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Income Taxes

12 Months Ended

Dec. 31, 2019

Income Tax Disclosure [Abstract]

Income Taxes

Consolidated loss before income taxes includes losses from foreign operations of $1,261,000 and $260,000 in 2019 and 2018, respectively.

The net deferred tax assets/liabilities in the December 31, 2019 and 2018 consolidated balance sheets include the following components:

(in thousands)		2019				2018
Deferred tax assets:
Loss carryovers		$	13,284			$	12,432
Investment in Mineral Property			1,669				1,669
Capitalized Exploration Costs			652				877
Stock option compensation expense			228				150
Unrealized loss on derivative securities			237				60
Other			135				135
Valuation allowance			(15,999	)			(15,099	)
Total deferred tax assets			206				224
Deferred tax liabilities:
Unrealized gains on marketable equity securities			198				209
Other			8				15
Total deferred tax liabilities			206				224
Net deferred tax liabilities		$	-			$	-

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

(in thousands)		2019				2018
Expected income tax benefit		$	(691	)		$	(756	)
Equity based compensation			7				-
Foreign tax rate differences			(116	)			(27	)
State income tax			(84	)			(143	)
Expiration of Capital Loss Carryovers			66				-
Adjustment to Deferred Taxes			(101	)			2,058
Change in Tax Rate			-				53
Change in valuation allowance			900				(1,164	)
Permanent differences and other			19				(21	)
Income tax (benefit) expense		$	-			$	-

On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (the “Tax Act”) was signed into law making significant changes to the Internal Revenue Code. Changes include, but are not limited to, a federal corporate tax rate decrease from 35% to 21% for tax years beginning after December 31, 2017, the transition of U.S international taxation from a worldwide tax system to a territorial system, and a one-time transition tax on the mandatory deemed repatriation of foreign earnings.

While the Tax Act provides for a territorial tax system, beginning in 2018, it includes two new U.S. tax base erosion provisions, the global intangible low-taxed income (“GILTI”) provisions and the base-erosion and anti-abuse tax (“BEAT”) provisions. The GILTI provisions require the Company to include in its U.S. income tax return foreign subsidiary earnings in excess of an allowable return on the foreign subsidiary’s tangible assets. The Company currently has no profitable foreign subsidiaries. Therefore, this provision currently has no impact on the Company.

The BEAT provisions in the Tax Act eliminates the deduction of certain base-erosion payments made to related foreign corporations and impose a minimum tax if greater than regular tax. The Company does not expect it will be subject to this tax and therefore has not included any tax impacts of BEAT in its consolidated financial statements for the years ended December 31, 2019 and 2018.

As a result of the ownership change resulting from Solitario’s acquisition of Zazu Metals (Alaska) Corp, utilization of its United States Federal and State of Alaska net operating losses will be limited due to the annual limitation provided by Section 382 of the Internal Revenue Code.

During 2019, the valuation allowance increased primarily due to the addition of deferred tax assets related to current year net operating losses. During 2018, the valuation allowance decreased primarily due to the adjustments to deferred taxes that were part of the Zazu acquisition and the disposition of royalties that were part of the Yanacocha sale.

At December 31, 2019, Solitario has unused US Federal Net Operating Loss carryovers of $17,576,000 and unused US State Net Operating Loss carryovers of $18,174,000 which begin expiring in 2027. As a result of the ownership change of Zazu Metals (Alaska) Corp, utilization of some of these federal and state losses will be limited due to the annual limitation provided by Section 382 of the Internal Revenue Code. Solitario has unused Capital Loss carryovers of $10,416,000 for US Federal and US State purposes which begin expiring in 2020. Solitario has Canadian loss carryforwards of $9,611,000 which begin expiring in 2027. Other foreign loss carryforwards for which Solitario has provided a full valuation allowance related to Solitario’s exploration activities in Peru. The Peru losses do not expire.

Solitario adopted ASC 740, which prescribes 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, 2019 or December 31, 2018, 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, State of Alaska, Canada and Peru. Solitario’s United States federal, Canada and State of Alaska returns for years 2017 and forward and Solitario’s Peru and State of Colorado returns for tax years 2015 and forward are subject to examination. 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, 2019, or December 31, 2018 or for the years then ended.