Full House Resorts, Inc. Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

INCOME TAXES

INCOME TAXES

12 Months Ended

Dec. 31, 2016

The income tax provision (benefit) attributable to our loss before income taxes consisted of the following (in thousands):



		Year Ended December 31,
		2016			2015
Current:	Federal	$	—		$	(631	)
	State	—			(62		)
		—			(693		)

Deferred:	Federal	(1,383		)	275
	State	(505		)	(185		)
	Increase in valuation allowance	2,518			261
		630			351
		$	630		$	(342	)

A reconciliation of the federal income tax statutory rate and the Company’s effective tax rate is as follows (in thousands):



	Year Ended December 31,
	2016					2015
	Percent		Amount			Percent		Amount
Federal income tax benefit at U.S. statutory rate	34.0	%	$	(1,518	)	34.0	%	$	(564	)
State taxes, net of federal benefit	7.5	%	(333		)	7.8	%	(129		)
Change in valuation allowance	(56.5	)%	2,518			(15.7	)%	261
Permanent differences	(2.1	)%	95			(7.3	)%	121
Credits	2.9	%	(129		)	5.5	%	(91		)
Other	0.1	%	(3		)	(3.7	)%	60
	(14.1	)%	$	630		20.6	%	$	(342	)

Our deferred tax assets (liabilities) consisted of the following (in thousands):



	December 31,
	2016			2015
Deferred tax assets:
Deferred compensation	$	655		$	230
Depreciation of fixed assets	42			52
Intangible assets and amortization	6,830			7,284
Net operating loss carry-forwards	2,861			1,384
Accrued expenses	1,077			441
Allowance for doubtful accounts	19			47
Credits	220			91
Common stock warrant liability	263			—
Charitable contribution carry-forward	90			43
Valuation allowance	(9,753		)	(7,236		)
	2,304			2,336
Deferred tax liabilities:
Depreciation of fixed assets	(631		)	(772		)
Amortization of indefinite-lived intangibles	(1,907		)	(1,276		)
Prepaid expenses	(1,055		)	(1,085		)
Effect of state taxes on future federal returns	(585		)	(391		)
Other	(33		)	(88		)
	(4,211		)	(3,612		)
	$	(1,907	)	$	(1,276	)

As of December 31, 2016, we had a gross federal net operating loss carry-forward ("NOL") of $5.8 million and state tax carry-forwards of $14.2 million, which can be carried forward 20 years and begin to expire after 2035. We also have general business credits of $0.2 million which begin to expire after 2035.

Goodwill impairment charges recorded in prior years have resulted in a significant amount of deferred tax assets. In assessing the realizability of the Company's deferred tax assets, we consider 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 during the periods in which those temporary differences become deductible. We considered the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. We evaluated both positive and negative evidence in determining the need for a valuation allowance. We continue to assess the realizability of deferred tax assets and have concluded that we have not met the "more likely than not" threshold. Accordingly, as of December 31, 2016 and 2015, we continue to provide a valuation allowance against our remaining deferred tax assets after being utilized by deferred tax liabilities for all jurisdictions. The valuation reserve against deferred tax assets has no effect on the actual taxes paid or owed by the Company.

As of December 31, 2016 and 2015, we had $1.9 million and $1.3 million, respectively, of deferred tax liabilities relating to goodwill and other indefinite-lived intangibles for which the timing of the reversal is not determinable and, therefore, does not assure the realization of deferred tax assets or reduce the need for a valuation allowance.

The Company’s utilization of NOL and the general business tax credit carry-forwards may be subject to an annual limitation under Sections 382 and 383 of the Internal Revenue Code of 1986 (IRC), and similar state provisions’ due to ownership changes that may have occurred or that could occur in the future. These ownership changes may limit the amount of NOL and tax credit carryforwards that can be utilized annually to offset future taxable income and tax, respectively. In general, an ownership change, as defined by Sections 382 and 383, results from transactions increasing ownership of certain stockholders or public groups in the stock of the corporation by more than 50 percentage points over a three-year period. While the Company has not completed an IRC Section 382/383 analysis to determine if there are any annual limitations on the utilization of NOLs and tax credit carryforwards, the Company does not believe that there have been greater than 50% ownership change in the last three years that would prohibit the Company from utilizing all of its tax attributes.

Management has made an annual analysis of its state and federal tax returns and concluded that the Company has no recordable liability, as of December 31, 2016 or 2015, for unrecognized tax benefits as a result of uncertain tax positions taken.

As of December 31, 2016, the Company is subject to U.S. federal income tax examinations for the tax years 2013 through 2016. In addition, the Company is subject to state and local income tax examinations for various tax years in the taxing jurisdictions in which the Company operates.