• Filing Date: 2017-03-31
  • Form Type: 10-K
  • Description: Annual report
v3.7.0.1
13. Income Taxes
12 Months Ended
Dec. 31, 2016
Related Party Transactions [Abstract]  
Income Taxes

Domestic and foreign components of income (loss) from operations before income taxes for the years ended December 31, 2016 and 2015, are as follows:

 

    2016     2015  
Domestic   $ (263,652 )   $ 982,901  
Foreign     (747,410 )     (1,821,432 )
Total   $ (1,011,062 )   $ (838,531 )

 

At December 31, 2016 and 2015, the Company had net deferred tax assets as follows:

 

    2016     2015  
Deferred tax assets:            
Foreign exploration costs   $ 47,011     $ 87,494  
Foreign net operating loss carry forward     1,309,445       2,515,954  
Domestic net operating loss carry forward     465,145       185,472  
      Deferred tax assets     1,821,601       2,788,920  
                 
Valuation allowance (foreign)     (1,309,445 )     (2,515,954 )
Valuation allowance (domestic)     (299,522 )     (90,220 )
      Total deferred tax assets     212,634       182,746  
                 
Deferred tax liabilities:                
   Property, plant, and equipment     (210,912 )     (181,224 )
   Other     (1,722 )     (1,522 )
      Total deferred tax liabilities     (212,634 )     (182,746 )
Net Deferred Tax Assets   $ -     $ -  

 

At December 31, 2016, the Company has federal net operating loss (“NOL”) carry forwards of approximately $0.9 million that expire at various dates between 2026 and 2037. In addition, the Company has Montana state net operating loss carry forwards of approximately $2.9 million which expire between 2017 and 2023, and Idaho state net operating loss carry forwards of approximately $1.2 million, which expire between 2032 and 2037. The Company has approximately $4.3 million of Mexican net operating loss carry forwards which expire between 2023 and 2026.

 

At December 31 2016 and 2015, the Company had deferred tax assets arising principally from net operating loss carry forwards for income tax purposes. As management cannot determine that it is more likely than not the benefit of the net deferred tax asset will be realized, a valuation allowance equal to 100% of the net deferred tax asset has been recorded at December 31, 2016 and 2015.

 

The income tax provision differs from the amount of income tax determined by applying the U.S. federal income tax rate to pretax loss for the years ended December 31, 2016 and 2015, due to the following:

 

    2016     2015  
Tax benefit at federal statutory rate   $ (353,872 )   $ (293,486 )
State income tax effect     (21,754 )     (32,283 )
Foreign income tax effect     37,371       91,072  
Non-deductible items     3,263       -  
Percentage depletion     (40,976 )     -  
Change in valuation allowance - Domestic     151,745       (311,732 )
Change in valuation allowance - Foreign     224,223       546,429  
Foreign tax assessment     285,048       -  
Alternative minimum tax - Domestic     13,090       -  
   Total   $ 298,138     $ -  

 

Change in valuation allowance is comprised of the following:        
             
    2016     2015  
Domestic            
Change in deferred tax asset for current year   $ (151,745 )   $ (166,547 )
Adjustment for prior year tax estimate to actual     (57,557 )     (145,185 )
    $ (209,302 )   $ (311,732 )
Foreign                
Change in deferred tax asset for current year   $ (224,223 )   $ 589,613  
Adjustment for impact of tax assessment     285,048       -  
Impact on change in foreign exchange rate     421,643       366,591  
Adjustment for prior year tax estimates to actual     724,041       (409,775 )
    $ 1,206,509     $ 546,429  

 

In 2015, the Mexican tax authority (“SAT”) initiated an audit of the USAMSA’s 2013 income tax return. In October 2016, as a result of its audit, SAT assessed the Company $13.8 million pesos, which is approximately $666,400 in U.S. Dollars (“USD”) as of December 31, 2016. Approximately $285,000 USD of the total assessment is interest and penalties. SAT’s assessment is based on the disallowance of specific costs that the Company deducted on the 2013 USAMSA income tax return. These disallowed costs were incurred by the Company for USAMSA’s business operations. SAT claims that the costs were not deductible or were not supported by appropriate documentation.

 

Management has reviewed the assessment notice from SAT and believes numerous findings have no merit. The Company has engaged accountants and tax attorneys in Mexico to defend its position. An appeal has been filed which is expected to be completed during 2017.

 

At December 31, 2016, management has estimated possible outcomes for this assessment and believes it will ultimately pay an amount ranging from 30% of the total assessment to the total assessed amount. The Company’s agreement with the tax professionals is that the professionals will receive 30% of the amount of tax relief they are able to achieve. At December 31, 2016, we have accrued a potential liability of $410,510 USD of which $285,048 is for unpaid income taxes, $75,510 is for interest expense, and $49,952 is for penalties. The amount accrued represents management’s best estimate of the amount that will ultimately be paid. The outcome could vary from this estimate. In addition, fluctuation in exchange rates have an ongoing impact on the amount the Company will pay in U.S. dollars. At March 17, 2017, the assessed amount is approximately $712,000 in U.S dollars.

 

If an issue addressed during the SAT audit is resolved in a manner inconsistent with management expectations, the Company will adjust its net operating loss carryforward, or accrue any additional penalties, interest, and tax associated with the audit. Our tax professionals in Mexico have reviewed and filed tax returns with the SAT for 2014 and 2015, and have advised us that they do not expect us to have a tax liability for those years relating to similar issues.

 

During the years ended December 31, 2016 and 2015, there were no material uncertain tax positions taken by the Company. The Company United States income tax filings are subject to examination for the years 2014 through 2016, and 2013 through 2016 in Mexico. The Company charges penalties on assessments to general and administrative expense and charges interest to interest expense.