5. Income Taxes

12 Months Ended

Sep. 30, 2015

The deferred income tax balances at September 30, 2015 and 2014 are comprised of the following:

	2015			2014
Deferred income tax assets (liabilities):
Net operating loss carry forwards	$	7,030,000		$	7,035,000
Inventories		392,000			380,000
Reserves and accruals		90,000			154,000
Research and development credits		2,464,000			2,379,000
Depreciation and amortization		(359,000	)		(426,000	)
Other		107,000			90,000
Valuation allowance		(9,724,000	)		(9,612,000	)
	$	–		$	–

The valuation allowance for deferred tax assets increased approximately $112,000 during the year ended September 30, 2015 and increased approximately $1,479,000 during the year ended September 30, 2014, primarily due to a portion of the Company's net operating loss carryforwards ("NOLS") for federal and state income tax reporting. For the years ended September 30, 2015 and 2014, the Company recorded a current provision for federal and state income taxes of $17,000 and $7,000, respectively. In addition, there was not a provision for deferred income taxes due to a full valuation allowance on the Company’s deferred tax assets for fiscal years ended September 30, 2015 and 2014.

The Company's effective income tax rate differs from the statutory federal income tax rate as follows for the years ended September 30, 2015 and 2014:

	2015			2014
Statutory federal income tax rate		34.0%			34.0%

Increase (decrease) in tax rate resulting from:
State tax benefit, net of federal benefit		(1.3%	)		2.2%
Other		0.6%			2.1%
Valuation Allowance		(36.2%	)		(40.2%	)
Effective income tax rate		(2.9%	)		(1.9%	)

At September 30, 2015, the Company had NOL carry forwards for Federal and California income tax purposes, totaling approximately $20.3 million and $2.4 million, respectively. The NOL carryforwards include Federal and State R & D credits of $1.4 million and $1.6 million, respectively. At September 30, 2014, the Company had NOL carry forwards for Federal and California income tax purposes, totaling approximately $20.3 million and $2.3 million, respectively. The NOL carryforwards include Federal and State R & D credits of $1.4 million and $1.5 million, respectively. Federal and California NOL's have begun to expire and fully expire in 2035. The Tax Reform Act of 1986 includes provisions which may limit the new operating loss carry forwards available for use in any given year if certain events occur, including significant changes in stock ownership. In addition, the Company has R & D credits that have begun to expire and fully expire in 2035 for federal tax purposes.

The Company has identified the United States Federal tax returns as its "major" tax jurisdiction. The United States Federal return years 2012 through 2014 are still subject to tax examination by the United States Internal Revenue Service; however, we do not currently have any ongoing tax examinations. The Company is subject to examination by various State agencies for the years ended 2011 through 2014 and currently does not have any ongoing tax examinations.

TRIMEDYNE INC 10-K