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Income Taxes | 12 Months Ended
--- | ---
Dec. 31, 2018
Income Tax Disclosure [Abstract] |
Income Taxes |
| 12. | Income Taxes
Provision for income taxes consisted of the following for the years ended December 31:
|  | 2018 |  |  | 2017 |
Current |  |  |  |  |  |  |  |
Federal |  | $ | 21,058,703 |  |  | $ | 19,219,251 |
State |  |  | 9,646,172 |  |  |  | 5,336,885 |
|  |  | 30,704,875 |  |  |  | 24,556,136 |
Deferred |  |  |  |  |  |  |  |
Federal |  |  | (5,954,666 | ) |  |  | (18,718,113 | )
State |  |  | (2,390,569 | ) |  |  | (1,951,238 | )
|  |  | (8,345,235 | ) |  |  | (20,669,351 | )
Total provision for income taxes |  | $ | 22,359,640 |  |  | $ | 3,886,785 |
The Company uses the liability method of accounting for income taxes as set forth in ASC 740. Under the liability method, deferred taxes are determined based on differences between the financial statement and tax bases of assets and liabilities using enacted tax rates. As of December 31, 2018, the Company had federal and California net operating loss carryforwards of approximately $22.9 million and $23.1 million, respectively. The federal and California net operating loss carryforwards will expire at various dates from 2026 through 2037 ; however $2.5 million of the Federal operating loss does not expire and will be carried forward indefinitely. Pursuant to Internal Revenue Code Sections 382 and 383, use of the Company's net operating loss and credit carryforwards may be limited if a cumulative change in ownership of more than 50% occurs within any three-year period since the last ownership change. The Company had a change in control under these Sections with the completion of the Merger. The Company has performed an analysis of the limitation on the NOLs acquired with the Merger and has determined it will be able to utilize all of the net operating losses (“NOLs”) before they expire. Significant components of the Company's deferred tax assets (liabilities) as of December 31, 2018 and December 31, 2017 are shown below. During the year ended December 31, 2018, the Company recorded a non-cash reclassification $0.9 million of deferred tax liabilities to income tax payable related to utilization of NOLs. A valuation allowance of $3.4 million as of December 31, 2018 and December 31, 2017, respectively, has been established against the Company's deferred tax assets related to loss entities the Company cannot consolidate under the Federal consolidation rules, as realization of these assets is uncertain.
|  | 2018 |  |  | 2017 |
Deferred tax assets (liabilities) |  |  |  |  |  |  |  |
State taxes |  | $ | 1,886,010 |  |  | $ | 1,001,754 |
Stock options |  |  | 1,660,664 |  |  |  | 1,784,524 |
Accrued payroll and related cost |  |  | 238,633 |  |  |  | 185,130 |
Accrued hospital pool deficit |  |  | 168,413 |  |  |  | 282,913 |
Allowance for bad debts |  |  | 1,124,917 |  |  |  | - |
Investment in other entities |  |  | 884,922 |  |  |  | (1,437,061 | )
Net operating loss carryforward |  |  | 6,414,256 |  |  |  | 7,069,776 |
Property and equipment |  |  | (1,286,087 | ) |  |  | (1,286,452 | )
Acquired intangible assets |  |  | (24,084,892 | ) |  |  | (28,626,943 | )
Risk Pool Receivable |  |  | (2,434,573 | ) |  |  | - |
Other |  |  | (792,781 | ) |  |  | (504,307 | )
Net deferred tax liabilities before valuation allowance |  |  | (16,220,518 | ) |  |  | (21,530,666 | )
Valuation allowance |  |  | (3,395,417 | ) |  |  | (3,385,932 | )
Net deferred tax liabilities |  | $ | (19,615,935 | ) |  | $ | (24,916,598 | )
On December 22, 2017, the U.S. government enacted comprehensive tax legislation known as the Tax Cuts and Jobs Act (the "TCJA"). The TCJA establishes new tax laws that will take effect in 2018, including, but not limited to (1) reduction of the U.S. federal corporate tax rate from a maximum of 35% to 21%; (2) elimination of the corporate alternative minimum tax; (3) a new limitation on deductible interest expense; (4) the Transition Tax; (5) limitations on the deductibility of certain executive compensation; (6) changes to the bonus depreciation rules for fixed asset additions: and (7) limitations on NOLs generated after December 31, 2018, to 80% of taxable income. ASC 740, Income Taxes, requires the effects of changes in tax laws to be recognized in the period in which the legislation is enacted. However, due to the complexity and significance of the TCJA’s provisions, the SEC staff issued Staff Accounting Bulletin (“SAB 118”), which provides guidance on accounting for the tax effects of the TCJA. SAB 118 provides a measurement period that should not extend beyond one year from the TCJA enactment date for companies to complete the accounting under ASC 740. During the first nine months of 2018, the Company recorded provisional amounts for certain enactment-date effects of the TCJA, for which the accounting had not been finalized, by applying the guidance in SAB 118. The Company recorded a decrease in its deferred tax assets and deferred tax liabilities of $6.6 million and $16.3 million, respectively, with a corresponding net adjustment to deferred income tax benefit of $9.7 million for the year ended December 31, 2017. Accordingly, the Company completed its accounting for the tax effects of the TCJA in 2018 and did not recognize any material adjustments to the 2018 provisional income tax expense. The provision for income taxes differs from the amount computed by applying the federal income tax rate as follows for the years ended December 31:
|  | 2018 |  |  | 2017 |
Tax provision at U.S. Federal statutory rates |  |  | 21.0 | % |  |  | 35.0 | %
State income taxes net of federal benefit |  |  | 6.7 |  |  |  | 4.4 |
Non-deductible permanent items |  |  | 1.3 |  |  |  | (9.7 | )
Non-taxable entities |  |  | (0.7 | ) |  |  | (1.9 | )
Stock-based compensation |  |  | (1.8 | ) |  |  | 0.9 |
Change in valuation allowance |  |  |  |  |  |  | (2.9 | )
Entity Conversion |  |  | 0.5 |  |  |  | - |
Change in rate |  |  | - |  |  |  | (19.4 | )
Other |  |  | 0.1 |  |  |  | 1.4 |
Effective income tax rate |  |  | 27.1 | % |  |  | 7.8 | %
The Company's effective tax rate is different from the federal statutory rate of 21% due primarily to state taxes, share-based compensation and permanent adjustments. As of December 31, 2018 and 2017, the Company does not have any unrecognized tax benefits related to various federal and state income tax matters. The Company will recognize accrued interest and penalties related to unrecognized tax benefits in income tax expense. The Company is subject to U.S. federal income tax as well as income tax in California. The Company and its subsidiaries' state and Federal income tax returns are open to audit under the statute of limitations for the years ended December 31, 2014 through December 31, 2017 and for the years ended December 31, 2015 through December 31, 2017, respectively. The Company does not anticipate material unrecognized tax benefits within the next 12 months.

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- Definition 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. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 + Details
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