NOTE P – INCOME TAXES

As of December 31, 2014, the Company had consolidated income tax net operating loss (“NOL”) carryforwards for federal tax purposes of approximately $129,118,760 and net operating loss carryforwards for foreign income tax purposes of approximately $13,325,245. The federal NOL carryforwards from 2005 forward will expire in various years beginning in 2025 and ending through the year 2034. From 2025 through 2027, approximately $43 million of the NOL will expire, and from 2028 through 2034, approximately $86 million of the NOL will expire.

The components of the provision for income tax (benefits) are attributable to continuing operations as follows:


	December 31, 2014			December 31, 2013		December 31, 2012
Current
Federal	$	(481,055	)	$	481,055	$	—
State		—			15,000		—

	$	(481,055	)	$	496,055	$	—

Deferred
Federal	$	—		$	—	$	—
State		—			—		—

	$	—		$	—	$	—

Deferred income taxes reflect the net tax effects of the temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred tax assets and liabilities are as follows:


Deferred tax assets:
Net operating loss and tax credit carryforwards	$	49,239,489
Capital loss carryforward		385,185
Accrued expenses		62,671
Deferred revenue		644,362
Reserve for accounts receivable		1,873,028
Reserve for inventory		130,011
Start-up costs		107,153
Excess of book over tax depreciation		2,766,649
Stock option and restricted stock award expense		1,389,793
Investment in unconsolidated entity		3,870,218
Less: valuation allowance		(60,312,726	)

	$	155,833

Deferred tax liability:
Property and equipment basis	$	69,311
Prepaid expenses		86,522

	$	155,833

Net deferred tax asset	$	—

As reflected above, we have recorded a net deferred tax asset of $0 at December 31, 2014. As required by the Accounting for Income Taxes topic in the ASC, we have evaluated whether it is more likely than not that the deferred tax assets will be realized. Based on the available evidence, we have concluded that it is more likely than not that those assets would not be realized without the recovery and rights of ownership or salvage rights of high-value shipwrecks or other forms of taxable income, thus a valuation allowance has been recorded as of December 31, 2014.

The change in the valuation allowance is as follows:


December 31, 2014	$	60,312,726
December 31, 2013		51,625,159

Change in valuation allowance	$	8,687,567

Income taxes for the twelve month periods ended December 31, 2014, 2013 and 2012 differ from the amounts computed by applying the effective federal income tax rate of 34.0% to income (loss) before income taxes as a result of the following:


	December 31, 2014			December 31, 2013			December 31, 2012

Expected (benefit)	$	(9,908,804	)	$	(3,483,374	)	$	(6,180,388	)
Effects of:
U.S. income tax expense at the AMT 20% rate		—			(176,839	)		—
State income taxes net of federal benefits		(294,933	)		509,495			(181,423	)
Nondeductible expense		(126,601	)		31,640			17,994
Stock options and restricted stock awards		—			790,011			223,720
Derivatives		—			(783,994	)		322,848
Change in valuation allowance		10,469,108			(6,276,369	)		5,385,732
Change in net operating loss		—			—			832,408
CFC Dividend Income		—			9,190,723			(374,051	)
Change in rate estimate					15,767			(42,925	)
Foreign Rate Differential		(138,770	)		662,745			—
Reversal of Prior Year AMT Accrual		(481,055	)
Other, net		—			16,250			(3,915	)

	$	(481,055	)	$	496,055		$	—

We have not recognized a material adjustment in the liability for unrecognized tax benefits and have not recorded any provisions for accrued interest and penalties related to uncertain tax positions.

On July 3, 2014 we received confirmation from the Internal Revenue Service that our private letter ruling was accepted granting us relief to make a late election to carryback our 2008 federal net operating loss five taxable years preceding the taxable year of the NOL in lieu of the general two-year carryback period. There will be no cash-tax benefit related to the carryback as we had a taxable loss during the 2003 tax year. The benefit of making the 5 year carryback election is that the 2008 NOL will now be able to offset 100 percent of future alternative minimum taxable income instead of only 90 percent. The AMT tax accrual for 2013 in the amount of $481,055 was reversed during the quarter ending June 30, 2014 resulting in a tax benefit.

The earliest tax year still subject to examination by a major taxing jurisdiction is 2011.