| TAX REFORM AND INCOME TAXES | NOTE 13 – TAX REFORM AND INCOME TAXES Provision for Taxes The Tax Act was signed into law on December 22,
2017. The law includes significant changes to the U.S. corporate income tax system, including a federal corporate rate reduction
from 35% to 21%, limitations on the deductibility of interest expense and executive compensation, and the transition of U.S. international
taxation from a worldwide tax system to a territorial tax system. The Tax Act required the Company to use a statutory tax rate
of 21% for the year ended October 31, 2020 and 2019. The Company files a United States federal income
tax return and a Canadian branch return on a fiscal year-end basis and files Mexican income tax returns for its three Mexican subsidiaries
on a calendar year-end basis. The Company and two of its wholly-owned subsidiaries, Minera Metalin and Minas, have not generated
taxable income since inception. Contratistas, another wholly-owned Mexican subsidiary, has historically generated taxable income
based upon intercompany fees billed to Minera Metalin on the services it provides. On April 16, 2010, a wholly-owned subsidiary
of the Company was merged with and into Dome, resulting in Dome becoming a wholly-owned subsidiary of the Company. Dome, a Delaware
corporation, files a tax return in the United States as part of the Company’s consolidated tax return. The components of loss before income taxes
were as follows:
For the year ended
October 31,
2020 2019
United States $ (1,695,000 ) $ (1,155,000 )
Foreign (523,000 ) (2,778,000 )
Loss before income taxes $ (2,218,000 ) $ (3,933,000 ) The components of the provision for income
taxes are as follows:
For the year ended
October 31,
2020 2019
Current tax expense $ 7,942 $ 5,309
Deferred tax expense — —
$ 7,942 $ 5,309 The Company’s provision for income taxes
for the fiscal year ended October 31, 2020 consisted of a tax expense of $7,942 related to a provision for income taxes for
the Silver Bull and Dome Canadian branch return for the fiscal year ended October 31, 2020. The reconciliation of the provision for income
taxes computed at the U.S. statutory rate to the provision for income tax as shown in the statement of operations and comprehensive
loss is as follows:
For the year ended
October 31,
2020 2019
Income tax benefit calculated at U.S. federal income tax rate $ (466,000 ) $ (826,000 )
Differences arising from:
Other permanent differences 116,000 81,000
Differences due to foreign income tax rates (47,000 ) (244,000 )
Adjustment to prior year taxes (22,000 ) (28,000 )
Inflation adjustment foreign net operating loss (174,000 ) (258,000 )
Foreign currency fluctuations 638,000 (344,000 )
Decrease in valuation allowance (565,000 ) (403,000 )
Net operation loss carry forwards expiration - United States 159,000 154,000
Net capital loss carry forwards expiration - United States 62,000 —
Net operation loss carry forwards expiration - Mexico 307,000 1,873,000
Net income tax provision $ 8,000 $ 5,000
The components of the deferred tax assets at
October 31, 2020 and 2019 were as follows:
October 31,
2020 2019
Deferred tax assets:
Net operating loss carry forwards – U.S. $ 7,502,000 $ 7,359,000
Net capital loss carry forwards – U.S. — 62,000
Net operating loss carry forwards – Mexico 6,080,000 6,656,000
Stock-based compensation – U.S. 8,000 8,000
Exploration costs 777,000 830,000
Other – United States 19,000 30,000
Other – Mexico 23,000 29,000
Total net deferred tax assets 14,409,000 14,974,000
Less: valuation allowance (14,409,000 ) (14,974,000 )
Net deferred tax asset $ — $ — At October 31, 2020, the Company has U.S.
net operating loss carry-forwards of approximately $31 million that expire in the years 2021 through 2037 and $4 million which
will be carried forward indefinitely. The Company has approximately $20 million of net operating loss carry-forwards in Mexico
that expire in the years 2021 through 2030. The valuation allowance for deferred tax assets
of $14.4 and $15.0 million at October 31, 2020 and 2019, respectively, relates principally to the uncertainty of the utilization
of certain deferred tax assets, primarily net operating loss carry forwards in various tax jurisdictions. The Company continually
assesses both positive and negative evidence to determine whether it is more likely than not that the deferred tax assets can be
realized prior to their expiration. Based on the Company’s assessment, it has determined that the deferred tax assets are
not currently realizable. Net Operating Loss Carry Forward Limitation The Tax Reform Act of 1986 contains provisions
that limit the utilization of net operating loss and tax credit carry forwards if there has been a change in ownership as described
in Section 382 of the Internal Revenue Code. As a result of the Dome merger in April 2010, substantial changes in the Company’s
ownership have occurred that may limit or reduce the amount of net operating loss carry forwards that the Company could utilize
in the future to offset taxable income. The Company has not completed a detailed Section 382 study at this time to determine
what impact, if any, that ownership change may have had on its operating loss carry forwards. In each period since its inception,
the Company has recorded a valuation allowance for the full amount of its deferred tax assets, as the realization of the deferred
tax asset is uncertain. As a result, the Company has not recognized any federal or state income tax benefit in its consolidated
statement of operations and comprehensive loss. Accounting for Uncertainty in Income Taxes During the fiscal years ended October 31,
2020 and 2019, the Company has not identified any unrecognized tax benefits or had any additions or reductions in tax positions
and therefore a reconciliation of the beginning and ending amount of unrecognized tax benefits is not presented. The Company does not have any unrecognized
tax benefits as of October 31, 2020, and accordingly the Company’s effective tax rate will not be materially affected
by unrecognized tax benefits. The following tax years remain open to examination
by the Company’s principal tax jurisdictions:
United States: 2016 and all following years
Mexico: 2015 and all following years
Canada: 2016 and all following years The Company has not identified any uncertain
tax position for which it is reasonably possible that the total amount of unrecognized tax benefit will significantly increase
or decrease within the next 12 months. The Company’s policy is to classify tax
related interest and penalties as income tax expense. There is no interest or penalties estimated on the underpayment of income
taxes as a result of unrecognized tax benefits. |
