XML 44 R19.htm IDEA: XBRL DOCUMENT

13. Income Taxes

12 Months Ended

Dec. 31, 2017

Related Party Transactions [Abstract]

Income Taxes

Domestic and foreign components of income (loss) from operations before income taxes for the years ended December 31, 2017 and 2016, are as follows:

		2017				2016
Domestic		$	(374,478	)		$	(263,652	)
Foreign			(759,916	)			(747,410	)
Total		$	(1,134,394	)		$	(1,011,062	)

At December 31, 2017 and 2016, the Company had net deferred tax assets as follows:

		2017				2016
Deferred tax assets:
Foreign exploration costs		$	15,372			$	47,011
Foreign net operating loss carry forward			1,537,420				1,309,445
Domestic net operating loss carry forward			443,100				465,145
Other			1,455				-
Deferred tax assets			1,997,347				1,821,601

Valuation allowance (foreign)			(1,537,420	)			(1,309,445	)
Valuation allowance (domestic)			(316,793	)			(299,522	)
Total deferred tax assets			143,134				212,634

Deferred tax liabilities:
Property, plant, and equipment			(143,134	)			(210,912	)
Other			-				(1,722	)
Total deferred tax liabilities			(143,134	)			(212,634	)
Net deferred tax assets		$	-			$	-

At December 31, 2017, the Company has federal net operating loss (“NOL”) carry forwards of approximately $0.8 million that expire at various dates between 2026 and 2038. In addition, the Company has Montana state net operating loss carry forwards of approximately $3.5 million which expire between 2017 and 2024, and Idaho state net operating loss carry forwards of approximately $1.5 million, which expire between 2032 and 2038. The Company has approximately $5.1 million of Mexican net operating loss carry forwards which expire between 2023 and 2027.

At December 31, 2017 and 2016, the Company had deferred tax assets arising principally from net operating loss carry forwards for income tax purposes. As management cannot determine that it is more likely than not the benefit of the net deferred tax asset will be realized, a valuation allowance equal to 100% of the net deferred tax asset has been recorded at December 31, 2017 and 2016.

On December 22, 2017, the United States enacted the Tax Cuts and Jobs Act (the "Act") resulting in significant modifications to existing law. The Company completed the accounting for the effects of the Act during the quarter ended December 31, 2017. The Company did not incur any income tax benefit or provision for the year ended December 31, 2017 as a result of the changes to tax laws and tax rates under the Act. The Company’s net deferred tax asset was reduced by approximately $7,000 during the year ended December 31, 2017, which consisted primarily of the re-measurement of federal deferred tax assets and liabilities from 35% to 21%.

The income tax provision differs from the amount of income tax determined by applying the U.S. federal income tax rate to pretax loss for the years ended December 31, 2017 and 2016, due to the following:

		2017				2016
Tax benefit at federal statutory rate		$	(397,038	)		$	(353,872	)
State income tax effect			(34,609	)			(21,754	)
Foreign income tax effect			37,996				37,371
Non-deductible items			930				3,263
Percentage depletion			(58,056	)			(40,976	)
Change in valuation allowance - Domestic			229,462				151,745
Change in valuation allowance - Foreign			227,975				224,223
Impact on change in federal tax rate			(6,660	)			-
Foreign tax assessment			-				285,048
Alternative minimum tax - Domestic			-				13,090
Total		$	-			$	298,138

Change in valuation allowance is comprised of the following:

		2017				2016
Domestic
Change in deferred tax asset for current year		$	(229,462	)		$	(151,745	)
Adjustment for prior year tax estimate to actual due to
transfer pricing adjustment for Mexican operations			212,146				(57,557	)
		$	(17,316	)		$	(209,302	)
Foreign
Change in deferred tax asset for current year		$	(227,975	)		$	(224,223	)
Adjustment for impact of tax assessment			-				285,048
Impact on change in foreign exchange rate			-				421,643
Adjustment for prior year tax estimates to actual			-				724,041
		$	(227,975	)		$	1,206,509

During the years ended December 31, 2017 and 2016, there were no material uncertain tax positions taken by the Company. The Company’s United States income tax filings are subject to examination for the years 2015 through 2017, and 2014 through 2017 in Mexico. The Company charges penalties on assessments to general and administrative expense and charges interest to interest expense.

Mexican Tax Assessment

In 2015, the Mexican tax authority (“SAT”) initiated an audit of the USAMSA’s 2013 income tax return. In October 2016, as a result of its audit, SAT assessed the Company $13.8 million Mexican pesos, which was approximately $666,400 in U.S. Dollars (“USD”) as of December 31, 2016. Approximately $285,000 USD of the total assessment is interest and penalties. SAT’s assessment is based on the disallowance of specific costs that the Company deducted on the 2013 USAMSA income tax return. These disallowed costs were incurred by the Company for USAMSA’s business operations. SAT claims that the costs were not deductible or were not supported by appropriate documentation. At December 31, 2017, the assessed amount is approximately $699,000 in U.S dollars.

Management has reviewed the assessment notice from SAT and believes numerous findings have no merit. The Company has engaged accountants and tax attorneys in Mexico to defend its position.

At December 31, 2016, management has estimated possible outcomes for this assessment and concluded the Company will ultimately pay an amount ranging from 30% to 100% of the total assessment. The 30% is based on the Company’s agreement with the tax professionals that the professionals will receive 30% of the amount of tax relief they are able to achieve. At December 31, 2016, the Company accrued a potential liability of $410,510 USD of which $285,048 was for unpaid income taxes, $75,510 was for interest expense, and $49,952 was for penalties. The amount accrued represented management’s best estimate of the amount that will ultimately be paid. The outcome could vary from this estimate.

During 2017, the Company filed grievance and legal arguments regarding the SAT audit and presented arguments to the court in September 2017. The Company is waiting for the court’s ruling on the matter and expects resolution in 2018. Based on this status, the Company concluded that the estimate of potential assessment determined at December 31, 2016 remains the most likely outcome at December 31, 2017. The December 31, 2016 income tax payable due of $410,510 was increased by $32,600 due to the change in exchange rate between the U.S. dollar and Mexican peso. Fluctuation in exchange rates will have an ongoing impact on the amount the Company will pay in U.S. dollars.

If an issue addressed during the SAT audit is resolved in a manner inconsistent with management expectations, the Company will adjust its net operating loss carryforward, or accrue any additional penalties, interest, and tax associated with the audit. The Company’s tax professionals in Mexico have reviewed and filed tax returns with the SAT for 2014, 2015, and 2016, and have advised the Company that they do not expect the Company to have a tax liability for those years relating to similar issues.