Here is the complete content of "Section 12. Income Taxes" from the "CAPITAL GROWTH SYSTEMS, INC. 10-Q, For the quarterly period ended September 30, 2010 (Unaudited)" which I believe would make a good candidate for a sticky:
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NOTE 12. Income Taxes.
The Company did not identify any uncertain tax positions as of September 30, 2010 and December 31, 2009. The Company recognizes potential accrued interest and penalties related to unrecognized tax benefits as a component of income tax expense. To the extent interest and penalties are not assessed with respect to uncertain tax positions, amounts accrued will be reduced and reflected as a reduction of the overall income tax provision. The Company recorded no interest and penalties during the nine-month period ended September 30, 2010 and the year ended December 31, 2009 nor had any accrued interest or penalties as of these dates. The Company is no longer subject to U.S. Federal tax examinations by tax authorities for tax years before 2006. The Company is open to state tax audits until the applicable statutes of limitations expire.
The current tax expense for the three and nine months ended September 30, 2010 relates to state income taxes imposed primarily to GCD as a result of its profitability from a separate company tax perspective. The deferred tax expense relates to book and income tax basis difference in goodwill created in the GCD acquisition. For the three months ended September 30, 2010, the Company recognized an income tax benefit of $0.009 million and recognized income tax expense of $0.05 million for the nine months ended September 30, 2010. There was a $0.1 million tax provision recorded for the three and nine months ended September 30, 2009. The tax provision includes state income taxes but is primarily related to deferred tax expense arising from the book and income tax basis difference in goodwill from the GCD acquisition which occurred in November 2008.
Deferred tax assets and liabilities reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The Company has Federal net operating loss (NOL) carry forwards of $68.5 million in the United States (U.S.) and foreign (U.K.) NOL carry forwards of $10.0 million at September 30, 2010 and December 31, 2009. The Federal NOL and credit carry forwards have been reduced to reflect approximate annual limitations under Internal Revenue Code Sections 382 and 383 as a result of the various subsidiary stock acquisitions in prior years. It is likely subsequent equity changes have since occurred to further limit the utilization of these NOLs and credit carry forwards.
Realization of the NOL carry forwards, tax credits, and other deferred tax temporary differences is contingent on future taxable earnings. The deferred tax asset was reviewed for expected utilization using a “more likely than not” approach by assessing the available positive and negative evidence surrounding its recoverability.
The Company has recorded a full valuation allowance against the net deferred tax assets (whether acquired or otherwise generated) due to the uncertainty of future taxable income, which is necessary to realize the benefits of the deferred tax assets.
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IMO, what all of this really means can then be further fleshed out during our ongoing conversations.
Your thoughts?
