Note 12. Income Taxes

12 Months Ended

Dec. 31, 2016

Income Tax Disclosure [Abstract]

Income Taxes

The provision (benefit) for income taxes consisted of the following components for the years ended December 31:

	2016			2015
Current:
Federal	$	500,181		$	257,098
State		95,518			47,256
Foreign		55,874			193,055
Total Current		651,573			497,409
Deferred:
Federal		(129,822	)		(468,887	)
State		(17,554	)		(67,423	)
Foreign		(39,847	)		(93,586	)
Total Deferred		(187,223	)		(629,896	)
Total expense (benefit) for income taxes	$	464,350		$	(132,487	)

Reconciliation between the statutory rate and the effective tax rate is as follows at December 31:

	2016						2015
	Amount			Percentage			Amount			Percentage
Federal statutory tax rate	$	686,597			34.0	%	$	4,113			34.0	%
State tax rate		65,660			3.3	%		(1,042	)		(8.6	)%
Permanent difference  - stock-based compensation		32,562			1.6	%		27,410			226.6	%
Permanent difference – other		67,269			3.3	%		8,888			73.4	%
Permanent items – disallowed interest		—			—			30,433			251.6	%
Provision to return		(7,796	)		(0.4	)%		(30,797	)		(254.6	)%
Change in unrecognized tax benefits		(57,749	)		(2.8	)%		57,749			477.4	%
Write-off of net operating losses		—			—			176,034			1,455.2	%
Foreign rate differential		(52,502	)		(2.6	)%		(33,032	)		(273.1	)%
Research and development credit		(55,726	)		(2.8	)%		(27,623	)		(228.3	)%
UK Rate Change		—			—			(3,898	)		(32.2	)%
Other		—			—			14,738			121.8	%
Sub-total		678,315			33.6	%		222,973			1,843.2	%
Change in valuation allowance		(213,965	)		(10.6	)%		(355,460	)		(2,938.4	)%
Total	$	464,350			23.0	%	$	(132,487	)		(1,095.2	)%

Components of net deferred income tax assets, including a valuation allowance, are as follows at December 31:

	2016			2015			Change
Assets:
Net operating loss	$	178,699		$	254,123		$	(75,424	)
Deferred revenue		138,009			51,914			86,095
Allowance for doubtful accounts		142,181			135,663			6,518
Stock options		297,861			345,779			(47,918	)
Basis difference in intangible assets		80,074			118,257			(38,183	)
Prepaid D&O Insurance		6,452			10,341			(3,889	)
Foreign tax credits carryforward		1,180,833			1,180,833			—
Other		37,765			26,916			10,849
Total deferred tax asset		2,061,874			2,123,826			(61,952	)
Less:  Valuation allowance		(1,193,990	)		(1,407,955	)		213,965
Total net deferred tax asset		867,884			715,871			152,013
Liabilities
Prepaid expenses		(38,484	)		(30,460	)		(8,024	)
Basis difference in fixed assets		—			(4,833	)		4,833
Capitalized software		(491,894	)		(171,584	)		(320,310	)
Purchase of intangibles		(262,864	)		(505,586	)		242,722
Total deferred tax liability		(793,242	)		(712,463	)		(80,779	)
Total net deferred tax asset / (liability)	$	74,642		$	3,408		$	71,234

A valuation allowance of $1,193,990 and $1,407,955 was recorded against deferred tax assets as of December 31, 2016 and 2015, respectively.  The valuation allowance as of December 31, 2016, relates to foreign tax credit carryforwards and foreign net operating losses.  For the year ended December 31, 2016, the Company released a portion of the valuation allowance in the amount of $213,965.  The release comprised a full valuation release of $191,072 and $20,173 related to federal and state net operating losses, respectively, on the basis of management’s reassessment of the amount of its deferred tax assets that are more likely than not to be realized. Additionally, the Company released a portion of the valuation allowance of $2,720 related to the utilization of foreign net operating losses; however, the Company maintains a full valuation allowance on the remaining foreign net operating losses.

              As of each reporting date, management considers new evidence, both positive and negative, that could impact management’s view with regard to future realization of deferred tax assets. As of December 31, 2016, in part because during the current year, the Company achieved three years of cumulative pre-tax income in the U.S. federal tax jurisdiction, management determined that sufficient positive evidence exists as of December 31, 2016, to conclude that it is more likely than not that additional deferred taxes of $213,965 are realizable, and therefore, reduced the valuation allowance accordingly.          

              In assessing the recovery of the deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income in the periods in which those temporary differences become deductible. Management considers the scheduled reversals of future deferred tax assets, projected future taxable income, and tax planning strategies in making this assessment.  It has been determined that it is more likely than not that the deferred tax assets attributable to foreign net operating losses and foreign tax credit carryforwards will not be realized, as it has been deemed unlikely that there will be generation of taxable income for the subsidiaries that carry these losses or that sufficient foreign source income would be generated to use the foreign tax credits.

As of December 31, 2016, the Company had no unrecognized tax benefits.  As of December 31, 2015, the Company had $57,749 of unrecognized tax benefits which is recorded in Income taxes payable on the Consolidated Balance Sheets.  The Company's reserves for uncertain tax positions decreased as a result of expired statute of limitations for a prior tax year and management's conclusion that the uncertain tax positions related to the statute lapse were effectively settled. The Company released $57,749 of its uncertain tax positions during the year ended December 31, 2016, inclusive of interest and penalties. The aggregate changes in the balance of unrecognized tax benefits were as follows:

	2016			2015
Balance as of January 1:	$	57,749		$	—
Change related to current year positions		—			57,749
Change related to statute expirations		(57,749	)		—
Balance as of December 31:	$	—		$	57,749

The Company has not recorded deferred income taxes applicable to undistributed earnings of foreign subsidiaries that are indefinitely reinvested in foreign operations. Generally, such earnings become subject to U.S. tax upon the remittance of dividends and under certain other circumstances. It is not practical to estimate the amount of deferred tax liabilities on such undistributed earnings. Undistributed earnings are insignificant as of December 31, 2016 and 2015.  The Company is subject to income taxation by both federal and state taxing authorities. Income tax returns for the years ended December 31, 2015, 2014 and 2013 are open to audit by federal and state taxing authorities.