Quarterly report pursuant to Section 13 or 15(d)

Income Taxes

v3.21.1
Income Taxes
3 Months Ended
Mar. 31, 2021
Income Tax Disclosure [Abstract]  
Income Taxes

Note 6. Income Taxes

Prior to the Company’s initial public offering in October 2015, the earnings of the Predecessor, which was a limited liability company taxed as a partnership, were taxable to its members.  In connection with the contribution of membership interests to the Company (a C-Corporation formed in 2015), the net income or loss of the Company after the initial public offering is taxable to the Company and reflected in the accompanying consolidated financial statements.

The Company performs an evaluation of the realizability of its deferred tax assets on a quarterly basis.  The Company considers all positive and negative evidence available in determining the potential of realizing deferred tax assets, including the scheduled reversal of temporary differences, recent and projected future taxable income and prudent and feasible tax planning strategies.  The estimates and assumptions used by the Company in computing the income taxes reflected in the accompanying consolidated financial statements could differ from the actual results reflected in the income tax returns filed during the subsequent year. Adjustments are recorded based on filed returns when finalized or the related adjustments are identified.

Under ASC 740-10-30-5, Income Taxes, deferred tax assets should be reduced by a valuation allowance if, based on the weight of available evidence, it is more-likely-than-not (i.e., a likelihood of more than 50%) that some portion or all of the deferred tax assets will not be realized. The Company considers all positive and negative evidence available in determining the potential realization of deferred tax assets including, primarily, the recent history of taxable earnings or losses. Based on operating losses reported by the Company during 2020 and 2019, the Company concluded there was not sufficient positive evidence to overcome this recent operating history. As a result, the Company believed that a valuation allowance was necessary based on the more-likely-than-not threshold noted above. The Company had recorded a valuation allowance of approximately $3,551,000 as of March 31, 2021 and $4,658,000 as of December 31, 2020.

Significant components of the tax expense (benefit) recognized in the accompanying consolidated statements of operations for the three months ended March 31, 2021 and March 31, 2020) are as follows:

 

 

 

Three Months Ended

 

 

Three Months Ended

 

 

 

March 31, 2021

 

 

March 31, 2020

 

Current tax benefit

 

 

 

 

 

 

 

 

Federal

 

$

911,648

 

 

$

(148,257

)

State

 

 

188,624

 

 

 

(30,675

)

Total current tax benefit

 

 

1,100,272

 

 

 

(178,932

)

Deferred tax expense

 

 

8,214

 

 

 

39,257

 

Valuation allowance (expense)

 

 

(1,105,002

)

 

 

139,675

 

Income tax (reduction) benefit

 

$

3,484

 

 

$

-

 

 

 

The reconciliation of the income tax computed at the combined federal and state statutory rate of 25.3% for the three months ended March 31, 2021 and 2020 to the income tax benefit is as follows:

 

 

 

Three Months Ended March 31,

 

 

Three Months Ended March 31,

 

 

 

2021

 

 

2021

 

 

2020

 

 

2020

 

Expense (benefit) on net loss

 

$

1,107,447

 

 

 

25.3

%

 

$

(139,675

)

 

 

28.3

%

Nondeductible expenses

 

 

1,039

 

 

 

0.0

%

 

 

-

 

 

 

(13.90

)%

Valuation allowance (expense)

 

 

(1,105,002

)

 

 

(25.3

)%

 

 

139,675

 

 

 

(14.30

)%

Other items

 

 

-

 

 

 

0.0

%

 

 

-

 

 

 

0.0

%

Tax expense/ effective rate

$

 

3,484

 

 

 

-

%

 

 

-

 

 

 

-

%

 

 

The significant components of the Company’s deferred tax liabilities and assets as of March 31, 2021 and December 31, 2019 are as follows: 

 

 

 

 

 

 

As of March 31, 2021

 

 

As of December 31, 2020

 

 

 

(Unaudited)

 

 

 

 

Deferred tax liabilities:

 

 

 

 

 

 

 

 

Tax expense for internally developed software

 

$

-

 

 

$

(1,814

)

Tax depreciation in excess of book

 

 

-

 

 

 

(2,917

)

Total deferred tax liabilities

 

 

-

 

 

 

(4,731

)

Deferred tax assets:

 

 

 

 

 

 

 

 

Loss carryforwards

 

 

2,810,664

 

 

 

3,913,579

 

Step up in basis at contribution to C-Corp

 

 

529,302

 

 

 

511,052

 

Stock option expense

 

 

124,876

 

 

 

124,876

 

Step up in basis - purchase of non-controlling interest

 

 

48,789

 

 

 

49,950

 

Allowance for credit losses

 

 

33,466

 

 

 

33,466

 

Accrued liabilities

 

 

-

 

 

 

20,573

 

Total deferred tax asset

 

 

3,547,097

 

 

 

4,653,496

 

Valuation allowance

 

 

(3,550,581

)

 

 

(4,658,226

)

Net deferred tax asset

 

$

(3,484

)

 

$

-

 

 

During the 3 months ended March 31, 2021, the Company offset $1.1 million of it’s tax expense with $1.1 million of its valuation allowance.