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I. I I I I I I I I I I I I I I I I I I Consul-Tech Enterprises, Inc. and Subsidiaries Notes to Consolidated Fmancial Statements December 31,2006 and 2005 H. Income Taxes . In September 2005, upon the adoption of the ESOP Trust, the Company elected to have the Subchapter "S" revoked thereby revoking the Qualified Subchapter "S" Subsidiary election of all of the Company's subsidiaries, The Company accounts for income taxes in accordance with Statement of Financial Accounting Standards No. 109, whereby deferred taxes are provided on temporary differences arising from assets and liabilities whose bases are different for fmancial reporting and income tax purposes. Deferred taxes relate to the use of the percentage-of-completion method for revenue recognition and differences in calculating depreciation on fixed assets. Deferred income taxes at December 31, 2006 and 2005 consist of a deferred tax liability of $1,693,989 and $1,804,239, respectively. Income tax (provision) benefit for the years ended December 31, 2006 and 2005 consisted of the following: 2006 2005 Current Federal $ 328,875 $ 528,030 . State 52,045 90,846 380,920 618,876 Deferred 545,969 1,804,239 Income tax provision $ 926,889 $ 2,423,115 The income tax provision shown on the statements of income differs from the amounts that would result from applying statutory tax rates to income before income ,taxes primarily because the Company is subject to state income taxes, deferred income taxes are based on average tax rates, ESOP preferred dividends are tax deductible, and officers' life insurance premiums and a portion of meals and entertainment are not tax deductible. I. Capital Stock In September 2005, the Company declared a 10:1 stock split, authorizing the issuance of 1,000,000 shares of common stock. 13