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Note 10 - Income Taxes
 12 Months Ended
Dec. 31, 2021
Notes to Financial Statements  
Income Tax Disclosure [Text Block]

NOTE 10.

INCOME TAXES

 

We are subject to taxation in all jurisdictions in which we operate that impose an income tax on our business activities.

 

The components of income tax expense for the years ended December 31, the tax effects of temporary differences that give rise to deferred taxes at December 31, and the components of deferred tax assets and liabilities are as follows:

 

  

December 31,

 
  

2021

  

2020

 
         

Income tax (provision) benefit:

        

Current federal income tax expense (benefit)

 $-  $(44,486)

Current state income tax expense (benefit)

  -   (12,894)

Deferred federal income tax expense (benefit)

  13,322,593   (1,579,511)

Deferred state income tax expense (benefit)

  4,371,387   2,224,254 
         

Total Income Tax Expense Before Valuation Allowance

  17,693,980   587,363 
         

Valuation allowance

  -   (587,363)
         

Total Income Tax Expense

 $17,693,980  $- 
         

Deferred tax assets:

        

Net operating loss carryforwards

 $6,831,339  $7,111,956 

Tax credits

  366,366   366,366 

Intangibles

  -   47,731 

Lease liabilities

  16,636,855   14,064,430 

Premium adjustments and IBNR

  404,891   776,456 

Unrealized loss on securities

  -   1,126,052 

Other

  16,754   - 

Valuation allowance

  (2,165,808)  (7,230,229)
         

Net Deferred Tax Assets

 $22,090,397  $16,262,762 
         

Deferred tax liabilities:

        

Property and equipment

 $(7,770,312) $(1,754,929)

Intangibles

  (1,480,060)  - 

Right of use assets

  (16,810,802)  (14,311,642)

Deferred acquisition costs

  -   (187,002)

Investment in unconsolidated subsidiaries

  (887,327)  (9,189)

Unrealized gain on securities

  (12,892,876)  - 
         

Total Deferred Tax Liabilities

  (39,841,377)  (16,262,762)
         

Net Deferred Tax Liabilities

 $(17,750,980) $- 

 

The realization of deferred tax assets, including net operating loss carryforwards, is dependent on the generation of future taxable income sufficient to realize the tax deductions, carryforwards and credits. Valuation allowances on deferred tax assets are recognized if it is determined that it is more likely than not that the asset will not be realized. During the year ended December 31, 2021, we reversed the overall valuation allowance previously recorded against our net deferred tax asset and only recorded a valuation allowance against certain deferred tax assets that we have determined are not more-likely-than-not realizable. Management's decision to reverse the valuation allowance during the first quarter of 2021 was driven by the recognition of significant pre-tax book income and deferred tax liabilities driven by unrecognized gains on securities during the quarter due to the IPO of Dream Finders Homes, Inc. on January 20, 2021 (see further discussion within Note 8). For the year ended December 31, 2020, we had recorded a full valuation allowance due to historical losses before income taxes which reduced management’s ability to rely on future expectations of taxable income.

 

 

As of December 31, 2021, we have available federal tax operating loss carry forwards of approximately $25.4 million. Of the $25.4 million, $6.7 million arose in years beginning before 2018. Tax operating loss carry forwards generated in years prior to 2018 may be applied against future taxable income and expire in 2035 through 2037. Tax operating loss carryovers arising in years after 2017 may be carried forward indefinitely but are only available to offset 80% of future taxable income. We have available state tax operating loss carry forwards of approximately $24.9 million, which are available to reduce future state taxable income and expire at various times and in various amounts.

 

Pursuant to Section 382 of the Internal Revenue Code of 1986, as amended, annual use of our net operating losses may be limited if it is determined that an ownership shift has occurred. An ownership shift is generally defined as a cumulative change in equity ownership by ‘‘5% shareholders’’ that exceeds 50 percentage points over a rolling three-year period. At this time, a Section 382 study has not been performed to determine if such an ownership shift has occurred.

 

A reconciliation between the federal statutory income tax rate and our actual effective income tax rate is as follows:

 

  

For the Year Ended December 31,

 
  

2021

  

2020

 
         

Federal income tax at statutory rate

 $15,291,464  $(280,069)

State income tax, net of federal benefit

  4,498,347   (12,894)

Provision to return adjustments

  973,002   - 

Nondeductible officer's compensation

  3,803,973   - 

Warrant income

  (1,672,815)  - 

Other permanent differences

  (56,592)  5,422 

Other

  (21,978)  (299,822)

Change in valuation allowance

  (5,121,421)  587,363 

Federal income tax at effective rate

 $17,693,980  $- 

 

Uncertain Tax Positions

 

We believe that there are no tax positions taken or expected to be taken that would significantly increase or decrease unrecognized tax benefits within 12 months of the reporting date.

 

The federal and state statutes of limitation for assessment of tax liability generally lapse within three and four years, respectively, after the date the tax returns are filed. However, income tax attributes that are carried forward, such as net operating loss carryforwards, may be challenged and adjusted by taxing authorities at any time prior to the expiration of the statute of limitations for the tax year in which they are utilized. As of December 31, 2021, we do not have any open exams; however, tax years beginning after December 31, 2018 are subject to examination by the Internal Revenue Service.