7.	*Income Taxes*

The components of income tax expense (benefit) are as follows:


	For the Years Ended December 31,
	2014		2013		2012
Current Federal alternative minimum tax (“AMT”) expense	$	92,000	$	42,000	$	—
Current state and local tax expense		254,000		132,000		187,000
Deferred Federal tax expense (benefit) (A)		2,118,000		(12,775,000)		(5,279,000)
Deferred state and local tax expense (benefit)		(4,000)		(1,299,000)		(335,000)

Consolidated income tax expense (benefit), including taxes attributable to discontinued operations (B)		2,460,000		(13,900,000)		(5,427,000)
Less income tax expense (benefit) attributable to discontinued operations		(382,000)		(230,000)		—


Income tax expense (benefit) (C)	$	2,842,000	$	(13,670,000)	$	(5,427,000)

(A)

Includes an AMT (benefit) of $(92,000) and $(1,181,000) in 2014 and 2013, respectively.

(B)

Includes income tax (benefit) attributable to (loss) from discontinued operations.

(C)

Reflects the tax expense (benefit) from continuing operations as reported on the consolidated statements of operations for the periods presented.

The reconciliation of income tax computed at the U.S. Federal statutory rate to income tax expense (benefit) on continuing operations is as follows:


	For the Years Ended December 31,
	2014				2013				2012
	Amount		Percent		Amount		Percent		Amount		Percent

Tax expense (benefit) at U.S. statutory rate	$	2,610,000		35.00%	$	1,492,000		35.00%	$	(3,399,000)		(35.00%)
State and local tax expense (benefit), net of Federal impact		194,000		2.60%		86,000		2.01%		(96,000)		(0.99%)
Impact of state and local tax rate change net of Federal impact		27,000		0.36%		110,000		2.58%		6,000		0.06%
Cost (benefit) attributable to valuation allowance, net		—		—		(150,000)		(3.52%)		3,671,000		37.80%
Non-deductible items		11,000		0.15%		9,000		0.21%		5,000		0.05%
Benefit attributable to reduction in allowance against certain deferred tax assets		—		—		(15,217,000)		(356.94%)		(5,614,000)		(57.81%)

Income tax expense (benefit)	$	2,842,000		38.11%	$	(13,670,000)		(320.66%)	$	(5,427,000)		(55.89%)

During 2013 and 2012, the Company recorded an aggregate deferred Federal, state and local income tax benefit of $15,217,000 and $5,614,000, respectively, from the release of the valuation allowance against certain deferred tax assets. In the fourth quarters of 2013 and 2012, the Company reversed the valuation allowance recorded against a portion of its NOL carryforwards in 2012, and the remaining balance of the valuation allowance against NOL and AMT credit carryforwards in 2013. The decision to reduce the valuation allowance in each period was made after management determined, based on an assessment of continuing operations, profitability and forecasts of future taxable income, that these deferred tax assets would be realized in the future.

Separately, during the fourth quarter of 2013, the Company also reevaluated the availability of state operating loss carryforwards and modified the future effective state and local tax rate. As a result, the future tax benefit was reduced by approximately $346,000 during the year ended December 31, 2013.

During March 2014, New York State enacted a law to (1) reduce corporate tax rates, effective in future years and (2) change the method of determining the availability and use of NOLs existing at December 31, 2014. As a consequence, the Company evaluated all elements affecting the balance of its net deferred tax assets, including the availability of New York State and New York City NOL carryforwards and the changes in the New York State law and are reflected in the 2014 income tax expense.

In January 2015, New York City proposed that it would change its tax laws to conform with the New York State changes. The Company will assess the impact of changes for New York City when a law is enacted.

Due to the amount of its NOL and credit carryforwards, the Company does not anticipate paying Federal income taxes for a number of years. The Company expects, in the future, that it will be subject to cash payments for Federal AMT and for a portion of its state and local income taxes as the changed New York State tax rules and anticipated New York City rules limit the amount of existing NOLs which could be used each year.

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The net deferred tax asset was approximately $22,437,000 and $23,789,000 at December 31, 2014 and 2013, respectively, of which $3,798,000 and $2,472,000 is reflected as a net current asset in prepaid and other assets and $18,639,000 and $21,317,000 is reflected separately as a net non-current asset in the accompanying consolidated balance sheets, respectively. The significant portion of the deferred tax items relates to deferred tax assets including NOL carryforwards, Federal AMT credit carryforwards and stock based compensation, with the remainder of the deferred tax items relating to liabilities resulting from the intangible assets recorded at the time of the Merger.

Significant components of the Company’s deferred tax assets and liabilities are as follows:


	December 31,
	2014		2013
Deferred Tax Assets

Net operating loss carryforwards	$	22,113,983	$	23,771,675
Asset basis differences — tax amount greater than book value		259,922		263,944
Liability reserves		212,142		212,376
Reserve for option cancellations		—		99,689
Stock compensation plans		1,520,041		1,598,969
AMT credit carryforwards		1,273,792		1,181,423
Other		21,585		31,167

		25,401,465		27,159,243
Valuation allowance		—		—

Total deferred tax assets		25,401,465		27,159,243


Deferred Tax Liabilities

Acquired asset differences — book value greater than tax		(2,669,655)		(3,145,741)
Asset basis differences — carrying amount value greater than tax		(295,073)		(224,982)

Total deferred tax liabilities		(2,964,728)		(3,370,723)

Net deferred tax asset (liability)	$	22,436,737	$	23,788,520

The Company has Federal NOL carryforwards aggregating approximately $61,165,000 at December 31, 2014, as well as significant state and local NOL carryforwards. These NOLs include NOLs generated subsequent to the Merger, losses from the Reis Services business prior to the Merger and the Company’s operating losses prior to the Merger. Approximately $20,317,000 of these Federal NOLs are subject to an annual limitation, whereas the remaining balance of approximately $40,848,000 is not subject to such a limitation. There is an annual limitation on the use of NOLs after an ownership change, pursuant to Section 382 of the Internal Revenue Code. As a result of the Merger, the Company experienced such an ownership change which resulted in a new annual limitation of $2,779,000. Because of the accumulation of annual limitations, it is expected that the use of NOLs will not be limited by expiration. The 2014 New York State law discussed above and the anticipated conforming changes to the New York City law limits the amount of existing NOLs which could be used each year in those jurisdictions; however, all such losses are expected to be fully utilized in the future. A substantial NOL was realized during the year ended December 31, 2012 as a result of the Gold Peak litigation settlement, discussed in Note 10.

A further requirement of the tax rules is that after a corporation experiences an ownership change, it must satisfy the continuity of business enterprise, or COBE, requirement (which generally requires that a corporation continue its historic business or use a significant portion of its historic business assets in its business for the two year period beginning on the date of the ownership change) to be able to utilize NOLs generated prior to such ownership change. The Company believes that the COBE requirement was met through the required two year period subsequent to the ownership change. In February 2012, the Internal Revenue Service (“IRS”) completed an audit of the Company’s 2009 Federal income tax return. The 2009 tax year included the end of the two year period subsequent to the Merger. The IRS issued a no change letter related to the Company’s 2009 tax return, thereby accepting the Company’s position that the two year COBE requirement was met.

The next NOL expiration for the Company is in 2018 for approximately $252,000 of Federal NOLs. Included in the Federal NOLs at December 31, 2014 is approximately $1,723,000 attributable to excess tax deductions from the issuance of common shares as non-cash compensation in prior years. The tax benefits attributable to those NOLs will be credited directly to additional paid in capital when utilized to offset taxes payable.

A valuation allowance is required to reduce deferred tax assets if, based on the weight of the evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. As a result of management’s evaluation of the Company’s future operations, it has been determined that no valuation allowance was necessary at either December 31, 2014 or 2013. Management determined that a valuation allowance of approximately $15,217,000 was necessary at December 31, 2012. The allowance at December 31, 2012 related primarily to NOL carryforwards and AMT credits. The decrease in the allowance in 2012 was primarily attributable to the $5,614,000 increase in deferred tax assets expected to be realized in the years subsequent to December 31, 2012, offset in part by the litigation settlement payments made in 2012, net of recoveries, which resulted in an increase to the 2012 NOL.

The Company and its subsidiaries have been audited by the Federal tax authorities for 2009 and the 2012 Federal tax return is currently under audit. The Federal tax returns are open for 2011 and 2013. All prior Federal periods are closed, except to the extent that NOLs were generated in a given year. Tax returns for 1997 and 1998 are open for the NOLs generated during those years from an acquired business at that time. The Reis Services business prior to the Merger, was audited by the IRS for tax years ending October 31, 2005 and 2006. In addition, tax returns are open from 2000 to 2002 and 2007, to the extent that NOLs were generated during these periods by the Reis Services business prior to the Merger.

Tax returns for the Company and a subsidiary are under audit by the State of New York for the years 2004 to 2006 and are open for the years 2007 to 2013. As a result of the New York State audit, New York City returns are open for the years 2004 to 2013 as well. The tax years for another subsidiary, operating in Colorado are open from 2010 to 2012.

The Company’s reserve for unrecognized tax benefits, including estimated interest, was $105,000 and $62,000 at December 31, 2014 and 2013, respectively. The unrecognized tax benefits as well as related interest was included in general and administrative expenses. The Company recorded an additional provision, including interest, of $43,000 and $51,000 in 2014 and 2013, respectively. A reconciliation of the unrecognized tax benefits for the years ended December 31, 2014, 2013 and 2012 follows:


	For the Years Ended December 31,
	2014		2013		2012
Balance at beginning of period	$	62,000	$	345,000	$	145,000
Additional provisions and interest related to prior years		43,000		51,000		200,000
Resolution of matters during the period		—		(334,000)		—

Balance at end of period	$	105,000	$	62,000	$	345,000

The Company expects that a substantial portion of the 2014 balance could be resolved in 2015.