|12 Months Ended|
Dec. 31, 2014
|Income Tax Disclosure [Abstract]|
5. Income taxes
The provision for income taxes consists of the following:
The components of deferred tax assets and liabilities consist of the following:
Reconciliation of the federal statutory income tax rate to the effective income tax rate for the last three years is as follows:
The Company is a C-Corporation for both federal and state income tax purposes.
The Company operates in multiple states. The statute of limitations has expired for all tax years prior to 2011 for federal and 2010 to 2011 for various state tax purposes. However, the net operating loss generated on the federal and state tax returns in prior years may be subject to adjustments by the federal and state tax authorities.
Income tax provision was $3,226 for the year ended December 31, 2014 compared to income tax benefit of $21,587 for the year ended December 31, 2013.
As of December 31, 2014, the Company had $59,319 and $46,434 of federal and state net operating loss carryforwards, respectively, that begin to expire in 2023 and 2015 for federal and state purposes, respectively, if not utilized.
As of December 31, 2013, the Company had $57,463 and $52,769 of federal and state net operating loss carryforwards, respectively, that begin to expire in 2023 and 2015 for federal and state purposes, respectively, if not utilized.
Our existing net operating losses are subject to limitations arising from a current period ownership change subject to the provisions of Section 382 of the Internal Revenue Code of 1986, as amended, or the Code, and if we undergo one or more future ownership changes our ability to utilize net operating losses could be further limited. In general, under Section 382 of the Code, a corporation that undergoes an “ownership change” is subject to limitations on its ability to utilize its pre-change net operating losses to offset future taxable income. In general, an “ownership change” occurs if there is a cumulative change in ownership by “5% shareholders” that exceeds 50 percentage points over a rolling three-year period. Even after factoring in the limitations of the current period ownership change, the Company was able to determine that, based upon future projections of income, it is more likely than not that all of its federal net operating losses will be utilized before they expire. However, the Company determined that some of its California net operating losses will expire unused and therefore has a valuation allowance of $2,899 relating to these net operating losses. In the current period, the Company released (or reversed) $1,223 of the California NOLs valuation allowance due to expiration of California NOLs and changes in estimates of future projections of income, resulting in a determination that is more likely than not that all but $32,796 ($2,899 tax effected) of the California net operating losses will be utilized.
Due to overall cumulative losses incurred over the years, the Company maintained a full valuation allowance against its deferred tax assets as of December 31, 2012. As of December 31, 2013 the Company evaluated the current facts and circumstances and concluded that the negative evidence that existed as of December 31, 2012, no longer existed. Accordingly, the Company relied on positive evidence, which included cumulative income in the trailing three years and a forecast of taxable income sufficient to utilize its deferred tax assets including net operating loss carryforwards. During 2013, the Company determined that it was appropriate to release $22,909 of the valuation allowance at December 31, 2013.
The Company accounts for uncertainties in income tax in accordance with ASC 740-10, Accounting for Uncertainty in Income Taxes. ASC 740-10 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. This Accounting Standard also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition.
At December 31, 2014 and 2013, the total unrecognized tax benefits were $577 and $306, respectively. The Company recognizes interest accrued and penalties related to unrecognized tax benefits as income tax expense. No significant interest or penalties were recognized during the periods presented.
A reconciliation of the beginning and ending amount of unrecognized tax benefit is as follows:
We do not expect a material increase or decrease in unrecognized tax benefits over the next 12 months.
The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.
Reference 1: http://www.xbrl.org/2003/role/presentationRef