Income Taxes

12 Months Ended

Dec. 31, 2019

Income Tax Disclosure [Abstract]

Income Taxes

The items comprising the income tax provision are as follows:

	For the Years Ended December 31,
	2019			2018
Current tax provision:
Federal	$	(34,100	)	$	-
State		3,300			3,200
Foreign		418,300			414,000
Current tax provision		387,500			417,200
Deferred tax benefit:
Federal		(4,553,700	)		(1,270,400	)
State		(78,800	)		(26,100	)
Foreign		(262,800	)		(93,500	)
Deferred tax benefit		(4,895,300	)		(1,390,000	)
Total income tax benefit	$	(4,507,800	)	$	(972,800	)

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

	For the Years Ended December 31,
	2019			2018
Income tax benefit at statutory federal income tax rate	$	(4,444,900	)	$	(1,901,400	)
State tax benefit, net of federal benefit		(75,900	)		(44,500	)
Non-deductible Merger expenses		-			647,200
Non-deductible management and acquisition fees		7,600			325,900
Other non-deductible expenses		5,400			-
Total income tax benefit	$	(4,507,800	)	$	(972,800	)

Temporary differences and carry-forwards that give rise to a significant portion of deferred tax assets and liabilities as of December 31, 2019 and 2018 were as follows:

	December 31,
	2019			2018
Deferred tax assets:
Current and prior year tax losses	$	4,980,100		$	4,065,100
Foreign tax credit		758,400			611,900
Deferred interest expense		269,800			81,800
Maintenance reserves		470,000			3,100,800
Deferred derivative losses		452,100			-
Deferred maintenance, bad debt allowance and other		19,800			92,500
Alternative minimum tax credit		11,400			45,500
Deferred tax assets		6,961,600			7,997,600
Deferred tax liabilities:
Accumulated depreciation on aircraft and aircraft engines		(8,666,700	)		(14,773,800	)
Deferred income		(175,600	)		(320,600	)
Leasehold interest		(131,400	)		(185,400	)
Net deferred tax liabilities	$	(2,012,100	)	$	(7,282,200	)

	December 31,
Reported as:	2019			2018
Deferred tax asset	$	517,700		$	254,900
Deferred income taxes (liability)		(2,529,800	)		(7,537,100	)
Net deferred tax liabilities	$	(2,012,100	)	$	(7,282,200	)

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% as of December 31, 2019 and December 31, 2018. Although realization is not assured, management believes it is more likely than not that the entire deferred federal income tax asset will be realized. The amount of the deferred federal income tax assets considered realizable could be reduced in the near term if estimates of future taxable income are reduced.

The Company is required to include on its U.S. income tax return its global intangible low-taxed income (“GILTI”) in excess of an allowable return on its foreign subsidiaries’ tangible assets. Per guidance issued by the FASB, companies can either account for deferred taxes related to GILTI or treat tax arising from GILTI as a period cost. Both are acceptable methods subject to an accounting policy election. On December 31, 2018, the Company finalized its policy and has elected to use the period cost method for GILTI. In 2018 and 2019, the Company did not include any GILTI from its Canadian subsidiary because all the subsidiary’s income was exempt from GILTI.

In addition, interest deductions are limited to 30% of the Company’s adjusted taxable income. 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, 2019 and 2018, of $583,300 and $380,900, respectively. The cumulative deferred interest expense of $964,200 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 $23.6 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 $7.6 million federal net operating loss carryovers may be carried forward indefinitely. The current year state operating loss carryovers of approximately $385,300 will be available to offset taxable income in the two preceding years and in future years through 2039.  The Company expects to utilize the net operating loss carryovers remaining at December 31, 2019 in future years.

During the year ended December 31, 2019, the Company had pre-tax loss from domestic sources of approximately $100,000 and pre-tax loss from foreign sources of approximately $21.1 million. The Company had pre-tax loss from domestic sources of approximately $6.0 million and pre-tax loss from foreign sources of approximately $3.1 million for the year ended December 31, 2018. The foreign tax credit carryover will be available to offset federal tax expense in future years through 2029.

The Tax Cuts and Jobs Act of 2017 repealed the corporate alternative minimum tax for tax years beginning after 2017. In addition, beginning in 2018, the Company’s alternative minimum tax credit (“MTC”) was available to offset federal tax expense and is refundable in an amount equal to 50% of the excess MTC for the tax year over the amount of the credit allowable for the year against regular tax liability. In 2021, any remaining MTC will be fully refundable.

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 2015. At December 31, 2019, the Company had a balance of accrued tax, penalties and interest totaling $94,400 related to unrecognized tax benefits on its non-U.S. operations included in the Company’s accounts and taxes payable. The Company does not anticipate any significant changes 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,
	2019		2018
Balance at January 1	$	85,400		-
Additions for prior years’ tax positions		9,000		85,400
Balance at December 31	$	94,400	$	85,400

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

All of the Company's tax years remain open to examination other than as barred in the various jurisdictions by statutes of limitation.