Income Taxes

DLH accounts for income taxes in accordance with the liability method. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities, using enacted tax rates in effect for the year in which the differences are expected to reverse. Deferred tax assets are reflected on the balance sheet when it is determined that it is more likely than not that the asset will be realized. This guidance also requires that deferred tax assets be reduced by a valuation allowance if it is more likely than not that some or all of the deferred tax asset will not be realized.

DLH recorded a $0.9 million benefit for income tax, net, for fiscal year ended September 30, 2016. The benefit related principally to the release of our valuation allowance, to reflect the amount of our deferred tax asset that we expect to realize in future years. That release was based upon our estimate of future taxable earnings based on results generated. To project taxable income in the future periods, we first estimated revenue for the carryforward period based on the expected performance under current contracts, plus expected changes in the contract base. Using these estimates of revenue, we assumed a proportional level of book income as was generated from the revenues recorded in each fiscal year. We further assumed that tax goodwill amortization would continue through its 15 year life and that amortization of intangibles would continue through their respective lives.

Using the taxable income projections, we calculated the amount of net operating loss (NOL) utilization that would be achieved within each loss year’s carryforward period. Our estimate of future taxable income is revised at least annually or more frequently upon the occurrence of an event which warrants a new estimate.

At September 30, 2017 the Company had net operating losses of approximately $31.5 million and $1.8 million for U.S. and state tax return purposes, respectively. The NOLs begin to expire in 2021 and continue to expire through 2033.

An analysis of DLH's deferred tax asset and liability is as follows:



	Year Ended
	September 30,
(amounts in thousands)	2017			2016
Deferred income tax asset (liability):
Net operating loss carry forwards and tax credits	$	10,786		$	12,387
AMT credit carryforward	316			231
Stock based compensation	236			172
Fixed and intangible assets	(3,243		)	(2,580		)
Accrued expenses	1,303			918
Other items, net	241			287
Net deferred tax asset	$	9,639		$	11,415

The significant components of the expense (benefit) for income taxes from continuing operations are summarized as follows:



	Year Ended
	September 30,
(amounts in thousands)	2017		2016
Current expense (benefit)	$	338	$	170
Deferred expense (benefit)	1,776		(1,108		)
Total expense (benefit)	2,114		(938		)

The following table indicates the significant differences between the federal statutory rate and DLH's effective tax rate for continuing operations:



	Year Ended
	September 30,
(amounts in thousands)	2017		2016
Federal statutory rate	$	1,837	$	831
State taxes, net	260		71
Other permanent items	17		(86		)
Change in valuation allowance	—		(1,754		)
	$	2,114	$	(938	)

We file income tax returns in the U.S. federal jurisdiction and in various state jurisdictions. We are no longer subject to income tax examinations for years before 2014.