Annual report pursuant to Section 13 and 15(d)

Income Taxes

v3.21.1
Income Taxes
12 Months Ended
Dec. 31, 2020
Income Tax Disclosure [Abstract]  
Income Taxes

NOTE 15. INCOME TAXES

 

The difference between the tax benefit derived by applying the Federal statutory income tax rate to net losses and the benefit recognized in the consolidated financial statements is as follows:

 

    December 31, 2020     December 31, 2019  
Benefit derived by applying the Federal statutory income rate to net losses before income taxes   $ (2,260,323 )   $ (1,819,586 )
State Tax Provision     (379,115 )     9,728  
Permanent differences and other     (101,870 )     (297,702 )
Expense attributable to change in valuation allowances     2,741,308       2,107,559  
    $     $  

 

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and projections for future taxable income over periods in which the deferred tax assets are deductible. Management believes it is more likely than not that the Company will not realize the benefits of these deductible differences. A valuation allowance has been applied to the amount of deferred tax assets Management expects will be unrealized.

 

Management does not believe that there are significant uncertain tax positions in 2020. There are no interest and penalties related to uncertain tax positions in 2020.

 

Deferred income taxes reflect the tax effects of temporary differences between the carrying amounts of assets and liabilities for financial accounting purposes and the amounts used for income tax reporting. Significant components of the Company’s net deferred tax assets are as follows:

 

    December 31, 2020     December 31, 2019  
Deferred Tax Assets:                
Net Operating Losses   $ 4,346,179     $ 2,117,530  
Intangible Assets     65,759       24,937  
Nonqualified Stock Options     1,435,982       989,201  
Lease Liability     275,339        
Basis of Property and Equipment     108,918       119,179  
Other     28,686        
Deferred Tax Assets:   $ 6,260,863     $ 3,250,847  
                 
Deferred Tax (Liabilities):                
ROU Asset     (268,708 )   $  
Deferred Tax (Liabilities):     (268,708 )      
                 
Valuation allowance     5,992,155       3,250,847  
Net deferred tax asset/(liability)   $     $  

 

Due to the uncertainty surrounding the realization of the benefits of its favorable tax attributes in future tax returns, the Company has placed a valuation allowance against all of its otherwise recognizable net deferred tax asset.

 

The Company’s net operating loss carryforward totaling $17,840,842 at December 31, 2020 expires beginning 2035. The Company’s state net operating loss carryforward totaling $12,757,935 at December 31, 2020 which have indefinite lives.

 

Federal and state laws impose substantial restrictions on the utilization of NOL carryforwards in the event of an ownership change for income tax purposes, as defined in Section 382 of the Internal Revenue Code (“IRC”). Pursuant to IRC Section 382, annual use of the Company’s NOL carryforwards may be limited in the event a cumulative change in ownership of more than 50% occurs within a three-year period. The Company has not completed an IRC Section 382 analysis regarding the limitation of NOL carryforwards.

 

However, it is possible that past ownership changes will result in the inability to utilize a significant portion of the Company’s NOL carryforward that was generated prior to any change of control. The Company’s ability to use its remaining NOL carryforwards may be further limited if the Company experiences an IRC 382 ownership change in connection with future changes in the Company’s stock ownership.

 

Certain deferred tax assets from DropCar, Inc. such as NOL carryforwards and capital loss carryforwards have are not included in the Company’s deferred tax assets as they are expected to be fully limited under IRC. Sec. 382 as a result of the merger.