Income Taxes

9 Months Ended

Sep. 30, 2021

Income Tax Disclosure [Abstract]

Income Taxes

9. Income Taxes

The Company recorded income tax expense of $77,000 in the third quarter of 2021, or 0.3% of pre-tax income, compared to $604,900 income tax expense, or negative 17.4% of pre-tax loss in the third quarter of 2020. The difference in the effective federal income tax rate from the normal statutory rate in the third quarter of 2021 was primarily related to nontaxable cancellation of debt income that is excluded from the Company’s taxable income.

The Company recorded an income tax expense of $129,800 for the nine months ended September 30, 2021, or 0.7% of pre-tax gain, compared to a $3.4 million income tax benefit, or 10.9% of pre-tax loss, for the nine months ended September 30, 2020. The difference in the effective federal income tax rate from the normal statutory rate was primarily related to nontaxable cancellation of debt income that is excluded from the Company’s taxable income.

In assessing the valuation of deferred tax assets, the Company considers whether it is more likely than not that some portion or all the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income or availability to carryback the losses to taxable income during periods in which those temporary differences become deductible. The Company considered several factors when analyzing the need for a valuation allowance including the Company’s current five-year cumulative loss through December 31, 2020, the impacts of COVID-19 pandemic on the worldwide airline industry and the Company’s recent filing for and emergence from protection under Chapter 11 of the bankruptcy code. Based on this analysis, the Company has concluded that a valuation allowance is necessary for its U.S. deferred tax assets not supported by either future taxable income or availability of future reversals of existing taxable temporary differences and has recorded a valuation allowance of $103,300 and $1.8 million for the three months and nine months ended September 30, 2021, respectively. Additionally, the Company has concluded that based on its analysis, some of its foreign net operating loss carrybacks are not expected to be realized based on limitations on the utilization of its foreign net operating losses, and therefore recorded a foreign tax expense of $0 and $54,300 for the reduced tax refund for the three months and nine months ended September 30, 2021, respectively.