Income Taxes

3 Months Ended

Mar. 31, 2022

Income Tax Disclosure [Abstract]

Income Taxes

Note 4. 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 2022 and 2021, 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 $4,677,000 as of March 31, 2022 and $3,246,000 as of December 31, 2021.

Significant components of the tax expense (benefit) recognized in the accompanying consolidated statements of operations for the Three Months ended March 31, 2022 and March 31, 2021 are as follows:

	Three Months Ended			Three Months Ended
	March 31, 2022			March 31, 2021
Current tax benefit
Federal	$	(361,715	)	$	911,648
State		(48,102	)		188,624
Total current tax  expense (benefit)		(409,817	)		1,100,272
Deferred tax expense		(1,021,132	)		8,214
Valuation allowance (expense)		1,430,949			(1,105,002	)
Income tax (reduction) benefit	$	-		$	3,484

The reconciliation of the income tax computed at the combined federal and state statutory rate of 23.8% for the Three Months ended March 31, 2022 and 24.3% for the Three Months ended March 31, 2021 to the income tax benefit is as follows:

	Three Months Ended				Three Months Ended
	March 31, 2022				March 31, 2021
Benefit on net loss	$	(1,432,139	)	23.8%	$	1,107,447		24.3%
Nondeductible expenses		1,190		0.0%		1,039		0.0%
Valuation allowance (expense)		1,430,949		(23.8)%		(1,105,002	)	(24.3)%
Tax benefit/effective rate	$	-		(—)%	$	3,484		(—)%

The significant components of the Company’s deferred tax liabilities and assets as of March 31, 2022 and December 31, 2021 are as follows: 

	As of March 31, 2022			As of December 31, 2021
Deferred tax liabilities:
Deferred vendor stock compensation	$	(182,926	)	$	(261,323	)
Total deferred tax liabilities		(182,926	)		(261,323	)
Deferred tax assets:
Loss carryforwards		2,511,217			2,101,401
Step up in basis at contribution to C-Corp		449,165			461,078
Stock option expense		1,459,575			669,959
Step up in basis - purchase of non-controlling interest		41,439			42,529
Allowance for credit losses		16,539			16,539
Unrealized loss on securities		382,407			216,284
Total deferred tax asset		4,860,342			3,507,790
Valuation allowance		(4,677,416	)		(3,246,467	)
Net deferred tax asset (liability)	$	-		$	-

During the Three months ended March 31, 2022, the Company offset $1.4 million of it’s tax recovery with $1.4 million of its valuation allowance. During the Three Months ended March 31, 2021, the Company offset $1.1 million of it’s tax expense with $1.1 million of its valuation allowance.