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Income Tax
 12 Months Ended
Dec. 31, 2021
Income Tax Disclosure [Abstract]  
Income Tax

Note 20. Income Tax

 

Provision (benefit) for income taxes is as follows: 

          
   December 31, 
   2021   2020 
Current:        
State  $800   $800 
Total current    800    800 
Deferred:          
Federal   (718,868)   336,124 
State   (332,139)   130,040 
Total Deferred    (1,051,007)   466,164 
           
Net provision (benefit)  $(1,050,207)  $466,964 

 

The differences between the expected income tax benefit based on the statutory Federal United States income tax rates and the Company's effective tax rates are summarized below: 

          
   December 31, 2021 
Tax Computed At The Federal Statutory Rate  $(1,338,184)   21.00% 
State Tax, Net Of Federal Tax Benefit   (263,892)   4.14% 
Nondeductible Expenses   85,025    -1.33% 
Flowthrough Entity not Subject to Tax   454,587    -7.13% 
Foreign Corporation - Minority Interest   3,140    -0.05% 
Valuation Allowance   9,117    -0.14% 
Benefit for income taxes  $(1,050,207)   16.48% 

 

   December 31, 2020 
Tax Computed At The Federal Statutory Rate  $(447,850)   21.00% 
State Tax, Net Of Federal Tax Benefit   (77,025)   3.54% 
Nondeductible Expenses   22,040    -1.03% 
Flowthrough Entity not Subject to Tax   187,948    -8.81% 
Foreign Corporation - Minority Interest   8,996    -0.42% 
Valuation Allowance   772,855    -36.24% 
Provision for income taxes  $466,964    -21.96% 

 

Significant components of the Company's deferred tax assets and liabilities are as follows: 

     
   December 31, 2021 
Reserves  $336,875 
Fixed Assets   (1,915,092)
Leases   16,395 
Intangibles   (3,622,638)
Net Operating Losses   3,553,164 
Impairment Losses   – 
Stock Options   598,849 
Accruals   (32,905)
Other   (393,154)
Net Deferred Liability   (1,458,506)
Less: Valuation Allowance   (3,698,393)
Total deferred tax liability:  $(5,156,899)

 

      
   December 31, 2020 
Reserves  $336,875 
Fixed Assets   (1,915,021)
Leases   3,803 
Intangibles   (3,964,173)
Net Operating Losses   3,544,614 
Impairment Losses   – 
Stock Options   155,309 
Accruals   19,440 
Other   (699,478)
Net Deferred Liability   (2,518,629)
Less: Valuation Allowance   (3,689,275)
Total deferred tax liability:  $(6,207,905)

 

In determining the possible future realization of deferred tax assets, the Company has considered future taxable income from the following sources: (a) reversal of taxable temporary differences; and (b) tax planning strategies that, if necessary, would be implemented to accelerate taxable income into years in which net operating losses might otherwise expire.

 

Deferred tax assets are recognized subject to management’s judgment that realization is more likely than not. A valuation allowance is recognized for a deferred tax asset if, based on the weight of the available evidence, it is more likely than not that some portion of the deferred tax asset will not be realized. In making such judgments, significant weight is given to evidence that can be objectively verified. Based on our review of the deferred tax assets the Company has concluded that a valuation allowance is necessary on the net operating loss balance, as realization of this asset does not meet the more likely than not threshold.

 

As of December 31, 2021 and 2020, the Company had estimated net operating losses for federal and state purposes of $14.3 and 11.7 million, respectively. Federal and state net operating losses will begin to expire in 2028.

 

We recognize a tax position as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination.

 

For tax positions not meeting the “more likely than not” test, no tax benefit is recorded. We recognize potential interest and penalties related to unrecognized tax benefits in the general and administrative expense in the statement of operations of the Company.

 

The Company is in the process of filing back income tax returns from 2010 through the current year and subject to IRS examination for these years. The Company has booked a reserve for potential penalties associated with non-filing of certain foreign information reports related to its subsidiary in the Middle East. Penalties and interest have been reported in the general and administrative section of the statement of operations. The reserve balance at December 31, 2021 and 2020 was $289,000 and $238,000, respectively. The Company does not expect this reserve to reverse within the next 12 months, as they will apply for a penalty waiver when the tax returns are ultimately filed. Due to the non-filing of income tax returns, statutes of limitations on the potential examination of those income tax periods will continue to run until the returns are filed, at which time the statutes will begin. The Company expects to file all past due income tax returns within the next 12 months.