Income Taxes

Provision (Benefit) for Income Taxes

The provision for income taxes consists of the following:



	2012			2011
Current tax provision	$	—		$	—
Deferred tax (benefit) provision	(444,000		)	—
Total tax (benefit) provision	$	(444,000	)	$	—

In addition, we recognized $123,024 of state franchise taxes in income tax (benefit) expense during 2012.

A reconciliation of the expected Federal statutory rate of 34% to our actual rate as reported for each of the periods presented is as follows:



	2012		2011
Expected statutory rate	(34	)%	(34	)%
State income tax rate, net of federal benefit	(4	)%	(4	)%
Permanent differences	2	%	2	%
Valuation allowance	48	%	36	%
Other	(18	)%	—	%
	(6	)%	—	%

Deferred Income Taxes

Deferred income taxes are the result of timing differences between book and tax basis of certain assets and liabilities, timing of income and expense recognition of certain items and net operating loss carry-forwards.

We assess temporary differences resulting from different treatments of items for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which are recorded in the consolidated balance sheets. We evaluate the realizability of our deferred tax assets and assess the need for a valuation allowance on an ongoing basis. In evaluating our deferred tax assets, we consider whether it is more likely than not that the deferred income tax assets will be realized. The ultimate realization of deferred tax assets depends upon generating sufficient future taxable income prior to the expiration of the tax attributes. In assessing the need for a valuation allowance we must project future levels of taxable income. This assessment requires significant judgment. We examined the evidence related to a recent history of tax losses, the economic conditions in which we operate, recent organizational changes and, our forecasts and projections. As a result, we were unable to support a conclusion that it is more likely than not that any of our deferred tax assets will be realized. We therefore have recorded a full valuation for the net deferred tax assets as of December 31, 2012 and 2011.

We will continue to evaluate our deferred tax assets to determine whether any changes in circumstances could affect the realization of their future benefit. If it is determined in future periods that portions of our deferred income tax assets satisfies the realization standard, the valuation allowance will be reduced accordingly. The 2012 net increase of approximately $3.6 million in valuation allowance related to deferred tax assets from operating loss carryforwards.

The following is a schedule of the deferred tax assets and liabilities as of December 31, 2012 and 2011:



	2012			2011
Deferred tax assets:
Net operating loss carry forward	$	10,710,000		$	8,331,000
Intangible assets	6,303,000			5,499,000
Deferred rent	124,000			177,000
Depreciation	837,000			299,000
Allowance for doubtful accounts	88,000			257,000
Accrued expense	—			257,000
Stock based expenses	1,263,000			942,000
Other	225,000			220,000
Subtotal	19,550,000			15,982,000
Less valuation allowance	(19,550,000		)	(15,982,000		)
Total	—			—
Deferred tax liabilities:
Intangibles	4,099,000			—
Total	4,099,000			—
Total deferred tax assets (liabilities)	(4,099,000		)	—

The net operating losses amounted to approximately $27.2 million and expire beginning 2022 through 2032.

Under the Internal Revenue Code of 1986, as amended, these losses can be carried forward twenty years. We have approximately $2.5 million of carry forward deductions from 2006 relating to stock options exercised as of December 31, 2012.

We have accrued $506,453 for an uncertain tax position added due to the acquisition of Vertro.

We are currently open to audit under the statute of limitations by the Internal Revenue Service for the years ending December 31, 2008 through 2012. We and our subsidiaries state income tax returns are open to audit under the statute of limitations for the years ending December 31, 2008 through 2012.

We recognize interest and penalties related to income taxes in income tax expense. We have incurred no penalties and interest for the years ended December 31, 2012 and 2011.