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Income Taxes
 12 Months Ended
Dec. 31, 2020
Income Tax Disclosure [Abstract]  
INCOME TAXES

9. INCOME TAXES

 

Reconciliation of the benefit for income taxes from continuing operations recorded in the consolidated statements of operations with the amounts computed at the statutory federal tax rates for each year:

 

   2020   2019 
         
Federal tax at statutory rate  $67,862   $167,000 
State tax, net of federal tax   29,866    65,000 
Permanent differences   126,301    92,000 
Change in statutory rate   (69,835)   (197,000)
Change in valuation allowance   522,738    (10,000)
Other   (13,882)   99,000 
Expense for income taxes  $663,050   $216,000 

  

Tax affected components of deferred tax assets and deferred tax liabilities at December 31, 2020 and 2019 were as follows:

 

   2020   2019 
Deferred tax assets (liabilities):          
Equity based compensation  $368,000   $240,000 
Allowance for doubtful accounts   5,527,000    2,478,000 
Fixed assets   256,000    (6,476,000)
Lease impairment   587,000    553,000 
Lease Liability   526,000    520,000 
Right of use asset   (425,000)   (466,000)
Tax credit carryforward   32,000    32,000 
Federal loss carry-forwards   4,779,000    14,047,000 
State loss carry forward   161,000    353,000 
Other   (6,000)   - 
           
Gross deferred tax assets   11,805,000    11,281,000 
Valuation allowance   (11,805,000)   (11,281,000)
Net deferred tax assets  $-   $- 

  

Based on consideration of the available evidence including historical losses a valuation allowance has been recognized to offset certain deferred tax assets, as management was unable to conclude that realization of deferred tax assets were more likely than not.

 

As of December 31, 2020, the Company has federal net operating loss carryforwards of approximately $22,755,000 and state net operating loss carryforwards of approximately $2,857,000 available to offset future taxable income. Federal loss carryforwards incurred prior to January 1, 2018, expire in 2037. Federal loss carryforwards incurred after January 1, 2018 do not expire. State loss carryforwards expire in 2037 and 2038. Federal and state loss carryforwards are subject to an annual limitation on utilization under Section 382 of the Internal Revenue Code.

 

Section 382 of the Internal Revenue Code imposes a limitation on a corporation's ability to utilize net operating loss carryforwards ("NOLs") if it experiences an "ownership change." In general, an ownership change may result from transactions increasing the ownership of certain stockholders in the stock of a corporation by more than 50 percentage points over a three-year period. If such a change were to occur, certain NOLs available to be used could be disallowed and an annual limitation on utilization of other NOLs would occur.

 

The components of income tax expense (benefits) for the years ended December 31, 2020 and 2019 were as follows:

 

   2020   2019 
Current Income Tax:        
Federal  $-    - 
State   663,050    216,400 
Deferred Income Tax:          
Federal   -    - 
Sate   -    - 
   $663,050   $216,400 

 

The Company's effective tax rate for the year ended December 31, 2020 and 2019 differs from the statutory rate of 21% primarily due to a valuation allowance applied against the Company's net deferred tax assets. State taxes and permanent differences also impacted the effective tax rate. The Company accrued a $663,050 current state income tax expense for the year ended December 31, 2020 for certain states in which taxable income exceeded available net operating loss carryforwards.

 

The Company files tax returns in the U.S. federal jurisdiction and various states.  At December 31, 2020, federal tax returns remained open for Internal Revenue Service review for tax years after 2017, while state tax returns remain open for review by state taxing authorities for tax years after 2015. The IRS completed an examination of the Company's 2016 tax return during 2018, resulting in a reduction to the net operating loss carryforward of approximately $50,000. During 2020, the Company was notified that its 2017 federal income tax return was selected for examination, and that exam remains open as of December 31, 2020. There were no other federal or state income tax audits being conducted as of December 31, 2020.

 

The Company completed its analysis and review of all tax positions taken through December 31, 2020 and does not believe that there are any unrecognized tax benefits related to tax positions taken on its income tax returns.