INCOME TAXES

On December 22, 2017, the SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118”) to address the application of U.S. GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Tax Reform Act. We completed our accounting for all of the enactment-date income tax effects of the Tax Reform Act during the fourth quarter of 2018 with no further changes.

The components of income tax (benefit) expense for the years ended December 31, 2019 and 2018 are as follows:



	December 31, 2019			December 31, 2018
Current federal tax (expense)/benefit	$	(68,606	)	$	(137,212	)
Deferred federal tax (expense)/benefit	68,606			137,212
Total federal tax (expense)/benefit	$	—		$	—

Reconciliation between the amount determined by applying the U.S. federal income tax rate of 21% to pretax income from continuing operations and income tax expense presented in the accompanying consolidated statements of operations was as follows for the years ended December 31, 2019 and 2018:



	December 31, 2019			December 31, 2018
Statutory tax on book income	$	(1,152,000	)	$	(417,000	)
Permanent differences	139,000			114,000
Change in derivative liability	102,000			(160,000		)
Myrtle Grove transaction gain	210,000			—
Change in valuation allowance	1,344,000			967,000
Prior year return true up	(643,000		)	(504,000		)
Income tax expense (benefit)	$	—		$	—

The tax effect of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 2019 and 2018 are presented below:



	December 31, 2019			December 31, 2018
Deferred tax assets:
Alternative minimum tax credits	$	69,000		$	137,000
Accrued bonus and stock based compensation	386,000			358,000
Basis of intangible assets	1,687,000			1,368,000
Bad debt reserve	85,000			175,000
Contribution carryover	38,000			26,000
Interest expense carryforward	487,000			190,000
Net operating loss carry forwards	13,682,000			12,500,000
Less valuation allowance	(13,453,000		)	(12,109,000		)
Total deferred tax assets	$	2,981,000		$	2,645,000

	December 31, 2019			December 31, 2018
Deferred tax liabilities:
Basis of fixed assets	$	(2,788,000	)	$	(2,444,000	)
Contingent liability	—			3,000
Partnership income	(124,000		)	(67,000		)
Total deferred tax liabilities	$	(2,912,000	)	$	(2,508,000	)

Net deferred tax assets	$	69,000		$	137,000

The Company provides a valuation allowance when it is more likely than not that some portion of the deferred tax assets will not be realized. Management assesses the available positive and negative evidence to estimate if sufficient future taxable income will be generated to utilize the existing deferred tax assets. Based on this evaluation, as of December 31, 2019 and 2018, valuation allowances of approximately $13,453,000 and $12,109,000, respectively, has been recorded to reduce net deferred tax assets to an amount that management believes is more than likely not to be realized.

The Company is subject to examination by Federal and State tax authorities for fiscal years 2016 through 2019, except for utilization of net operating losses.

At December 31, 2019, the Company had federal net operating loss carry-forwards ("NOLs") of approximately $73.1 million acquired as part of the April 2009 merger between World Waste Technologies, Inc. and the Company's wholly-owned subsidiary Vertex Merger Sub, LLC and subsequent operating losses incurred by the Company. IRC Sections 382 and 383 provide an annual limitation with respect to the ability of a corporation to utilize its tax attributes against future U.S. taxable income in the event of a change in ownership. The net operating loss carry-forwards at December 31, 2019 reflect a reduction of approximately $31.6 million as a result of an ownership change triggering event in May 2016, as defined under IRC Section 382. The net operating loss carryforward will begin to expire in 2026. Those arising in tax years after 2017 will never expire.