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Income Taxes | 12 Months Ended
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Sep. 30, 2018
Income Taxes |
Income Taxes | 11. Income Taxes The components of income taxes are as follows:
|  | For the Fiscal Year Ended September 30,
|  | 2018 |  | 2017 |  | 2016
Current provision (benefit): |  |  |  |  |  |  |  |  |
Federal |  | $ | (3,440) |  | $ | 244,794 |  | $ | 77,244
State |  |  | 5,239 |  |  | 3,082 |  |  | (2,930)
Total current provision (benefit) |  |  | 1,799 |  |  | 247,876 |  |  | 74,314
Deferred provision (benefit): |  |  |  |  |  |  |  |  |
Federal |  |  | 61,799 |  |  | — |  |  | 493,989
State |  |  | 53 |  |  | 44 |  |  | 27
Total deferred provision (benefit) |  |  | 61,852 |  |  | 44 |  |  | 494,016
Total current and deferred provision (benefit) |  | $ | 63,651 |  | $ | 247,920 |  | $ | 568,330
Following is a reconciliation of the statutory federal rate to the Company’s effective income tax rate:
|  | For the Fiscal Year Ended September 30, |
|  | 2018 |  | 2017 |  | 2016 |
U.S. Federal statutory tax rate |  | 24.3 | % | 34.0 | % | 34.0 | %
Rate change due to tax reform |  | (9.0) | % | — |  | — |
State income taxes, net of federal benefit |  | 1.9 | % | (0.4) | % | 0.2 | %
Permanent items |  | (0.1) | % | 0.2 | % | (0.2) | %
Research and development tax credits |  | 1.3 | % | 8.1 | % | (12.6) | %
Valuation allowance |  | (20.3) | % | (35.9) | % | (2.9) | %
Change in unrecognized tax benefits |  | 0.9 | % | (0.9) | % | (0.1) | %
123R cancellations and forfeitures |  | (0.8) | % | 0.1 | % | 3.8 | %
Effective income tax rate |  | (1.8) | % | 5.2 | % | 22.3 | %
The Company’s U.S. Federal statutory tax rate was impacted by the Tax Act. On December 18, 2015, the Protecting Americans from Tax Hikes (PATH) Act was enacted, which retroactively and permanently extended the U.S. R&D Tax Credit. As a result, the Company’s effective income tax rate in fiscal year 2016 reflects an R&D Tax Credit for twelve months from the fiscal year ended September 30, 2015. The deferred tax effect of temporary differences giving rise to the Company’s deferred tax assets and liabilities consists of the components below:
|  | As of September 30, |  |  |
|  | 2018 |  | 2017 |  | 2016
|  | Non Current |  | Non Current |  | Non Current
Deferred tax assets: |  |  |  |  |  |  |  |  |
Reserves and accruals |  | $ | 730,015 |  | $ | 1,275,427 |  | $ | 2,539,117
Research and development credit |  |  | 1,318,977 |  | $ | 1,236,365 |  | $ | 1,742,627
NOL carryforwards -fed/state |  |  | 2,982,246 |  | $ | 1,208,592 |  | $ | 1,206,476
Depreciation |  |  | (863,796) |  | $ | (690,774) |  | $ | (725,018)
Stock options |  |  | 345,608 |  | $ | 609,016 |  | $ | 603,881
|  |  | 4,513,050 |  |  | 3,638,626 |  |  | 5,367,083
Less: Valuation allowance |  |  | (4,296,553) |  |  | (3,568,459) |  |  | (5,297,757)
Total deferred tax assets |  |  | 216,497 |  |  | 70,167 |  |  | 69,326
Deferred tax liabilities: |  |  |  |  |  |  |  |  |
Depreciation |  |  | (346,091) |  |  | (137,909) |  |  | (137,027)
Total deferred tax liabilities |  |  | (346,091) |  |  | (137,909) |  |  | (137,027)
Net deferred tax asset (liability) |  | $ | (129,594) |  | $ | (67,742) |  | $ | (67,701)
At September 30, 2018 and 2017, the Company had state NOL carryforwards of $23.8 million and $21.2 million, respectively, which begin to expire in varying amounts after the fiscal year ending September 30, 2026. The Company has federal R&D Tax Credit carryforwards of approximately $1,319,000 and $1,236,000 in fiscal 2018 and 2017, respectively, which begin to expire in varying amounts after fiscal year ending September 30, 2033. In fiscal 2017, all state R&D tax credits were sold and the resultant gain of $669,000 was recognized in other income on the Consolidated Statements of Operations. Deferred tax assets are reduced by valuation allowances if, based on the consideration of all available evidence, it is more likely than not that some portion of the deferred tax asset will not be realized. Significant weight is given to evidence that can be verified objectively, and significant management judgment is required in determining any valuation allowances recorded against net deferred tax assets. The Company evaluates deferred income taxes on a quarterly basis to determine if valuation allowances are required by considering available evidence, including historical and projected taxable income and tax planning strategies which are both prudent and feasible. ASC Topic 740 requires the consideration of a valuation allowance to reflect the likelihood of realization of deferred tax assets. Significant management judgment is required in determining any valuation allowance recorded against net deferred tax assets. The change in the valuation allowance for the period ended September 30, 2018 and September 30, 2017 was approximately $0.7 million and $1.7 million, respectively. The Company will continue to maintain the balance of the valuation allowance until an appropriate level of profitability is sustained to warrant a conclusion that it is no longer more likely than not that a portion of these net deferred tax assets will not be realized in future periods. There is currently no assurance of such future income before taxes. The Company believes that its estimate of future taxable income is inherently uncertain, and if its current or future operations generate losses, further adjustments to the valuation allowance are possible. Following is a reconciliation of beginning and ending balances of total amounts of gross unrecognized tax benefits:
|  | For the Fiscal Year Ended September 30,
|  | 2018 |  | 2017 |  | 2016
Balance at beginning of year |  | $ | 570,000 |  | $ | 615,000 |  | $ | 615,000
Unrecognized tax benefits related to prior years |  |  | 52,000 |  |  | — |  |  | (2,000)
Unrecognized tax benefits related to current year |  |  | 11,000 |  |  | 18,000 |  |  | 26,000
Decrease in unrecognized tax benefits due to the lapse of applicable statute of limitations |  |  | (93,000) |  |  | (63,000) |  |  | (24,000)
Balance at end of year |  | $ | 540,000 |  | $ | 570,000 |  | $ | 615,000
The total liabilities associated with the unrecognized tax benefits that, if recognized, would impact the Company’s effective tax rate were $540,000, $570,000 and $615,000 at September 30, 2018, 2017 and 2016, respectively. It is not anticipated that the balance of unrecognized tax benefits at September 30, 2018 will change significantly over the next twelve months. The balance of unrecognized tax benefits as reflected in the table above at September 30, 2018 are recorded on the balance sheet as a reduction to deferred tax assets. The Company’s policy is to recognize interest accrued and, if applicable, penalties related to unrecognized tax benefits in income tax expense for all periods presented. At September 30, 2018, the Company currently has no unrecognized tax benefits against which interest has been accrued, and there is no accrual recorded for penalties. For the fiscal year ended September 30, 2018, 2017 and 2016, the Company recognized (benefit) expense of $0, $0 and $(3,000), respectively, for interest (net of federal impact) within income tax expense. The Company is subject to income taxes in the U.S. federal and various state jurisdictions. Tax regulations within each jurisdiction are subject to the interpretation of related tax laws and regulations and require significant judgment to apply. The Company’s federal income tax returns for the fiscal years ended September 30, 2015 and thereafter are open years subject to examination by the Internal Revenue Service (“IRS”). The Company files income tax returns in various state jurisdictions, as appropriate, with varying statutes of limitation. During fiscal year 2012, the IRS examined the Company’s income tax return for the year ended September 30, 2010, and no adjustments resulted from this examination. There are no state income tax examinations in process at this time.

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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://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 + Details
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