XML 39 R19.htm IDEA: XBRL DOCUMENT v3.21.1
13. Income Taxes
 12 Months Ended
Dec. 31, 2020
Income Tax Disclosure [Abstract]  
Income Taxes

During the year ended December 31, 2020 and 2019, the Company recognized no income tax benefit (provision).

 

Domestic and foreign components of net loss from operations before income taxes for the years ended December 31, 2020 and 2019, are as follows:

 

    2020     2019  
Domestic   $ 564,424     $ 462,292  
Foreign     (3,851,228 )     (4,135,183 )
Total   $ (3,286,804 )   $ (3,672,891 )

 

The income tax benefit differs from the amount of income tax determined by applying the U.S. federal income tax rate to pre-tax net loss for the years ended December 31, 2020 and 2019 due to the following:

 

    2020     2019  
Tax benefit at federal statutory rate   $ (690,229 )   $ (771,307 )
State income tax effect     (120,541 )     (177,435 )
Foreign income tax effect     (279,111 )     (147,166 )
Non-deductible items     151       801  
Percentage depletion     (27,667 )     (52,416 )
Adjustment to prior year tax estimates - Domestic     580,408       (269,906 )
Adjustment to prior year tax estimates - Foreign     (137,988 )     641,438  
Impact on change in foreign exchange rate     75,899       103,218  
Change in valuation allowance - Domestic     (393,380 )     926,873  
Change in valuation allowance - Foreign     992,458       (254,101 )
   Total   $ -     $ -  

 

At December 31, 2020 and 2019, the Company had net deferred tax assets as follows:

 

    2020     2019  
Deferred tax asset:            
Domestic net operating loss carry forward   $ 688,278     $ 1,111,779  
Foreign net operating loss carry forward     2,616,038       1,623,580  
      Deferred tax asset     3,304,316       2,735,359  
                 
Valuation allowance (domestic)     (628,449 )     (1,021,829 )
Valuation allowance (foreign)     (2,616,037 )     (1,623,580 )
      Total deferred tax asset     59,830       89,950  
                 
Deferred tax liability:                
   Property, plant, and equipment     (57,650 )     (88,292 )
   Other     (2,180 )     (1,658 )
     Total deferred tax liability     (59,830 )     (89,950 )
                 
Net deferred tax asset   $ -     $ -  

 

At December 31, 2020 and 2019, 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, 2020 and 2019.

 

At December 31, 2020, the Company has federal net operating loss (“NOL”) carry forwards of approximately $0.7 million that expire at various dates between 2034 and 2037. In addition, the Company has federal NOL carry forwards of $1.1 million that will never expire but utilization of which is limited to 80% of taxable income in any future year. The Company has Montana state NOL carry forwards of approximately $3.4 million which expire between 2021 and 2027, and Idaho state NOL carry forwards of approximately $2.4 million, which expire between 2034 and 2039. The Company has approximately $7.9 million of Mexican NOL carry forwards which expire between 2024 and 2029.

 

In 2018, the Company acquired two subsidiaries have net operating loss carryforwards in Mexico of approximately $800,000. Due to tax code limitations, it is likely that a portion of this carryforward will not be available to offset the Company’s future taxable income in Mexico.

 

During the years ended December 31, 2020 and 2019, 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 2017 through 2019, and 2016 through 2019 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 pesos, which was approximately $666,400 in U.S. Dollars (“USD”) as of December 31, 2016. SAT’s assessment was based on the disallowance of specific costs that the Company deducted on the 2013 USAMSA income tax return. The Company engaged accountants and tax attorneys in Mexico to defend its position. The assessment was settled in 2018 with no assessment against the Company.

 

In early 2019, the Company was notified that SAT re-opened its assessment of USAMSA’s 2013 income tax return and, in November 2019, SAT assessed the Company $16.3 million pesos, which was approximately $821,000 USD as of December 31, 2020.

 

Management reviewed the 2019 assessment notice from SAT and, similar to the earlier assessment, believes the findings have no merit. The Company engaged a tax attorney in Mexico to defend its position. An appeal was filed by the Company in November 2019 suspending SAT from taking immediate action regarding the assessment. The Company posted a guarantee of the amount in March 2020 as is required under the appeal process. In August 2020, the Company filed a lawsuit against SAT for resolution of the process and, in December 2020, filed closing arguments. Management expects the appeal process to continue through 2021.

 

At December 31, 2020, management assessed the possible outcomes for this tax audit and believes, based on discussions with its tax attorney in Mexico, that the most likely outcome will be that the Company will be successful in its appeal resulting in no tax due. Management determined that no amount should be accrued at December 31, 2020 relating to this potential tax liability. There can be no assurance that the Company’s ultimate liability, if any, will not have a material adverse effect on the Company’s results of operations or financial position.

 

If an issue addressed during the SAT audit is resolved in a manner inconsistent with management expectations, the Company will adjust its current net operating loss carryforward, or accrue penalties, interest, and tax associated with the assessment.

  

Other Taxes

 

In 2016, the Company, through its wholly owned subsidiary USAMSA, imported coal from the United States to its smelter in Mexico to process Australian concentrates associated with the Hillgrove agreement (Note 10). At that time, the Company applied for and was granted a Maquiladora (IMMEX) which the Company believed provided an exemption from paying a 16% value-added tax (IVA) on imported goods to Mexico that were ultimately exported in altered form. With this understanding, the Company did not pay IVA on coal it imported to process the Australian concentrates. In 2020, the Company was informed by the SAT that it owed the 16% IVA for the coal it had imported from 2016 to 2018. The initial assessment from SAT included penalties and fees. In late 2020, the Company filed a motion before the Taxpayer's Defense Agency but the motion was denied. To avoid incurring additional penalties, the Company elected to pay the assessed amount in early 2021. For the year ended December 31, 2020, the Company recognized an export tax expense of $1,120,730 and accrued a liability for this assessment. Upon payment in early 2021, the Company believes that this matter is settled.