Income Taxes

12 Months Ended

Dec. 31, 2021

Income Tax Disclosure [Abstract]

INCOME TAXES

13. INCOME TAXES 

Income tax provision/(benefit) were comprised of the following:

	Successor			Predecessor
	September 30, 2021 through December 31, 2021			Period from January 1, 2021 through September 29, 2021			Year ended December 31, 2020
Current income tax provision
Federal	$	-		$	16,900		$	(11,400	)
State		3,200			4,000			4,000
Foreign		(500	)		50,000			(20,100	)
		2,700			70,900			(27,500	)
Deferred income tax provision (benefits)
Federal	$	(2,027,100	)		(1,640,000	)		(9,589,200	)
State		(28,200	)		(103,800	)		(90,700	)
Foreign		11,400			(1,700	)		(1,351,100	)
Valuation allowance		1,929,400			1,804,400			7,493,800
		(114,500	)		58,900			(3,537,200	)
Income tax provision (benefits)	$	(111,800	)	$	129,800		$	(3,564,700	)

Total income tax provision (benefit) differs from the amount that would be provided by applying the statutory federal income tax rate to pretax earnings as illustrated below:

	Successor			Predecessor
	September 30, 2021 through December 31, 2021			Period from January 1, 2021 through September 29, 2021			Year ended December 31, 2020
Income tax provision (benefit) at statutory federal income tax rate	$	(880,300	)	$	1,711,500		$	(9,619,800	)
State tax expense (benefit), net of federal benefit		(200	)		80,200			(67,200	)
Foreign tax expenses (benefit)		581,900			200,800			(1,375,000	)
Non-deductible management and acquisition fees		-			593,500			-
PPP loan forgiveness		(59,900	)		-			-
Non-taxable income		(4,037,200	)		(4,260,600	)		-
Other non-deductible expenses		187,600			-			3,500
Valuation allowance		4,096,300			1,804,400			7,493,800
Income tax provision (benefits)	$	(111,800	)	$	129,800		$	(3,564,700	)

Temporary differences and carry-forwards that give rise to a significant portion of deferred tax assets and liabilities as of December 31, 2021 and 2020 were as follows:

	Successor			Predecessor
	December 31,			September 29,			December 31,
	2021			2021			2020
Deferred tax assets:
Debt basis differences	$	8,560,700		$	8,560,700		$	-
Current and prior year tax losses		7,970,100			4,093,400			9,616,600
Deferred interest expense		4,110,900			4,136,200			3,631,600
Foreign tax credit		705,600			705,600			573,900
Maintenance reserves		-			-			390,500
Deferred derivative losses		-			-			81,100
Deferred maintenance, bad debt allowance and other		-			-			59,900
Accrued vacation and others		40,500			51,200			-
		21,387,800			17,547,100			14,353,600
Valuation allowance		(12,409,500	)		(8,637,800	)		(7,493,800	)
Deferred tax assets, net of valuation allowance	$	8,978,300		$	8,909,300		$	6,859,800
Deferred tax liabilities:
Accumulated depreciation on aircraft and aircraft engines	$	(6,556,600	)	$	(6,581,300	)	$	(5,654,700	)
Deferred income		(2,421,700	)		(2,421,700	)		(58,000	)
Leasehold interest		-			-			3,800
Unrealized foreign exchange gain		-			(20,800	)		-
Deferred tax liabilities		(8,978,300	)		(9,023,800	)		(5,708,900	)
Net deferred tax assets/(liabilities), net of valuation allowance and deferred tax liabilities	$	-		$	(114,500	)	$	1,150,900

Reported as:

	Successor			Predecessor
	December 31,			September 29,			December 31,
	2021			2021			2020
Deferred tax assets	$	12,409,500		$	8,523,300		$	8,644,700
Deferred tax liabilities		-			-			-
Valuation allowance		(12,409,500	)		(8,637,800	)		(7,493,800	)
Net deferred tax assets/(liabilities)	$	-		$	(114,500	)	$	1,150,900

Consolidated deferred federal income taxes arise from temporary differences between the valuation of assets and liabilities as determined for financial reporting purposes and federal income tax purposes and are measured at enacted tax rates. The Company’s deferred tax items are measured at an effective federal tax rate of 21.47% as of December 31, 2021 and 2020.

The CARES Act included provisions under which the amount of deductible interest increased from 30% to 50% of adjusted taxable income for the 2019 and 2020 years. The Company’s adjusted taxable income is computed without regard to any: (1) item of income, gain, deduction or loss, which is not allocable to its trade or business; (2) business interest income or expense; (3) net operating loss deduction; and (4) depreciation, amortization or depletion for tax years beginning before January 1, 2022, but taking into account depreciation, amortization, and depletion thereafter. The amount of interest deferred under this provision may be carried forward and deducted in years with excess positive adjusted taxable income. The Company had total disallowed interest expense for the years ended December 31, 2021 and 2020, of $3.1 million and $16.8 million, respectively. The cumulative deferred interest expense of $19.6 million may be carried forward indefinitely until the Company has excess positive adjusted taxable income against which it can deduct the deferred interest balance.

The current year federal operating loss carryovers of approximately $2.3 million will be available to offset 80% of annual taxable income in future years. Approximately $16 million of federal net operating loss carryovers may be carried forward through 2037 and the remaining $23.0 million federal net operating loss carryovers may be carried forward indefinitely. The current year state operating loss carryovers of approximately $0.9 million will be available to offset taxable income in the two preceding years and in future years through 2041. As discussed below, the Company does not expect to utilize the net operating loss carryovers remaining at December 31, 2021 in future years.

During the year ended December 31, 2021, the Company had pre-tax profits from domestic sources of approximately $5.6 million and pre-tax profits from foreign sources of approximately $3.0 million. The Company had pre-tax loss from domestic sources of approximately $6.8 million and pre-tax loss from foreign sources of approximately $39 million for the year ended December 31, 2020. The year-over-year increase in profit before taxes is mostly driven by the cancellation of debt income from the Company's reorganization plan. The Company’s foreign tax credit carryover will be available to offset federal tax expense in future years through 2030.

As of December 31, 2021, the Company has a full valuation allowance of approximately $12.4 million against its net deferred tax assets not supported by either future taxable income or availability of future reversals of existing taxable temporary differences, for which realization cannot be considered more likely than not at this time. In assessing the need for a valuation allowance, the Company considered all positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies, and past financial performance. Recent negative operating results, internal bankrupt reorganization and default on its credit facility has caused the Company to be in a cumulative loss position as of December 31, 2021.

As of December 31, 2020, the Company had a valuation allowance of approximately $7.5 million. The net deferred tax assets of $1.15 million at December 31, 2020, represented expected future refunds for taxes previously paid and recoverable from net operating loss carrybacks of foreign subsidiaries that were not parties to the U.S. bankruptcy proceedings.

The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. With few exceptions, the Company is no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities for years before 2017. At December 31, 2021 and 2020, the Company had a balance of accrued tax, penalties and interest totaling $66,200 and $74,000, respectively, related to unrecognized tax benefits on its non-U.S. operations included in the Company’s accounts and taxes payable. The Company anticipates decreases of approximately $10,000 to the unrecognized tax benefits within twelve months of this reporting date. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:

	December 31,			December 31,
	2021			2020
Balance at January 1	$	74,000		$	94,400
Additions for prior years’ tax positions		800			5,100
Reductions from expiration of statute of limitations		(8,600	)		(25,500	)
Balance at December 31	$	66,200		$	74,000

The Company accounts for interest related to uncertain tax positions as interest expense, and for income tax penalties as tax expense.