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Income Taxes
 12 Months Ended
Dec. 31, 2011
Notes to Financial Statements  
Income Taxes

5. Income taxes:

 

Solitario's income tax expense (benefit) consists of the following as allocated between foreign and United States components:

 

(in thousands)  2011   2010   2009 
Current:      
  United States $   -    $    (342) $ 385
  Foreign 14  50  -  
Deferred:      
  United States $(458) $(773) $162 
  Foreign -   -   -  
Operating loss and credit carryovers:      
  United States (191) (94) 449 
  Foreign     -       -       -  
Income tax expense (benefit)  $(635) $(1,159) $996 

 

Consolidated income (loss) before income taxes includes losses from foreign operations of $2,657,000 and $2,721,000 in 2011 and 2010, respectively.

 

During 2011 and 2010, Solitario recognized other comprehensive income related to unrealized (losses) gains on marketable equity securities of ($7,488,000) and $1,223,000, respectively. Other comprehensive (loss) income has been charged ($2,793,000) and $534,000, respectively, for the income tax (benefit) expense associated with these gains. During 2011 and 2010, Solitario transferred unrealized gain of $1,937,000 and $995,000, respectively, from other comprehensive income upon the sale of 130,000 and 70,000 shares, respectively, of Kinross common stock, less income tax of $723,000 and $371,000, respectively, associated with these unrealized gains.

 

The net deferred tax assets/liabilities in the December 31, 2011 and 2010 consolidated balance sheets include the following components:

 

 

(in thousands) 2011 2010
Deferred tax assets:    
  Loss carryovers $9,887  $ 9,387 
  Stock option compensation expense 648  976 
  Royalty 1,492  1,492 
  Severance 30  30 
  Other 381  74 
  Valuation allowance (9,699) (9,971)
Total deferred tax assets 2,739  1,988 
Deferred tax liabilities:    
  Unrealized gain on derivative securities 107  241 
  MH-LLC investment 1,083  305 
  Exploration costs 845  845 
  Unrealized gains on marketable equity securities 3,496  7,012 
  Other 5  4 
Total deferred tax liabilities 5,536  8,407 
     Net deferred tax liabilities $2,797  $6,419 

 

At December 31, 2011 and 2010, Solitario has classified $1,627,000 and $1,945,000, respectively, of its deferred tax liability as current, primarily related to the current portion of its investment in Kinross common stock.

 

A reconciliation of expected federal income taxes on income (loss) from operations at statutory rates, with the expense (benefit) for income taxes is as follows:

 

(in thousands)   2011     2010     2009  
Expected income tax expense (benefit) $(2,585) $(2,210) $(411)
Non-deductible foreign expenses 1  1  13 
Non-deductible foreign stock compensation expense 16  54  (9)
Foreign tax rate differences 90  98  107 
State income tax (56) (94) 88 
Change in valuation allowance 621  798  1,205 
MH-LLC investment 1,221  377  -   
Permanent differences and other  57  (183)      3 
Income tax expense (benefit) $(635) $(1,159) $ 996 

 

During 2011 and 2010 the valuation allowance was increased primarily as a result of increases in Solitario foreign net operating loss carryforwards, for which it was more likely than not that the deferred tax benefit would not be realized.

 

At December 31, 2011, Solitario has unused US federal Net Operating Loss ("NOL") carryovers of $3,022,000 and unused US State NOL carryovers of $3,929,000 both of which begin expiring in 2030. Solitario has foreign loss carryforwards for which Solitario has provided a full valuation allowance and which expire over various periods from five years to no expiration depending on the foreign jurisdiction.

 

Solitario adopted the provisions of ASC 740, which prescribe a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC 740 requires that Solitario recognize in its consolidated financial statements, only those tax positions that are “more-likely-than-not” of being sustained as of the adoption date, based on the technical merits of the position. As a result of the implementation of ASC 740, Solitario performed a comprehensive review of its material tax positions in accordance with recognition and measurement standards established by ASC 740. The provisions of ASC 740 had no effect on Solitario’s financial position, cash flows or results of operations at December 31, 2011 or December 31, 2010, or for the years then ended as Solitario had no unrecognized tax benefits.

 

Solitario and its subsidiaries are subject to the following material taxing jurisdictions: United States Federal, State of Colorado, Mexico, Peru and Brazil. The tax years that remain open to examination by the United States Internal Revenue Service are years 2008 through 2011. The tax years that remain open to examination by the State of Colorado are years 2007 through 2011. The tax years that remain open to examination by Mexico are years 2008 through 2011. All tax years remain open to examination in Peru and Brazil. Solitario’s policy is to recognize interest and penalties related to uncertain tax benefits in income tax expense. Solitario has no accrued interest or penalties related to uncertain tax positions as of December 31, 2010, December 31, 2011 or for the years then ended.