Note 14 - Income Taxes

9 Months Ended

Sep. 30, 2020

Notes to Financial Statements

Income Tax Disclosure [Text Block]

1 4 . Income taxes

The Company accounts for income taxes using the asset and liability method. A valuation allowance is recorded to reduce the carrying amounts of deferred income tax assets unless it is more likely than

not

that such assets will be realized. The Company's policy is to record any interest and penalties assessed by the Internal Revenue Service as a component of the provision for income taxes. The Company provides allowances for uncertain income tax positions when it is more likely than

not

that the position will

not

be sustained upon examination by the tax authority. 

Alpha Pro Tech, Ltd. and its subsidiaries file income tax returns in the U.S. federal jurisdiction, and in various state and foreign jurisdictions.

An employer generally does

not

claim a corporate income tax deduction (which would be in an amount equal to the amount of income recognized by the employee) upon the exercise of its employee's Incentive Stock Options (“ISOs”) unless the employee does

not

meet the holding period requirements and sells early, making a disqualifying disposition, or if the options otherwise do

not

qualify as ISOs under applicable tax laws. With Non-Qualified Stock Options (“NQSOs”), on the other hand, the employer is typically eligible to claim a deduction upon its employee's exercise of the NQSO.

The company had an estimated nonrecurring tax benefit of

$2.0

million in the

first

quarter of

2020

as a result of the exercise of disqualified ISOs and the exercise of NQSOs, partially offset by tax expense of an estimated

$1.0

million.

On

March 27, 2020,

President Trump signed into U.S. federal law the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), which is aimed at providing emergency assistance and health care for individuals, families and businesses affected by the COVID-

19

pandemic and generally supporting the U.S. economy. The CARES Act, among other things, includes provisions relating to refundable payroll tax credits, deferment of employer side social security payments, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations and technical corrections to tax depreciation methods for qualified improvement property. In particular, under the CARES Act, (i) for taxable years beginning before

2021,

net operating loss carryforwards and carrybacks

may

offset

100%

of taxable income, (ii) NOLs arising in the

2018,

2019

and

2020

taxable years

may

be carried back to each of the preceding

five

years to generate a refund and (iii) for taxable years beginning in

2019

and

2020,

the base for interest deductibility is increased from

30%

to

50%

of EBITDA. The CARES Act currently has minimal impact on the Company.