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INCOME TAXES | 12 Months Ended
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Dec. 31, 2018
Income Tax Disclosure [Abstract] |
INCOME TAXES |
| 11. | INCOME TAXES
On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as U.S. Tax Reform. The U.S. Tax Reform makes broad and complex changes to the U.S. tax code and includes significant provisions impacting the Company’s 2017 and 2018 effective tax rate. The changes include, but are not limited to, a reduction in the U.S. federal corporate tax rate from 35% to 21% effective for tax years beginning after December 31, 2017. As a result, the Company believes that the most significant impact on its 2017 consolidated financial statements was the reduction of approximately $207,000 in deferred tax assets and liabilities. The provision for income taxes consists of the following:
Year ended December 31, |  | 2018 |  |  | 2017 |
Current: |  |  |  |  |  |  |  |
Federal |  | $ | 3,104,000 |  |  | $ | 200,000 |
State |  |  | 73,000 |  |  |  | 266,000 |
Deferred: |  |  |  |  |  |  |  |
Federal |  |  | 1,286,000 |  |  |  | 2,244,000 |
|  | $ | 4,463,000 |  |  | $ | 2,710,000 |
The difference between the income tax provision computed at the federal statutory rate and the actual tax provision is accounted for as follows:
December 31, |  | 2018 |  |  | 2017 |
Taxes computed at the federal statutory rate |  | $ | 1,381,000 |  |  | $ | 2,882,000 |
State income tax, net |  |  | 58,000 |  |  |  | 176,000 |
Prior year true-up |  |  | 18,000 |  |  |  | 2,000 |
Research and development tax credit |  |  | (164,000 | ) |  |  | (235,000 | )
Change in federal statutory rate |  |  | — |  |  |  | (207,000 | )
Uncertain tax position |  |  | 3,128,000 |  |  |  | — |
Permanent differences |  |  | 42,000 |  |  |  | 92,000 |
Provision for income taxes |  | $ | 4,463,000 |  |  | $ | 2,710,000 |
The components of deferred income tax assets and liabilities are as follows:
Deferred Tax Assets: |  | 2018 |  |  | 2017 |
Allowance for doubtful accounts |  | $ | 60,000 |  |  | $ | 32,000 |
Credit carryforwards |  |  | 1,255,000 |  |  |  | 1,986,000 |
Deferred rent |  |  | 117,000 |  |  |  | 126,000 |
Stock options |  |  | 12,000 |  |  |  | 102,000 |
Restricted stock |  |  | 88,000 |  |  |  | 90,000 |
Other |  |  | 8,000 |  |  |  | 1,000 |
Interest on uncertain tax position |  |  | 654,000 |  |  |  | — |
Net operating loss carryforward |  |  | 863,000 |  |  |  | 750,000 |
Deferred Tax Assets |  |  | 3,057,000 |  |  |  | 3,087,000 |
Deferred Tax Liabilities: |  |  |  |  |  |  |  |
Prepaid expenses |  |  | 159,000 |  |  |  | 141,000 |
Revenue recognition |  |  | 3,137,000 |  |  |  | 1,036,000 |
Property and equipment |  |  | 404,000 |  |  |  | 276,000 |
State taxes |  |  | — |  |  |  | 67,000 |
Deferred tax liabilities |  |  | 3,700,000 |  |  |  | 1,520,000 |
Net Deferred Tax Assets (Liabilities) |  | $ | (643,000 | ) |  | $ | 1,567,000 |
As of December 31, 2018, the Company had roughly $4,000,000 of gross net operating losses for federal tax purposes and $1,500,000 for state tax purposes which will begin to expire in 2034. The Company will recognize a tax benefit in the consolidated financial statements for an uncertain tax position only if management’s assessment is that the position is “more likely than not” (i.e., a likelihood greater than 50 percent) to be allowed by the tax jurisdiction based solely on the technical merits of the position. The term “tax position” refers to a position in a previously filed tax return or a position expected to be taken in a future tax return that is reflected in measuring current or deferred income tax assets and liabilities for financial reporting purposes. The provision for income taxes for the year ended December 31, 2018 was approximately $4.5 million, an effective tax rate of approximately 66%. In February 2019, the Company received information that the net operating loss carryback that was utilized in 2014 was under examination and could possibly be disallowed by the Internal Revenue Service (“IRS”). The Company has not received a written notice or tax assessment related to the possible disallowance of our net operating loss carryback. If the Company receives written notice the Company has the ability to appeal the disallowance, as well as go to tax court to challenge the notice. Although the Company has not received any formal documentation or notice of such disallowance, in accordance with ASC 740-10 “Accounting for Uncertainty in Tax Positions” the Company has recorded a liability of approximately $3.1 million as of December 31, 2018 for this uncertainty. The liability represents the maximum net tax adjustment for the disallowance of the net operating loss carryback, computed at the pre-2018 tax rates, and tax savings of recording a net operating loss carryforward, calculated at the current tax rates. In accordance with the Tax Cuts and Jobs Act that was enacted on December 22, 2017 (“U.S. Tax Reform”), the Company has recorded a credit for income taxes of $207,000. The impact of the U.S. Tax Reform is primarily from revaluing our U.S. deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future. For U.S. federal tax purposes, the corporate statutory income tax rate was reduced from 35% to 21%, effective for our 2018 tax year. The following table indicates the changes to the Company’s uncertain tax position for the years ended December 31, 2018 and 2017 including interest and penalties:
|  | Years Ended December 31, |
|  | 2018 |  |  | 2017 |
Balance, beginning of year |  | $ | — |  |  | $ | — |
Additions |  |  | 3,128,000 |  |  |  | — |
Reductions |  |  | — |  |  |  | — |
Balance, end of year |  | $ | 3,128,000 |  |  | $ | — |
The Company files income tax returns in the U.S. federal jurisdiction and in various state and foreign jurisdictions. The Company generally is no longer subject to U.S. or state examinations by tax authorities for taxable years prior to 2015. However, net operating losses utilized from prior years in subsequent years’ tax returns are subject to examination until three years after the filing of subsequent years’ tax returns. The statute of limitations expiration in foreign jurisdictions for corporate tax returns generally ranges between two and five years depending on the jurisdiction. The Company’s policy is to record estimated interest and penalties related to uncertain tax positions in income tax expense. At December 31, 2018, the Company’s consolidated balance sheet reflects cumulative provisions for interest and penalties of $654,000, related to potential interest.

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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://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 + Details
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