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INCOME TAXES | 12 Months Ended
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Dec. 31, 2013
Income Tax Disclosure [Abstract] |
Income Tax Disclosure [Text Block] | NOTE 17. INCOME TAXES The components of loss from continuing operations before income tax provision are as follows:
|  | December 31, |  | December 31, |
|  | 2013 |  | 2012 (as restated) |
United States |  | $ | (38,963,263) |  | $ | (12,148,458) |
Foreign |  |  | (8,922,473) |  |  | (919,325) |
|  | $ | (47,885,736) |  | $ | (13,067,783) |
There was no U.S. current or deferred income tax provision for the years ended December 31, 2013 and 2012. There was a current foreign tax provision of $213,284 and $155,683 for the years ended December 31, 2013 and 2012. The following is a reconciliation of the effective income tax rate with the U.S. federal statutory income tax rate at December 31, 2013 and December 31, 2012:
|  | December 31, |  |  | December 31, |
|  | 2013 |  |  | 2012 (as restated) |
U. S. Federal statutory income tax rate |  |  | 34.0 | % |  |  | 34.0 | %
State income tax, net of federal tax benefit |  |  | 1.7 | % |  |  | 1.9 | %
Compensation related permanent differences |  |  | -11.8 | % |  |  | -16.2 | %
Difference in foreign tax rates |  |  | -0.9 | % |  |  | -1.6 | %
Nondeductible provision for loan losses |  |  | -4.5 | % |  |  | - |
Change in uncertain tax liabilities |  |  | -0.4 | % |  |  | - | %
Increase in valuation allowance |  |  | -18.5 | % |  |  | -19.3 | %
Effective income tax rate |  |  | -0.4 | % |  |  | -1.2 | %
The effective tax rate on operations of 0.4% at December 31, 2013 varied from the statutory rate of 34%, primarily due to the permanent difference related to non-cash compensation, provision for loan losses, and the increase in our valuation allowance. Significant components of our deferred tax assets and liabilities as of December 31, 2013 and December 31, 2012 are as follows:
|  | December 31, |  | December 31, |
|  | 2013 |  | 2012 (as restated) |
Deferred tax assets: |  |  |  |  |  |  |
Net operating loss carry forwards |  | $ | 12,343,403 |  | $ | 9,722,855 |
Basis difference in goodwill |  |  | 3,917,676 |  |  | - |
Share based compensation |  |  | - |  |  | 72,940 |
Basis difference in intangible assets |  |  | 648,940 |  |  | 104,464 |
Allowance for bad debt (US) |  |  | 480,515 |  |  | - |
Valuation allowance for deferred tax assets |  |  | (17,371,908) |  |  | (9,841,545) |
Total deferred tax assets |  |  | 18,626 |  |  | 58,714 |
Deferred tax liabilities: |  |  |  |  |  |  |
Basis difference in fixed assets |  |  | (18,626) |  |  | (13,180) |
Basis difference in intangible assets |  |  | - |  |  | (45,534) |
Total deferred tax liabilities |  |  | (18,626) |  |  | (58,714) |
Net deferred taxes |  | $ | - |  | $ | - |
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts of assets and liabilities used for income tax purposes. At December 31, 2013 and December 31, 2012, we had cumulative federal net operating losses (“NOLs”) carry forwards of approximately $32.8 million and $25.0 million, respectively. We also have $20.9 million and $13.2 million in state NOLs and $10.1 million and $1.5 in foreign NOLs as of December 31, 2013 and 2012, respectively. The valuation allowance was increased by $7.5 million in fiscal year 2013. The fiscal 2013 increase was primarily related to additional operating loss incurred, and difference in tax and book basis of goodwill. We have considered all the evidence, both positive and negative, that the NOLs and other deferred tax assets may not be realized and have recorded a valuation allowance for $17.4 million. The federal NOLs begin to expire in December 2025 while the state NOLs begin to expire in 2025 and foreign NOLs begin to expire in 2023. The Company’s ability to utilize NOL carryforwards to reduce future federal taxable income and federal income tax of the Company is subject to various limitations under Internal Revenue Code (“IRC”) Section 382. The utilization of such carryforwards may be limited upon the occurrence of certain ownership changes, including the issuance or exercise of rights to acquire stock, the purchase or sale of stock by 5% stockholders, as defined in the Treasury regulations, and the offering of stock of Net Element, Inc. during any three-year period resulting in an aggregate change of more than 50% in the beneficial ownership of Net Element, Inc. The Company experienced ownership changes within the meaning of IRC Section 382 during the past three years which on an aggregate basis, exceeded 50%. The Company has NOL carryforwards will be limited in future years, due to IRC Section 382 limitations. The limitation does not result in a current federal tax liability for the year ended December 31, 2013. The Company reassesses 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 had no unrecognized tax benefits as of December 31, 2012. The Company had approximately $200,000 in gross increase in unrecognized tax positions for the year ended December 31, 2013, that if recognized, would affect the Company’s annual effective tax rate. The Company recognizes interest and penalties accrued related to unrecognized tax benefits as income tax expense as a component of the income tax (benefit) expense in the Company’s Consolidated Statements of Operations and the corresponding liability is included in accrued expenses in its Consolidated Balance Sheets. The amount of interest and penalties recognized by the Company in the years ended December 31, 2013 was minimal.

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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://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 15 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32718-109319 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08.(h)) -URI http://asc.fasb.org/extlink&oid=26873400&loc=d3e23780-122690 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 08 -Paragraph h -Article 4 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 9 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32639-109319 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32537-109319 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32559-109319 + Details
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