Income Taxes

12 Months Ended

Dec. 31, 2022

Income Tax Disclosure [Abstract]

Income Taxes

9.        Income Taxes

The provision (benefit) for income taxes for the years ended December 31, 2022 and 2021 is as follows: 

	Year Ended December 31, 2022		Year Ended December 31, 2021
Current:
Federal	$	–	$	–
State		2,400		2,400
Total current		2,400		2,400
Deferred:
Federal		–		–
State		–		–
Total deferred		–		–
Total provision	$	2,400	$	2,400

The reconciliation of the effective income tax rate to the Federal statutory rate for the years ended December 31, 2022 and 2021 is as follows: 

	December 31, 2022			December 31, 2021
Statutory federal income tax rate		21.00%			21.00%
State income tax rate, net of Federal effect		(0.08	)%		(0.05	)%
Fair market value of derivative liability		0.51%			(0.12	)%
Other		(0.72	)%		(0.89	)%
Change in valuation allowance		(20.81	)%		(20.00	)%
Effective income tax rate		(0.10	)%		(0.06	)%

Deferred tax assets and liabilities reflect the net tax effect of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and amounts used for income tax purposes. Significant components of our deferred tax assets as of December 31, 2022 and 2021 are as follows: 

	December 31, 2022			December 31, 2021
Deferred tax assets (liabilities):
State taxes	$	504		$	504
Accrued expenses		953,175			554,125
Investment in affiliated company		(6,701	)		(22,620	)
Basis difference in property and equipment		–			7
Share-based compensation expense		478,274			384,903
Impairment of note receivable		215,261			231,180
Capitalized research and development expenses		83,744			–
382 limited net operating loss carryforwards		597,262			597,262
Net operating loss carryforwards		504,945			372,512
Valuation allowance		(2,826,464	)		(2,117,873	)
Net deferred tax asset	$	–		$	–

We have federal and state net operating loss carryforwards available to offset future taxable income of approximately $4,222,000 and $2,438,000 at December 31, 2022, respectively, of which approximately $2,647,000 and $468,000, respectively, are subject to a limitation under IRS Section 382. Approximately $3,848,000 of the federal net operating losses can be carried forward indefinitely with $2,273,000 subject to a limitation under IRS Section 382. The remaining $374,000 of federal net operating losses will expire from 2025 through 2036. The state net operating losses will expire from 2028 through 2041.

We follow authoritative guidance which defines criteria that an individual tax position must meet for any part of the benefit of that position to be recognized in a company’s financial statements and also provides guidance on measurement, derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. Interest and penalties, if any, related to unrecognized tax benefits are recorded in income tax expense. Interest and penalties relating to underpayment of income taxes are recorded in general and administrative expense. As of December 31, 2022, we are subject to U.S. Federal income tax examinations for the tax years May 31, 2007 through December 31, 2021, and we are subject to state and local income tax examinations for the tax years May 31, 2007 through December 31, 2021 due to the carryover of net operating losses related to PDSG from previous years.

We have no liability relating to unrecognized tax benefits under the authoritative guidance for the year ended December 31, 2022 and 2021.

Our continuing practice is to recognize accrued interest and penalties related to unrecognized tax benefits as a component of tax expense. We do not expect our unrecognized tax benefits to change significantly over the next twelve months.