NOTE M – INCOME TAXES

As of December 31, 2019, the Company had consolidated income tax net operating loss (“NOL”) carryforwards for federal tax purposes of approximately $175

milli

and net operating loss carryforwards for foreign income tax purposes of approximately $49

million

The federal NOL carryforwards from 2005 forward will expire in various years beginning 2025 and ending through the year 2035. From 2025 through 2027, approximately $43 million of the NOL will expire, and from 2028 through 2037, approximately $116 million of the NOL will expire. The NOL generated in 2018 and 2019 of approximately $15.5

million

will be carried forward indefinitely.

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

December 31,

2019

December 31,

2018

December 31,

2017

Current

Federal

—

State

—

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

for the years ended December 31, 2019 and 2018 are as follows:


	2019			2018
Deferred tax assets:
Net operating loss and tax credit carryforwards	$	52,876,144		$	48,404,432
Capital loss carryforward		5,052			147,552
Accrued expenses		614,467			559,096
Reserve for Dorado accounts receivable		156,538			287,335
Start-up costs		2,595			7,042
Excess of book over tax depreciation		604,287			707,044
Stock option and restricted stock award expense		1,343,100			1,331,067
Investment in unconsolidated entity		1,387,970			1,387,970
Less: valuation allowance		(56,819,522	)		(52,684,059	)

	$	170,631		$	147,479

Deferred tax liability:
Property and equipment basis	$	43,155		$	43,155
Prepaid expenses		127,476			104,324

	$	170,631		$	147,479

Net deferred tax asset	$	—			—

As reflected above, we have recorded a net deferred tax asset of $0 at December 31, 2019

d 2018

. 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, 2019

and 201

The change in the valuation allowance is as follows:


December 31, 2019	$	56,819,522
December 31, 2018		52,684,059

Change in valuation allowance	$	4,135,463

The federal and state income tax provision (benefit) is summarized as follows for the years ended:


	December 31, 2019			December 31, 2018			December 31, 2017
Expected (benefit)	$	(3,254,942	)	$	(1,923,757	)	$	(3,718,058	)
Effects of:
State income taxes net of federal benefits		(156,858	)		(92,707	)		(110,667	)
Nondeductible expense		262,776			29,670			711,679
Change in valuation allowance		5,170,161			3,765,560			28,258,724
Foreign Rate Differential		(2,021,137	)		(1,778,766	)		(1,097,681	)
Change in Deferred Taxes due to enacted changes in tax law								(24,043,997	)

	$	—		$	—		$	—

The Company’s effective income tax rate is lower than what would be expected if the federal statutory rate were applied to income before income taxes primarily because of certain expenses deductible for financial reporting purposes that are not deductible for tax purposes, research and development tax credits, operating loss carryforwards, and adjustments to previously-recorded deferred tax assets and liabilities due to the enactment of the Tax Cuts and Jobs Act.

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.

The earliest tax year still subject to examination by a major taxing jurisdiction is 2016.