Stamps.com 2005 Annual Report Download - page 57

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STAMPS.COM INC.
NOTES TO FINANCIAL STATEMENTS (continued)
Because the Company is uncertain as to when and if it may realize its deferred tax assets, the Company has placed a valuation allowance
against its otherwise recognizable deferred tax assets.
The Company has a net operating loss carryforward of approximately $277.5 million and $214.8 million for federal and state income tax
purposes at December 31, 2005, respectively, and approximately $284.2 million and $222.1 million for federal and state income tax purposes at
December 31, 2004, respectively, which can be carried forward to offset future taxable income. The Company had available a tax credit
carryforward of approximately $983,000 and $747,000 at December 31, 2005 and 2004, respectively, which can be carried forward to offset
future taxable liabilities. The Company’
s federal net operating losses will begin to expire in 2018; state net operating losses will begin to expire
in 2006. The federal credits begin to expire in 2018 and the state credits will begin to expire in 2006. The Federal Tax Reform Act of 1986 and
similar state tax laws contain provisions which may limit the net operating losses carryforwards to be used in any given year upon the
occurrence of certain events, including a significant change in ownership interests.
The Company maintains a study to understand the status of net operating losses (NOL or NOLs). Based on that study, the Company
believes that they have not undergone an Internal Revenue Code (IRC) Section 382 change of control that would trigger an impairment of the
use of NOLs since their secondary offering in December 1999. Under IRC Section 382 rules, a change in ownership can occur whenever there
is a shift in ownership by more than 50 percentage points by one or more five-percent shareholders within a three-year period. When a change
of ownership is triggered, the NOLs may be impaired. The Company estimates that, as of February 28, 2006 they are approximately at 30%
compared with the 50% level that would trigger impairment of the NOL asset.
The provision for income taxes is comprised of (in thousands):
Differences between the provision for income taxes and income taxes at the statutory federal income tax rate are as follows (in thousands):
F-16
2005
2004
2003
Current $
185
$ —
$ —
Federal
61
1
1
State
246
1
1
Deferred —
—
—
Provision for income taxes $
246
$
1
$
1
2005
2004
2003
Income tax at statutory federal rate
$
3,630
$
(1,609
)
$
(3,171
)
State income taxes, net of federal benefit
645
(276
)
(544
)
Effect of permanent differences
1
3
228
Other
(1,165
) —
(
1,139
)
Change in valuation allowance
(2,865
)
1,883
4,627
$
246
$
1
$
1