14. Income Taxes

12 Months Ended

Dec. 31, 2019

Income Tax Disclosure [Abstract]

Income Taxes

During the year ended December 31, 2019 and 2018, the Company recognized an income tax benefit (provision) of nil and $332,332, 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, 2019, and 2018, are as follows:

	2019			2018
Domestic	$	462,292		$	3,675,095
Foreign		(4,135,183	)		(3,134,202	)
Total	$	(3,672,891	)	$	540,893

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, 2019 and 2018, due to the following:

	2019			2018
Tax benefit at federal statutory rate	$	(771,307	)		113,588
State income tax effect		(177,435	)		12,602
Foreign income tax effect		(147,166	)		(102,078	)
Non-deductible items		801			492
Percentage depletion		(52,416	)		(47,341	)
Adjustment to prior year tax estimates - Domestic		(269,906	)		-
Adjustment to prior year tax estimates - Foreign		641,438			-
Impact on change in foreign exchange rate		103,218			-
Change in valuation allowance - Domestic		926,873			(295,984	)
Change in valuation allowance - Foreign		(254,101	)		318,721
Foreign tax assessment (benefit)		-			(332,332	)
Total	$	-		$	(332,332	)

At December 31, 2019 and 2018, the Company had net deferred tax assets as follows:

	2019			2018
Deferred tax asset:
Domestic net operating loss carry forward	$	1,111,779		$	219,666
Foreign net operating loss carry forward		1,623,580			1,877,681
Other		-			1,006
Deferred tax asset		2,735,359			2,098,353
Valuation allowance (domestic)		(1,021,829	)		(94,956	)
Valuation allowance (foreign)		(1,623,580	)		(1,877,681	)
Total deferred tax asset		89,950			125,716
Deferred tax liability
Property, plant, and equipment		(88,292	)		(125,716	)
Other		(1,658	)
Total deferred tax liability		(89,950	)		(125,716	)
Net deferred tax asset	$	-		$	-

At December 31, 2019 and 2018, 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, 2019 and 2018.

At December 31, 2019, the Company has federal net operating loss (“NOL”) carry forwards of approximately $0.7 million that expire at various dates between 2034 and 2037. In addition, the Company has federal NOL carry forwards of $2.7 million that will never expire but utilization of which is limited to 80% of taxable income in any future year. The Company has Montana state NOL carry forwards of approximately $4.6 million which expire between 2020 and 2027, and Idaho state NOL carry forwards of approximately $2.8 million, which expire between 2033 and 2039. The Company has approximately $4.7 million of Mexican NOL carry forwards which expire between 2024 and 2029.

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.

During the years ended December 31, 2019 and 2018, 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 2016 through 2018, and 2015 through 2018 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. 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 had 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 which represented the potential contingent fee it would be required to pay its attorney representing the Company in the appeal. 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 was recognized as professional fees expense during the year ended December 31, 2018.

In early 2019, the Company was notified that SAT re-opened its assessment of USAMSA’s 2013 income tax return and, in November 2019, SAT assessed the Company $16.3 million pesos, which was approximately $866,000 USD as of December 31, 2019 (approximately $691,000 USD on April 9, 2020).

Management has reviewed the 2019 assessment notice from SAT and, similar to the earlier assessment, believes the findings have no merit. The Company has engaged a tax attorney in Mexico to defend its position. An appeal was filed by the Company in November 2019 suspending SAT from taking immediate action regarding the assessment. The Company posted a guarantee of the amount in March 2020 as is required under the appeal process. Management expects the appeal process to continue through 2020 and into 2021.

At December 31, 2019, management assessed the possible outcomes for this tax audit and believes, based on its discussions with its tax attorney in Mexico, that the most likely outcome will be that the Company will be successful in its appeal resulting in no tax due. Management determined that no amount should be accrued at December 31, 2019 relating to this potential tax liability. There can be no assurance that the Company’s ultimate liability, if any, will not have a material adverse effect on the Company’s results of operations or financial position.

If an issue addressed during the SAT audit is resolved in a manner inconsistent with management expectations, the Company will adjust its net operating loss carryforward, or accrue penalties, interest, and tax associated with the assessment.