Workhorse Group, Inc. Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

Income Taxes (Tables)

Income Taxes (Tables)

12 Months Ended

Dec. 31, 2020

Schedule of Components of Income Tax Expense (Benefit)

The components of the provision for income taxes are as follows:


	Years Ended December 31,
	2020		2019
Current:
Federal	$	—	$	—
State and Local	—		—
Total Current	—		—
Deferred:
Federal	21,864,569		—
State and Local	(30,639)		—
Total Deferred	21,833,930		—
Total provision for income taxes	$	21,833,930	$	—

Schedule of Effective Income Tax Rate Reconciliation

The reconciliation of taxes at the federal statutory rate to our provision for income taxes was as follows:


	Years Ended December 31,
	2020		2019
Federal tax benefit at statutory rates	21.0	%	21.0	%
State and local tax at statutory rates	(0.1)	%	(0.6)	%
Fair value adjustments on warrant liability	37.1	%	(9.3)	%
Fair value adjustments on convertible notes	2.8	%	—	%
Stock-based compensation deductions	(6.6)	%	—	%
Other permanent differences and credits	—	%	(0.8)	%
Change in valuation allowance	(30.4)	%	(10.3)	%
Total tax benefit	23.8	%	—	%

Deferred income taxes 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. When realization of the deferred tax asset is more likely than not to occur, the benefit related to the deductible temporary differences attributable to operations is recognized as a reduction of income tax expense. As of each reporting date, management considers new evidence, both positive and negative, that could affect its view of the future realization of deferred tax assets. As of December 31, 2020, management determined that there is sufficient positive evidence to conclude that it is more likely than not that deferred tax assets of approximately $27.8 million are realizable. Management's determination was based on the Company's achievement of three years of cumulative pretax income in the U.S. federal tax jurisdiction, which was primarily driven by the change in fair value of our investment in LMC. We therefore reduced the valuation allowance accordingly. Significant components of the Company’s deferred tax assets and liabilities are as follows:

Schedule of Deferred Tax Assets and Liabilities


	December 31
	2020		2019
Deferred Tax (Liabilities) Assets:
Accrued expenses and reserves	$	853,199	$	802,526
Warranty reserve	1,150,830		1,275,047
Non-qualified stock options	358,808		961,919
Property, plant and equipment	(319,632)		202,755
Fair value adjustment of investment in LMC	(66,674,379)		—
Issuance fees on convertible notes	1,031,658		—
Other temporary differences	—		(88,200)
Net operating losses	47,344,755		30,213,192
Total Deferred Tax (Liabilities) Assets	(16,254,761)		33,367,239
Valuation Allowance	(5,579,169)		(33,367,239)
Total Deferred Tax Liabilities, net of valuation allowance	$	(21,833,930)	$	—

Schedule of Unrecognized Tax Benefits Roll Forward

Tabular reconciliation of unrecognized tax benefits


	2020		2019
Unrecognized tax benefits - January 1	$	1,163,282	$	1,163,282
Gross increases - tax positions in prior period	—		—
Gross decreases - tax positions in prior period	—		—
Gross increases - tax positions in current period	—		—
Settlement	—		—
Lapse of statute of limitations	—		—
Unrecognized tax benefits - December 31	$	1,163,282	$	1,163,282