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Income Taxes
 12 Months Ended
Dec. 31, 2022
Income Tax Disclosure [Abstract]  
Income Taxes

10. Income Taxes

 

Tax Reform act of 2017

 

On December 22, 2017, the Tax Cuts and Jobs Act was enacted into law and introduced significant changes to U.S. tax law. The Company reflected the impacts of changes in tax law to the financial statements including the federal income tax rate reduction from 35% to 21%; the new limitations on the tax deductibility of interest expense; the acceleration of business asset expensing; the repeal of the alternative minimum tax (“AMT”); the limitation on the use of net operating losses generated in future years; and the Global Intangible Low Taxed Income regime. On March 27, 2020, the CARES Act was enacted into law and introduced changes to U.S. tax law including revised limitations on the tax deductibility of interest expense and the limitation on the use of net operating losses.

 

Due to an ownership change in the first quarter of 2020, the future utilization of certain post-change income tax attributes of Yunghong CTI Ltd , including net operating loss carryovers, are anticipated to be limited for U.S. income tax purposes.

 

The provision (benefit) for income taxes consists of the following:

 

           
   Year Ended December 31, 
   2022   2021 
Current:          
Federal  $-   $- 
State   -    - 
Foreign   -    - 
Total Current   -    - 
           
Deferred:          
Federal  $-   $- 
State   -    - 
Foreign   -    - 
Total Deferred   -    - 
Provision (Benefit) for income taxes   -    - 

 

Income tax provision (benefit) related to continuing operations differ from the amounts computed by applying the statutory income tax rate of 21% to pretax loss as follows (in thousands):

 

           
   Year Ended December 31, 
   2022   2021 
U.S. Federal provision (benefit)          
At Statutory Rate  $(120,000)  $(743,000)
State Taxes   25,000   (770,000)
Change in Valuation Allowance   50,000    1,792,000 
NOL Carryback Claim (CARES Act)   -    - 
Nondeductible Expenses   -    - 
Foreign Taxes   -    - 
Deconsolidation & Impairment   (32,000)   (623,000)
Other   77,000    344,000 
           
Total  $-   $- 

 

 

Deferred Tax Assets and Liabilities

 

Deferred income taxes reflect the net tax effects of loss and credit carryforwards and temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of our deferred tax assets for federal and state income taxes are as follows):

Schedule of Deferred Tax Assets and Liabilities

 

   2022   2021 
   Year Ended December 31, 
   2022   2021 
Deferred Tax Assets:          
Federal & State NOL Carryforward   3,241,000    2,696,000 
Foreign Tax Credit & Other Credits   307,000    308,000 
Capitalized R&D   55,000    - 
Reserves and Accruals   152,000    205,000 
Capital Loss Carryforward   2,378,000    2,360,000 
Unicap 263A Adjustment   233,000    282,000 
Other DTA   (91,000)   (90,000)
Foreign NOL Carryforward   2,000    2,000 
Deferred Interest Expense   1,704,000    1,578,000 
ERC Wage Disallowance   -    313,000 
Deconsolidation & Impairment   -    415,000 
Total Gross DTA   7,982,000    8,069,000 
Less: Val. Allowance   (8,159,000)   (8,115,000)
Total Deferred Tax Assets   (177,000)   (46,000)
           
Deferred Tax Liabilities:          
Fixed Assets & Intangibles   233,000    158,000 
Section 481(a) Adjustment   (56,000)   (112,000)
Total Gross DTL   177,000    46,000 
Net Deferred Tax Assets   -    - 

 

Realization of our deferred tax assets is dependent upon future earnings, if any, the timing and amount of which are uncertain. Due to the lack of earnings history and in light of management’s comments regarding going concern for most of 2019 through December 31, 2022, a valuation allowance has been recorded to reduce the deferred tax assets to its net realizable value. The valuation allowance increased by $0.4 million and increased by $1.7 million during the years ended December 31, 2022 and December 31, 2021, respectively. The valuation allowance includes no benefit related to stock based compensation and exercises for the years ended December 31, 2022 and 2021, respectively, prior to the implementation of ASC 515 and 718, that will be credited to additional paid in capital when realized.

 

Net Operating Loss and Tax Credit Carryforwards

 

As of December 31, 2022, we had a net operating loss carryforward for federal income tax purposes of approximately $9.8 million, of which $0.2 million is subject to expiration beginning 2037. We had a total state net operating loss carryforward of approximately $12.5 million, with various expiration dates. Utlization of some of the federal and state net operating loss and credit carryforwards are subject to annual limitations due to the “change in ownership” provisions of the Internal Revenue Code of 1986 and similar state provisions. The annual limitations may result in the expiration of net operating losses and credits before utilization.