Community Partnership of Southern Arizona Cpsa Inc.

PART X, LINE 2:

“Fin 48 (asc 740) footnote from consolidated financial statements: cpi, mhri, cpsa and sonrisa are section 501(c)(3) organizations exempt from taxation under internal revenue code section 501(a). Cpcc and cbhp are single-member limited liability companies which are disregarded entities for income tax purposes. Accordingly, no provision for federal or state income taxes has been reflected in the accompanying consolidated financial statements for the aforementioned entities. However, certain unrelated business income may be subject to income tax. Management is not aware of any matters which would cause these entities to lose their tax-exempt status. Cpih and ahw are c corporation's and, as a result, are subject to corporate federal and state income taxes. Cpih and ahw accounts for income taxes in accordance with asc 740, income taxes("asc 740"). Under asc 740, the cpih and ahw recognizes deferred tax assets and liabilities for the expected future tax consequences of events that are recognized differently in its financial statements as compared with its income tax return. Under this method, deferred tax liabilities and assets are determined based on the difference between the financial statement carrying amounts and tax basis of assets and liabilities using enacted tax rates. When necessary, deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Cpih has estimated federal net operating loss tax carryforwards available of approximately $480,000 to offset future taxable income (deferred tax asset) which will expire over the next 20 years. Because of the lack of objective evidence of future taxable income required under asc 740, management believes it is more likely than not that the net deferred tax assets will not be fully realizable. Accordingly, cpih has provided for a full valuation allowance against the estimated amount of deferred tax assets as of september 30, 2017. Ahw has federal net operating loss tax carryforwards available of approximately $5.2 million to offset future taxable income (deferred tax asset) which will expire over the next 20 years with approximately $2.5 million potentially subject to the internal revenue code section 382 limitations. Because of the lack of objective evidence of future taxable income required under asc 740, management believes it is more likely than not that the net deferred tax assets will not be fully realizable. Accordingly, ahw has provided for a full valuation allowance against the estimated amount of deferred tax assets as of september 30, 2017. When cpih and ahw demonstrates the consistent ability to generate taxable income, management will reevaluate the valuation allowance. Management has considered its tax positions and believes that all of the positions taken in its federal and state tax returns are more likely than not to be sustained upon examination. The organization's returns are subject to examination by federal and state taxing authorities, generally for three years and four years respectively, after they are filed. From time to time, the organization may be subject to penalties and interest assessed by various taxing authorities, which are classified as administrative and operating expenses when they occur. During the years ended september 30, 2017 and 2016, the organization did not recognize any interest and penalties.”