8. INCOME TAX

12 Months Ended

Dec. 31, 2015

Income Tax Disclosure [Abstract]

INCOME TAX

We recognize future tax assets and liabilities for each tax jurisdiction based on the difference between the financial reporting and tax bases of assets and liabilities using the enacted tax rates expected to be in effect when the taxes are paid or recovered. A valuation allowance is provided against net future tax assets for which we do not consider the realization of such assets to meet the required “more likely than not” standard.

Our future tax assets and liabilities at December 31, 2015 and 2014 include the following components:

			As of December 31,	As of December 31,
			2015	2014
Deferred tax assets:
	Current:
		Accrued vacation	$                        26	$                        39
		Reclamation provision	52	57
			78	96
	Non-current:
		Noncapital loss carryforwards, Canada	2,640	2,546
		Capital loss carryforwards, Canada	7	7
		Net operating loss carryforwards, U.S.	14,784	11,053
		Mineral properties	13,017	14,244
		Reclamation provision	70	69
		Equipment	131	115
		Share based compensation	3,362	4,020
		Research and development	2,358	1,882
			36,369	33,936
	Deferred tax assets		36,447	34,032
	Valuation allowance		(36,447)	(34,032)
	Net		$                         -	$                           -
Deferred tax liabilities:
	Non-Current:
		Other	-	-
	Deferred tax liabilities		-	-
Net deferred tax asset/(liability)			-	-

The composition of our valuation allowance by tax jurisdiction is summarized as follows:

	As of December 31,
	2015	2014
Canada	$             3,148	$             3,055
United States	33,299	30,977
Total valuation allowance	$           36,447	$           34,032

The valuation allowance increased $2,415 from the period ended December 31, 2014 to the calendar year ended December 31, 2015. This was the result of an increase in the net deferred tax assets, primarily net operating loss (“NOL”) carryforwards, equity compensation for U.S. residents, exploration spending on mineral properties, research and experimental spending, and change in tax rates. Because we are unable to determine whether it is more likely than not that the net deferred tax assets will be realized, we continue to record a 100% valuation against the net deferred tax assets.

At December 31, 2015, we had U.S. NOL carryforwards of approximately $43,482, which expire from 2018 to 2035. In addition, we had Canadian non-capital loss carryforwards of approximately CDN$10,784, which expire from 2016 to 2035. As of December 31, 2015, there were Canadian capital loss carryforwards of CDN$59. A full valuation allowance has been recorded against the tax effected U.S. and Canadian loss carryforwards as we do not consider realization of such assets to meet the required “more likely than not” standard.

Section 382 of the Internal Revenue Code could apply and limit our ability to utilize a portion of the U.S. NOL carryforwards. No Section 382 study has been completed; therefore, the actual usage of U.S. NOL carryforwards has not been determined.

Deferred tax assets relating to equity compensation have been reduced to reflect tax deductions in excess of previously recorded tax benefits through the year ended December 31, 2015. Our NOL carryforwards referenced above at December 31, 2015 and 2014 include $538 of income tax deductions in excess of previously recorded tax benefits. Although these additional tax deductions are reflected in the NOL carryforwards referenced above, the related tax benefit of $140 will not be recognized until the deductions reduce taxes payable. Accordingly, since the tax benefit does not reduce our current taxes payable for the periods ending December 31, 2015 or 2014, these tax benefits are not reflected in the deferred tax assets presented above. The tax benefit of these excess deductions will be reflected as a credit to additional paid-in capital when recognized.

For financial reporting purposes, income/(loss) from continuing operations before income taxes consists of the following components:

	For the years ended December 31,
	2015	2014
Canada	$                 (617)	$                (623)
United States	(9,061)	(13,406)
	$              (9,678)	$           (14,029)

The provision for income taxes includes the following components:

		As of December 31,
		2015	2014
Current
	Canada	$                    -	$                    -
	United States	-	-
		-	-
Deferred
	Canada	$                    -	$                    -
	United States	-	-
		-	-
Income tax expense (recovery)		$                    -	$                    -

A reconciliation of expected income tax on net income at statutory rates is as follows:

	As of December 31,	As of December 31,
	2015	2014
Net income (loss)	$             (9,678)	$             (14,029)
Statutory tax rate	26.00%	26.00%
Tax expense (recovery) at statutory rate	(2,516)	(3,648)
Foreign tax rates	(591)	(928)
Change in tax rates	166	27
Share issuance costs amortization	(103)	(220)
Stock-based compensation	569	155
Nondeductible expenses	17	5
Prior year true-up for loss carryovers	43	20
Prior year true-up for property basis adjustments	-	(63)
Unrecognized benefit of non-capital losses	-	-
Other	-	-
Change in valuation allowance	2,415	4,652
Income tax expense (recovery)	$                         -	$                           -

We do not have any unrecognized income tax benefits. Should we incur interest and penalties relating to tax uncertainties, such amounts would be classified as a component of the interest expense and operating expense, respectively.

Rare Element and its wholly owned subsidiary, Rare Element Holdings Ltd., file income tax returns in the Canadian federal jurisdiction and provincial jurisdictions, and its wholly owned subsidiary, Rare Element Resources, Inc., files in the U.S. federal jurisdiction and various state jurisdictions. The years still open for audit are generally the current year plus the previous three. However, because we have NOLs carrying forward, certain items attributable to closed tax years are still subject to adjustment by applicable taxing authorities through an adjustment to tax losses carried forward to open years.