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NOTE 11 - INCOME TAXES | 12 Months Ended
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Jun. 30, 2018
Income Tax Disclosure [Abstract] |
NOTE 11 - INCOME TAXES | FONAR CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2018, 2017 and 2016 NOTE 11 - INCOME TAXES ASC topic 740 prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a corporate tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. Differences between tax positions taken or expected to be taken in a tax return and the benefit recognized and measured pursuant to the interpretation are referred to as unrecognized benefits. A liability is recognized (or amount of net operating loss carryforward or amount of tax refundable is reduced) for an unrecognized tax benefit because it represents an enterprise’s potential future obligation to the taxing authority for a tax position that was not recognized as a result of applying the provisions of ASC topic 740. The Company believes there are no uncertain tax positions in prior years tax filings and therefore it has not recorded a liability for unrecognized tax benefits. In accordance with ASC topic 740, interest costs related to unrecognized tax benefits are required to be calculated (if applicable) and would be classified as “Interest expense, net. Penalties if incurred would be recognized as a component of “Selling, general and administrative” expenses. The Company files corporate income tax returns in the United States (federal) and in various state and local jurisdictions. In most instances, the Company is no longer subject to federal, state and local income tax examinations by tax authorities for years prior to 2014. The Company has recorded a deferred tax asset of $22,689,011 and a deferred tax liability of $239,011 as of June 30, 2018, primarily relating to its net operating loss carryforwards of approximately $82,662,000 available to offset future taxable income through 2030. The net operating losses begin to expire in 2021 for federal tax and state income tax purposes. Future ownership changes as determined under Section 382 of the Internal Revenue code could further limit the utilization of net operating loss carryforwards. As of June 30, 2018, no such changes in ownership have occurred. The ultimate realization of deferred tax assets is dependent on the generation of future taxable income during the periods in which temporary differences become deductible or when such net operating losses can be utilized. The Company considers projected future taxable income, the regulatory environment of the industry, and tax planning strategies in making this assessment. At present, the Company believes that it is more likely than not that the benefits from certain deferred tax asset carryforwards, will not all be fully realized. In recognition of this inherent risk, a valuation allowance was established for the partial value of the deferred tax asset, (principally related to research and development tax credits and allowance for doubtful accounts). A valuation allowance will be maintained until sufficient positive evidence exists to support the reversal of the remainder of the valuation. The valuation allowance for deferred tax assets decreased during the year ended June 30, 2018, by approximately $27,600,000, of which $16,000,000 was the result of the revalued deferred tax assets due to the Tax Cuts and Jobs Act and the benefits expected to be realized from the usage of net operating losses given the Company’s current and projected profitable operations. The valuation allowance decreased by approximately $11,131,000 during the year ended June 30, 2017. Components of the benefit for income taxes are as follows:
|  | Years Ended June 30,
|  | 2018 |  | 2017 |  | 2016
Current: |  |  |  |  |  |
Federal |  | $ | 185,000 |  |  | $ | 250,000 |  |  | $ | 360,496 |
State |  |  | 265,000 |  |  |  | 357,235 |  |  |  | — |
Federal deferred taxes |  |  | (4,132,590 | ) |  |  | (4,552,702 | ) |  |  | (4,368,901 | )
State deferred taxes |  |  | (787,160 | ) |  |  | (416,967 | ) |  |  | (278,866 | )
AMT Credits |  |  | (1,200,000 | ) |  |  | — |  |  |  | — |
|  | $ | (5,669,750 | ) |  | $ | (4,362,434 | ) |  | $ | (4,287,271 | )
A reconciliation of the federal statutory income tax rate to the Company's effective tax rate as reported is as follows:
|  | Years Ended June 30,
|  | 2018 |  | 2017 |  | 2016
Taxes at federal statutory rate |  |  | 27.7 | % |  |  | 35.0 | % |  |  | 35.0 | %
State and local income taxes (benefit), net of federal benefit |  |  | 4.0 | % |  |  | 4.0 | % |  |  | 6.0 | %
Permanent differences |  |  | 0.1 | % |  |  | 0.1 | % |  |  | 0.2 | %
Tax Cuts and Jobs Act Rate Change |  |  | (33.9 | )% |  |  | (0.0 | )% |  |  | (0.0 | )%
Decrease in the valuation allowance |  |  | (24.5 | )% |  |  | (73.0 | )% |  |  | (89.8 | )%
AMT Credits |  |  | (8.5 | )% |  |  | (0.0 | )% |  |  | (0.0 | )%
True ups |  |  | (2.8 | )% |  |  | 5.0 | % |  |  | (0.0 | )%
Effective income tax rate |  |  | (37.9 | )% |  |  | (28.9 | )% |  |  | (48.6 | )%
The Tax Cuts and Jobs Act was signed into law on December 22, 2017 and makes numerous changes to the Internal Revenue Code. Among other changes, the Act reduces the US corporate income tax rate to 21% effective January 1, 2018. Because the Act became effective mid-way through the Company’s tax year, the Company will have a US statutory income tax rate of 27.7% for the fiscal 2018 and will have a 21% statutory income tax rate for fiscal years thereafter. Under ASC740, Accounting for Income Taxes, the enactment of the Tax Act also requires companies, to recognize the effects of changes in tax laws and rates on deferred tax assets and liabilities and the retroactive effects of changes in tax laws in the period in which the new legislation is enacted. The Company’s gross deferred tax assets and liabilities we revalued from 35% to 21%. Deferred tax assets of $46.2 million (as of the enactment effective date) were revalued to approximately $30.2 million with a corresponding decrease to the Company’s valuation allowance. As of June 30, 2018, the Company has net operating loss (“NOL”) carryforwards of approximately $82,662,000 that will be available to offset future taxable income. The utilization of certain of the NOLs is limited by separate return limitation year rules pursuant to Section 1502 of the Internal Revenue Code. The Company has, for federal income tax purposes, research and development tax credit carryforwards aggregating $4,257,000. However, the realization of these credits may be limited as a result of expiring prior to their utilization. These credits can only be applied after all net operating losses have been used. As such, the Company has established a valuation reserve for anticipated unused credits of $3,130,000. Also at June 30, 2018, the Company has $1,200,000 in alternative minimum tax credit carryovers. In connection with tax reform, these credits have been eliminated. Tax reform allows for corporations to carryover such unused tax credits to offset regular tax or apply for a cash refund. As of June 30, 2018, the Company recorded an income tax receivable for expected cash refunds. The Company anticipates receiving its first installment of reimbursement of $600,000 with the filiing of its June 30, 2019 income tax return to be filed in fiscal 2020. In addition, for New York State income tax purposes, the Company has tax credit carryforwards aggregating approximately $1,134,000 which, are accounted for under the flow-through method. The utilization of these credits is also expected to be limited. Significant components of the Company's deferred tax assets and liabilities at June 30, 2018 and 2017 are as follows:
|  | June 30,
|  | 2018 |  | 2017
Deferred tax assets: |  |  |  |  |  |  |  |
Allowance for doubtful accounts |  | $ | 3,262,504 |  |  | $ | 6,255,976 |
Non-deductible accruals |  |  | 752,595 |  |  |  | 273,435 |
Net operating carryforwards |  |  | 20,665,597 |  |  |  | 39,330,708 |
Tax credits |  |  | 4,330,769 |  |  |  | 5,744,086 |
Inventory |  |  | 55,514 |  |  |  | 130,430 |
Property and equipment and depreciation |  |  | 213,781 |  |  |  | 298,426 |
|  |  | 29,280,760 |  |  |  | 52,033,061 |
Valuation allowance |  |  | (6,591,749 | ) |  |  | (34,171,284 | )
Total deferred tax assets |  |  | 22,689,011 |  |  |  | 17,861,777 |
Intangibles |  |  | (239,011 | ) |  |  | (331,527 | )
Total deferred tax liabilities |  |  | (239,011 | ) |  |  | (331,527 | )
Net deferred tax asset |  | $ | 22,450,000 |  |  | $ | 17,530,250 |

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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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