G. Income Taxes

Morgan Group Holding Co. filed its federal and state tax returns on a standalone basis as of October 31, 2019. On November 1, 2019, AC purchased 100% of the share of Morgan Group Holding Co. where its operations for the period November 1, 2019 to December 31, 2019 were included in the consolidated U.S. Federal and certain state and local income tax returns of AC. For the years ended December 31, 2019 and through August 5, 2020, the operations of Morgan Group Holdings Co. were included in the consolidated U.S. federal and certain state and local income tax returns of AC. The Company’s federal and certain state and local income taxes are calculated as if the Company filed on a separate return basis, and the amount of current tax or benefit is either remitted to or received from AC using a benefit for loss approach such that the net operating loss (or other tax attribute) is characterized as realized by the Company when those tax attributes are utilized in the consolidated tax return of AC. This is the case even if the Company would not otherwise have realized those tax attributes.

On August 5, 2020, Associated Capital Group, Inc. distributed all its shares of Morgan Group Holdings, Co. (“Morgan”). Management concluded that the spin-off of the Morgan Group Holdings, Co. group represented a strategic shift pursuant to Accounting Standards Update No. 2014-08. For Federal income tax purposes, the transaction was considered a tax-free spin-off under IRC Section 355 and Morgan Group Holdings, Co. will be required to file standalone Federal and State tax returns from the date of the spin-off.

As of August 5, 2020, the Company’s operations are included in the consolidated U.S. federal and certain state and local income tax returns of Associated Capital Group, Inc. The Company’s federal and certain state and local income taxes are calculated as if the Company filed on a separate return basis, and the amount of current tax or benefit is either remitted to or received from AC using a benefits for loss approach such that net operating loss (or other tax attribute) is characterized as realized by the Company when those tax attributes are utilized in the consolidated tax return of AC. This is the case even if the Company would not otherwise have realized those tax attributes.

The Company, however, will be required to file its own federal, state and local income tax returns with its parent, Morgan Group, from the date of the spin-off. Any tax attributes generated by the Company will not be immediately realized after August 5, 2020 but will instead be deferred and classified as net operating losses and/or other tax attribute carryforwards.

Income tax benefit for the years ending December 31 consisted of:

	2020			2019
Federal:
Current	$	(186,217	)	$	(707,040	)
Deferred		2,572			215,992
State and local:
Current		(20,159	)		(63,942	)
Deferred		361			54,087
Total	$	(203,443	)	$	(500,903	)

A reconciliation of the federal statutory rate to the effective tax rate for the years ended December 31 is set forth below:

	2020			2019
Statutory Federal income tax rate		21.0	%		21.0	%
State income tax, net of Federal benefit		3.12	%		-2.18	%
State Valuation Allowance		-2.17	%		3.16	%
Federal Valuation Allowance		-8.29	%		0.20	%
Other		-1.23	%		-1.33	%
Effective income tax rate		12.43	%		20.85	%

Significant components of our deferred tax assets and liabilities as of December 31, 2020 and 2019 are as follows:

	2020			2019
Deferred tax assets:
Federal and State NOL Carryforward		337,606			174,590
Stock-based Compensation Expense		-			-
Compensation		-			-
Other		29,650			5,359
Total Gross DTA		367,256			179,949
Less: Valuation Allowance		(354,833	)		(174,590	)
Total Deferred Tax Assets		12,423			5,359

Deferred tax liabilities:
Stock Based Compensation		(9,468	)		(2,349	)
Deferred State Income Tax		(2,955	)		(80	)
		(12,423	)		(2,429	)
Net deferred tax assets		-			2,930

In accordance to the Code 382 of the Internal Revenue Code corporations are generally required to limit the amount of its income in future years that can be offset by historic losses, i.e., net operating loss (NOL) carryforwards and certain built-in losses, after a corporation has undergone an ownership change. As a result of the Company’s equity financings in recent years, the Company underwent changes in ownership pursuant to the provisions of the IRC Section 382, therefore, annual use of any of the Company’s net operating loss carry forwards may be limited if cumulative changes in ownership of more than 50% occur during any three-year period.

At December 31, 2020 and 2019, for Federal and for certain states in which the Company files separate tax returns, the Company recorded deferred tax assets of approximately $354,833 and $174,590, respectively, relating to net operating losses. The Company concluded that it is not more likely than not that the benefit from federal net operating loss and these separate state net operating loss carryforwards will be realized and has provided a valuation allowance for the full amount of the related deferred tax assets.

As of December 31, 2020, the Company is not aware of any potentially material uncertain tax positions that were not included in the Company’s financial statements. The Company, which includes G. research, LLC and is part of the AC’s unitary filing group, is not under any tax examination as of December 31, 2020. The Company has filed most of its 2018 corporate income tax returns in states where they have determined a filing obligation exists. The Company continues to work on filing tax returns in certain states and intends to complete these filings by first quarter 2021. The Company believes there are no uncertain tax positions (“UTPs”) as it relates to their federal and state filings, and as such has not recorded any tax expense related to UTPs.

As of December 31, 2020 and 2019, management has not identified any potential subsequent events that could have a significant impact on unrecognized tax benefits within the next twelve months. The Company remains subject to income tax examination by the IRS for years 2016 and 2018 and state examinations for years after 2013.