of September 30, 2015 are as follows: Tax Year Originating Tax Year Expiring Amount 2006 2026 $ 500,000 2007 2027 12,700,000 2008 2028 4,600,000 2009 2029 2,400,000 2010 2030 1,900,000 2011 2031 1,900,000 2013 2033 3,700,000 2014 2034 4,900,000 $ 32,600,000 AMT Credits available which are not subject to expiration are as follows: Amount AMT Credits $ 21,500,000 Based on the Company's state tax returns as filed, the Company estimates that it has state NOL carryforwards available to reduce future state taxable income, which would expire if unused, as indicated below. The state NOL carryforwards as of September 30, 2015,are as follows: Tax Year Originating Tax Year Expiring Amount 2011 2031 $ 1,900,000 2013 2033 3,400,000 2014 2034 4,700,000 $ 10,000,000 The Company has calculated a net deferred tax asset arising primarily from NOL carryforwards and AMT Credits as follows: September 30, 2015 December 31, 2014 Net deferred tax asset $ 35,100,000 $ 32,900,000 Valuation allowance (35,100,000 ) (32,900,000 ) Net deferred tax asset recognized $ - $ - A valuation allowance has been established for the entire net deferred tax asset, as management, at the current time, has no basis to conclude that realization is more likely than not. At the current time management does not believe that any significant changes in unrecognized income tax benefits are expected to occur over the next year. |
