8. Income Taxes

The items comprising the income tax provision/(benefit) are as follows:

	For the Years Ended December 31,
	2012		2011
Current tax provision:
Federal	$	1,000	$	-
State		800		800
Foreign		371,100		189,100
Current tax provision		372,900		189,900

Deferred tax provision:
Federal		2,310,100		(837,400	)
State		14,700		6,700
Increase in valuation allowance		-		158,600
Deferred tax provision/(benefit)		2,324,800		(672,100	)

Total income tax provision/(benefit)	$	2,697,700	$	(482,200	)

Total income tax expense differs from the amount that would be provided by applying the statutory federal income tax rate to pretax earnings as illustrated below:

	For the Years Ended December 31,
	2012			2011

Income tax provision/(benefit) at statutory federal income tax rate	$	2,681,500		$	(657,100	)
State tax provision/(benefit), net of federal benefit		33,200			(7,700	)
Increase in valuation allowance		-			158,600
Other		(17,000	)		24,000
Total income tax provision/(benefit)	$	2,697,700		$	(482,200	)

Temporary differences and carry-forwards that give rise to a significant portion of deferred tax assets and liabilities as of December 31, 2012 and 2011 were as follows:

	December 31,
	2012			2011
Deferred tax assets:
Net operating loss carryovers	$	932,000		$	2,520,200
Foreign tax credit carryover		1,830,000			1,459,000
Maintenance		-			305,700
Prior year minimum tax credit		100,800			100,800
Bad debt allowance and other		936,500			921,300
Deferred tax assets	$	3,799,300		$	5,307,000
Deferred tax liabilities:
Accumulated depreciation on aircraft and aircraft engines		(17,471,100	)		(16,403,900	)
Minimum lease payments receivable		(533,200	)		(437,300	)
Deferred income		(55,600	)		(401,600	)
Net deferred tax liabilities before valuation allowance		(14,260,600	)		(11,935,800	)
Valuation allowance		(158,600	)		(158,600	)
Net deferred tax liabilities	$	(14,419,200	)	$	(12,094,400	)

The net operating loss carryovers will be available to offset federal taxable income in the two preceding years and in future years through 2031. The Company expects to utilize the net operating loss carryovers remaining at December 31, 2012 in future years. The foreign tax credit carryover will be available to offset federal tax expense in the first preceding tax year and in future years. The foreign tax credit carryover expires beginning in 2013 and extends through 2022. The minimum tax credit will be available to offset federal tax expense in excess of the alternative minimum tax in future years and does not expire.

A significant portion of the deferred tax assets recognized relates to net operating loss and foreign tax credit carryovers. A valuation allowance was deemed necessary at December 31, 2012 and 2011, as the Company has concluded that, based on an assessment of all available evidence, it is more likely than not that future taxable income will not be sufficient to realize the tax benefits associated with certain foreign tax credit carryovers. Where a valuation allowance was not recorded, the Company believes that it is more likely than not that future taxable income will be sufficient to realize the tax benefits for the balance of deferred tax assets on the balance sheets at December 31, 2012 and December 31, 2011.

At December 31, 2012 and December 31, 2011, the Company had no material unrecognized tax positions.

The Company accounts for interest related to uncertain tax positions as interest expense, and for income tax penalties as tax expense.

All of the Company's tax years remain open to examination other than as barred in the various jurisdictions by statutes of limitation.