Income Taxes

12 Months Ended

May 31, 2019

Income Tax Disclosure [Abstract]

Income Taxes

(2) Income Taxes

A reconciliation of the provision for income taxes computed at the federal statutory rates of 21.0% for fiscal 2019 and 28.6% (blended) for fiscal 2018 to the reported amounts is as follows:

	2019						2018
	Amount			%			Amount			%
Amounts at statutory federal tax rate	$	(386,000	)		(21.0	)%	$	268,000			28.6	%
Noncontrolling interest		(8,000	)		(0.4	)		(20,000	)		(2.1	)
State and local taxes, net of federal income tax effect.		(115,000	)		(6.3	)		83,000			8.9
Effect of rate change on deferred asset		-			-			32,000			3.4
Non-deductible expenses and other		(29,000	)		(1.6	)		18,000			1.9
	$	(538,000	)		(29.3	)%	$	381,000			40.7	%

The components of the provision for income taxes are as follows:

	Federal			State			Total
2019:     Current	$	(10,000	)	$	30,000		$	20,000
Deferred		(383,000	)		(175,000	)		(558,000	)
	$	(393,000	)	$	(145,000	)	$	(538,000	)
2018:     Current	$	236,000		$	117,000		$	353,000
Deferred		28,000			-			28,000
	$	264,000		$	117,000		$	381,000

The tax effects of temporary differences that give rise to significant portions of the deferred income tax assets at May 31, 2019 and 2018 are as follows:

	2019			2018
Allowance for doubtful accounts receivable	$	52,000		$	53,000
Accrued compensation and other accrued expenses		33,000			37,000
Net operating loss carryforwards		554,000			-
Equipment and leasehold improvement depreciation and amortization		1,000			(3,000	)
Acquired client relationships		1,000			(1,000	)
Unrealized gain		(5,000	)		(8,000	)
Total deferred income tax assets	$	636,000		$	78,000

The Company believes that it is more likely than not that it will realize the benefits of its deferred tax assets based primarily on the Company's history of and projections for taxable income in the future. The federal net operating loss carryforwards may be used indefinitely and the state carryforwards are generally usable for 20 years.

The Company recognizes interest and penalties associated with tax matters as selling, general and administrative expenses and includes accrued interest and penalties with accrued and other liabilities in the consolidated balance sheets.

In the third quarter of fiscal 2018, the Company revised its estimated annual effective income tax rate to reflect a change in the federal statutory corporate income tax rate from 34% to 21%, resulting from legislation that was enacted on December 22, 2017. The rate change is administratively effective at the beginning of our fiscal year 2018, using a blended rate for the annual period. As a result, the blended statutory rate for the fiscal year ending May 31, 2018 is 28.6%.

In addition, the Company was required to recognize the change related to adjusting the deferred tax asset to reflect the new corporate tax rate. As a result, income tax expense reported for the year ended May 31, 2018 was adjusted to reflect the effects of the change in the tax law and resulting in a decrease in income tax expense of $21,000. This amount comprises a reduction of $53,000 in income tax expense for the year ended May 31, 2018 related to the lower corporate rate and a charge of $32,000 from the application of the newly enacted reduced rates to the existing net deferred tax asset balances.

In the third quarter of fiscal 2018, the Company discovered it had not filed required information returns related to a foreign bank account opened by a subsidiary in fiscal 2016 with contributions totaling approximately $25,000. The Company has accrued an expense of $30,000 with a charge to selling, general and administrative expenses for potential penalties that may be assessed. The Company will monitor this reserve periodically to determine if it is more-likely–than–not that penalties will be assessed. Changes to the reserve may occur due to changes in judgment, abatement, negotiation or expiration of the statute of limitations on the returns.

A reconciliation of the beginning and ending amount of unrecognized tax benefit as follows:

	2019		2018
Balance at beginning of fiscal year	$	30,000	$	-
Additions based on tax positions related to current year		-		-
Additions for tax positions of prior years		-		30,000
Reductions for tax positions of prior years		-		-
Settlements		-		-
Balance at end of fiscal year	$	30,000	$	30,000

The Company's federal and state income tax returns prior to fiscal year 2016 are closed.