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Note 9 - Income Taxes

12 Months Ended

Dec. 31, 2014

9. Income taxes:

The provision for income taxes differs from the amount computed by applying the statutory federal income tax rate of 34% to income before provision for income taxes as a result of the following (deferred tax liabilities have been netted against deferred tax assets when there is a right to offset):

	Year ended December 31, 2014			Year ended December 31, 2013			Year ended December 31, 2012
Income for the year before provision for income taxes	$	9,428,325		$	5,799,803		$	6,428,298
Computed expected tax expense	$	3,205,631		$	1,971,933		$	2,185,621

Increase (reduction) in income tax expense resulting from:
State income taxes		64,056			14,500			16,071
Permanent differences, including foreign exchange		192,260			13,700			21,728
Investment tax credits recovered		—			(115,455	)		(106,941	)
Other, including alternative minimum tax and adjustments to opening deferred tax assets		(407,718	)		(265,339	)		(112,323	)
Provision for (recovery of) income taxes	$	3,054,229		$	1,619,339		$	2,004,156

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities as of December 31, 2014 and 2013 are presented below:

	December 31, 2014			December 31, 2013
Deferred tax assets:
Deferred revenue	$	5,294,767		$	5,300,868
Losses		—			290,714
Foreign tax credit		3,200,961			1,914,090
Amortization		(414,345	)		69,169
Accruals, including foreign exchange and other		(702,764	)		(1,123,278	)
Deferred tax assets	$	7,378,619		$	6,451,563

Deferred income tax asset, current portion	$	2,498,196		$	1,081,526
Deferred income tax asset, long-term portion		4,880,423			5,370,037
	$	7,378,619		$	6,451,563
Deferred tax liabilities:
Limited life intangible assets	$	(208,620	)	$	(301,500	)
Indefinite life intangible assets		(4,578,731	)		(4,840,000	)
Total deferred tax liability, long-term portion	$	(4,787,351	)	$	(5,141,500	)

In assessing the realizability 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 years in which those temporary differences become deductible. Management considers projected future taxable income, uncertainties related to the industry in which the Company operates, and tax planning strategies in making this assessment.

The Company had approximately $0.1 million of total gross unrecognized tax benefit as of December 31, 2014 and as of December 31, 2013, which if recognized would favorably affect its income tax rate in future periods. The unrecognized tax benefit relates primarily to prior year Pennsylvania state franchise taxes and other insignificant U.S. state taxes.

The Company recognizes accrued interest and penalties related to unrecognized tax benefits in tax expense. The Company did not have any significant interest and penalties accrued as of December 31, 2014 and December 31, 2013.

Management believes that it is reasonably possible that $0.1 million of the unrecognized tax benefit will decrease in the next twelve months as it is anticipated that the foreign tax authorities will finalize their review of prior years’ taxes owing in Pennsylvania within that period.

The following is a reconciliation of Tucows’ change in uncertain tax position:

Total Gross Unrecognized Tax Benefits	December 31, 2014		December 31, 2013
Balance, beginning of year	$	117,000	$	382,000
Decrease in uncertain tax benefits of prior years		—		(265,000	)
Balance, end of year	$	117,000	$	117,000

- 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.

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