13. Income taxes

The Company is subject to federal and state income taxes in the United States. The benefit for income taxes on loss from continuing operations consisted of the following:

	Year Ended December 31,
(In thousands)	2016			2015			2014
Current
Federal	$	-		$	(123	)	$	-
State		87			-			-
		87			(123	)		-
Deferred
Federal		(14,278	)		(15,771	)		(167	)
State		(1,732	)		(689	)		-
Valuation allowance		1,881			-			-
		(14,129	)		(16,460	)		(167	)
Income tax benefit	$	(14,042	)	$	(16,583	)	$	(167	)

The Company’s effective income tax benefit differed from the statutory federal income tax rate of 34.0% for the years ended December 31, 2016, 2015 and 2014. For the year ended December 31, 2016, this difference is mainly the result of the valuation allowance applied against the Company’s deferred tax assets and state income taxes. For the year ended December 31, 2015, this difference is primarily due to state income taxes and one-time contingent earn out costs related to shares issued pursuant to the TBO Merger Agreement. For the year ended December 31, 2014, this difference is primarily due to the permanent differences. A reconciliation was shown as follows:

	Year Ended December 31,
(In thousands)	2016					2015					2014
Tax on continuing operating loss before income taxes	$	(14,663	)	34.0	%	$	(20,117	)	34.0	%	$	(264	)	34.0	%
Effect of state taxes (net of federal tax benefit)		(1,645	)	3.8	%		(1,800	)	3.0	%		(7	)	0.9	%
Non-deductible contingent earn out costs		-		0.0	%		4,862		-8.2	%		-		0.0	%
Non-deductible acquisition costs		433		-1.0	%		366		-0.6	%		101		-13.0	%
Other permanent differences		124		-0.3	%		185		-0.3	%		3		-0.4	%
Others		(172	)	0.4	%		(79	)	0.1	%		-		0.0	%
Valuation allowance		1,881		-4.4	%		-		0.0	%		-		0.0	%
Income tax benefit	$	(14,042	)	32.5	%	$	(16,583	)	28.0	%	$	(167	)	21.5	%

Components of deferred tax assets and liabilities consist of the following:

(In thousands)	December 31, 2016			December 31, 2015
Deferred tax assets:
Net operating loss carryforwards	$	8,041		$	4,619
Share-based compensation		21,503			12,069
Liability for employee incentive-based compensation plan		-			1,528
Accounts receivable		392			530
Accrued expenses and other current liabilities		43			136
Others		11			-
		29,990			18,882
Valuation allowance		(1,881	)		-
		28,109			18,882
Deferred tax liabilities:
Intangible assets	$	27,962		$	31,743
Property and equipment		117			239
Prepaid expenses and other current assets		-			412
Internal Revenue Code Sec. 481 adjustment		30			61
		28,109			32,455
Net deferred tax liability	$	-		$	(13,573	)

As of December 31, 2016, the Company had federal and state net operating loss carryforwards of $22,682 and $18,566, respectively, which begin to expire in 2034. The Company’s net operating losses may be subject to annual Section 382 limitations due to ownership changes that could impact the future realization. As a result of certain realization requirements of ASC 718, “Compensation — Stock Compensation,” the table of deferred tax assets and liabilities shown above does not include certain deferred tax assets as of December 31, 2016 and 2015 that arose directly from tax deductions related to equity compensation that are greater than the compensation recognized for financial reporting. Equity will be increased by $301 if and when such deferred tax assets are ultimately realized or upon adoption of ASU 2016-09 as of January 1, 2017. The Company uses ASC 740 ordering when determining when excess tax benefits have been realized.

ASC 740 requires a valuation allowance to reduce the deferred tax assets reported if, based on the weight of the evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. On a periodic basis, management evaluates and determines the amount of valuation allowance required and adjusts such valuation allowance accordingly. Primarily due to cumulative pre-tax losses in 2014, 2015, and 2016, management determined a valuation allowance of $1,881 was necessary as of December 31, 2016 to reduce the deferred tax assets to the amount that is more likely than not to be realized.

The Company assesses its income tax positions and records tax benefits for all years subject to examination based upon its evaluation of the facts, circumstances and information available at the reporting date. For those tax positions where it is more-likely-than-not that a tax benefit will be sustained, the Company has recorded the largest amount of tax benefit with a greater than 50% likelihood of being realized upon ultimate settlement with a taxing authority that has full knowledge of all relevant information. For those income tax positions where it is not more-likely-than-not that a tax benefit will be sustained, no tax benefit has been recognized in the Company’s financial statements.

The Company continually evaluates expiring statutes of limitations, audits, proposed settlements, changes in tax law and new authoritative rulings. All of the Company’s income tax filings since inception remain open for tax examinations.

A reconciliation of the gross amounts of unrecognized tax benefits, excluding accrued interest and penalties, for the year ended December 31, 2016 (no such items for the years ended December 31, 2015 and 2014), is as follows:

	Year Ended
(In thousands)	December 31, 2016
Unrecognized tax benefits, opening	$	-
Gross increase - tax position in prior period		1,668
Unrecognized tax benefits, ending balance	$	1,668

In our tax return filed for the year ended December 31, 2015, a loss of $4,375, resulted from the disposal of Advertising Business, was included. This uncertain tax position of $1,668 is reflected as a reduction in deferred tax assets. Based on management’s assessment, no tax benefit has been recognized for the loss mentioned above. This unrecognized tax benefit, if recognized, would favorably affect the Company’s annual effective tax rate before application of any valuation allowance. The Company has not accrued any interest or penalties as of December 31, 2016 with respect to its uncertain tax positions.

The Company does not anticipate a significant increase or reduction in unrecognized tax benefits within the next twelve months.