INCOME AND OTHER TAXES

12 Months Ended

Dec. 31, 2022

INCOME AND OTHER TAXES

INCOME AND OTHER TAXES

NOTE 11 – INCOME AND OTHER TAXES 

During the year ended December 31, 2022 and 2021, the Company recognized an income tax provision of $16,073 and $Nil respectively.  Income tax payable of $16,073 is included in “accrued liabilities” on the consolidated balance sheets and relates to federal taxes owed.

Domestic and foreign components of net income (loss) from operations before income taxes for the years ended December 31, 2022 and 2021, are as follows:

	2022			2021
Domestic	$	2,729,793		$	1,853,423
Foreign		(2,285,059	)		(1,913,892	)
Total	$	444,734		$	(60,469	)

The income tax liability (benefit) differs from the amount of income tax determined by applying the U.S. federal income tax rate to pre-tax net income (loss) for the years ended December 31, 2022 and 2021 due to the following:

	2022			2021
Tax liability (benefit) at federal statutory rate	$	93,000		$	(13,000	)
State income tax effect		67,000			(2,000	)
Foreign income tax effect		(136,000	)		(127,000	)
Non-deductible items		4,000			-
Non-taxable item - gain on CARES Act loan		-			(93,000	)
Percentage depletion		-			(20,000	)
Adj for prior year tax estimate to actual-domestic		69,000			44,000
Adj for prior year tax estimate to actual-foreign		(32,000	)		1,431,000
Impact on change in state tax rate		7,000			-
Impact on change in foreign exchange rate		(83,000	)		35,000
Change in valuation allowance - Domestic		(358,000	)		(212,000	)
Change in valuation allowance - Foreign		385,000			(1,043,000	)
Total	$	16,000		$	-

At December 31, 2022 and 2021, the Company had net deferred tax assets as follows:

	2022			2021
Deferred tax asset:
Domestic net operating loss carry forward	$	307,000		$	485,000
Foreign net operating loss carry forward		1,958,000			1,573,000
Deferred tax asset		2,265,000			2,058,000
Valuation allowance (domestic)		(58,000	)		(416,000	)
Valuation allowance (foreign)		(1,958,000	)		(1,573,000	)
Total deferred tax asset		249,000			69,000
Deferred tax liability:
Property, plant, and equipment		(245,000	)		(68,000	)
Other		(4,000	)		(1,000	)
Total deferred tax liability		(249,000	)		(69,000	)
Net deferred tax asset	$	-		$	-

At December 31, 2022 and 2021, 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, 2022 and 2021.

At December 31, 2022, the Company has federal net operating loss (“NOL”) carry forwards of approximately $359,000 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 $3.1 million which expire between 2023 and 2028, and Idaho state NOL carry forwards of approximately $1.4 million, which expire between 2033 and 2040. The Company has approximately $6.5 million of Mexican NOL carry forwards which expire between 2026 and 2031.

In 2018, the Company acquired two subsidiaries which have net operating loss carryforwards in Mexico of approximately $800,000. Due to certain 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, 2022 and 2021, 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 2020 through 2022, and 2019 through 2022 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. The assessment was settled in 2018 with no assessment against the Company.

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 $795,000 USD as of December 31, 2021.

Management reviewed the 2019 assessment notice from SAT and, similar to the earlier assessment, believes the findings have no merit. 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. In August 2020, the Company filed a lawsuit against SAT for resolution of the process and, in December 2020, filed closing arguments.

During the year ended December 31, 2022, the Mexican court ruled against the Company in the above matter.  The Company has appealed the ruling.  As of December 31, 2022, the updated SAT assessment was approximately $21.3 million pesos, which was approximately $1.1 million USD for $285,000 of unpaid income taxes and $815,000 of interest and penalties.

As of December 31, 2022, management assessed the possible outcomes for this tax audit and believes, based on 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, 2022 or December 31, 2021 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 record changes to tax attributes, recognize penalties in general and administrative expense, interest will be recorded as interest expense and record the tax expense associated with the assessment.