14. Income Taxes

12 Months Ended

Dec. 31, 2018

Related Party Transactions [Abstract]

Income Taxes

During the year ended December 31, 2018 and 2017, the Company recognized an income tax benefit (provision) of $332,332 and nil, respectively. The 2018 benefit which is a current foreign benefit, is a result of a positive outcome to an audit of USAMSA’s 2013 income tax return in Mexico.

Domestic and foreign components of income (loss) from operations before income taxes for the years ended December 31, 2018, and 2017, are as follows:

	2018			2017
Domestic	$	3,675,095		$	(374,478	)
Foreign		(3,134,202	)		(759,916	)
Total	$	540,893		$	(1,134,394	)

The income tax provision (benefit) differs from the amount of income tax determined by applying the U.S. federal income tax rate to pretax income (loss) for the years ended December 31, 2018 and 2017, due to the following:

	2018			2017
Tax benefit at federal statutory rate	$	113,588		$	(397,038	)
State income tax effect		12,602			(34,609	)
Foreign income tax effect		(102,078	)		37,996
Non-deductible items		492			930
Percentage depletion		(47,341	)		(58,056	)
Impact on change in federal tax rate		-			(6,660	)
Change in prior year estimate		(95,687	)		-
Change in valuation allowance - Domestic		(221,837	)		229,462
Change in valuation allowance - Foreign		340,261			227,975
Gain on settlement of foreign tax assessment		(332,332	)		-
Income tax provision (benefit)	$	(332,332	)	$	-

At December 31, 2018 and 2017, the Company had net deferred tax assets as follows:

	2018			2017
Deferred tax assets:
Foreign net operating loss carry forward	$	1,877,681		$	1,537,420
Domestic net operating loss carry forward		219,666			443,100
Other		1,006			16,827
Deferred tax assets		2,098,353			1,997,347
Valuation allowance (foreign)		(1,877,681	)		(1,537,420	)
Valuation allowance (domestic)		(94,956	)		(316,793	)
Total deferred tax assets		125,716			143,134
Deferred tax liabilities:
Property, plant, and equipment		(125,716	)		(143,134	)
Net deferred tax assets	$	-		$	-

At December 31, 2018, the Company has federal net operating loss (“NOL”) carry forwards of approximately $156,000 that expire at various dates between 2026 and 2037. In addition, the Company has Montana state net operating loss carry forwards of approximately $2.2 million which expire between 2019 and 2026, and Idaho state net operating loss carry forwards of approximately $1.2 million, which expire between 2032 and 2038. The Company has approximately $5.5 million of Mexican net operating loss carry forwards which expire between 2023 and 2028.

At December 31, 2018 and 2017, the Company had deferred tax assets arising principally from net operating loss carry forwards for income tax purposes. As management cannot determine that it is more likely than not the benefit of the net deferred tax asset will be realized, a valuation allowance equal to 100% of the net deferred tax asset has been recorded at December 31, 2018 and 2017. 

As disclosed in Note 11, the Company acquired new subsidiaries in 2018. The subsidiaries have net operating loss carryforwards in Mexico of approximately $800,000. Due to limitations, it is likely that a portion of this carryforward will not be available to offset the Company’s future taxable income in Mexico. Management is still determining the amount of the limitation, if any.

On December 22, 2017, the United States enacted the Tax Cuts and Jobs Act (the "Act") resulting in significant modifications to existing law. The Company completed the accounting for the effects of the Act during the year ended December 31, 2017. The Company did not incur any income tax benefit or provision for the year ended December 31, 2017 as a result of the changes to tax laws and tax rates under the Act. The Company’s net deferred tax asset was reduced by approximately $7,000 during the year ended December 31, 2017, which consisted primarily of the re-measurement of federal deferred tax assets and liabilities from 35% to 21%.

During the years ended December 31, 2018 and 2017, there were no material uncertain tax positions taken by the Company. The Company’s United States income tax filings are subject to examination for the years 2015 through 2017, and 2014 through 2017 in Mexico. The Company charges penalties on assessments to general and administrative expense and charges interest to interest expense.

Mexican Tax Assessment

In 2015, the Mexican tax authority (“SAT”) initiated an audit of the USAMSA’s 2013 income tax return. In October 2016, as a result of its audit, SAT assessed the Company $13.8 million pesos, which was approximately $666,400 in U.S. Dollars (“USD”) as of December 31, 2016. Approximately $285,000 USD of the total assessment was interest and penalties. SAT’s assessment was based on the disallowance of specific costs that the Company deducted on the 2013 USAMSA income tax return. These disallowed costs were incurred by the Company for USAMSA’s business operations. Management reviewed the assessment notice from SAT and believed numerous findings have no merit. The Company engaged accountants and tax attorneys in Mexico to defend its position. An appeal was filed.

At December 31, 2017, the Company had accrued a potential tax liability of $443,110 associated with this assessment. In 2018, SAT finalized its procedures with no assessment against the Company. The accrual of $443,110 was reversed and recognized as income tax benefit of $332,332 and a gain on tax settlement of $110,778 which represented previously accrued interest and penalties. The Company paid Mexican tax representatives $157,500 to negotiate this settlement that were recognized as professional fees expense during the year ended December 31, 2018.

The Company has been notified that SAT has re-opened its assessment of USAMSA’s 2013 income tax return which could result in a separate assessment. It is too early in the process to estimate any potential outcome. At December 31, 2018, the Company does not believe it will be assessed any taxes, interest or penalties as a result of this assessment.