INCOME TAXES

12 Months Ended

Dec. 31, 2022

INCOME TAXES

INCOME TAXES

NOTE 12 - INCOME TAXES

Due to the Company’s net losses, there were no provisions for income taxes for the years ended December 31, 2022, and 2021.

The following table reconciles the U.S. federal statutory income tax rate in effect for the years ended December 31, 2022, and 2021, and the Company’s effective tax rate:

	2022			2021
U.S. federal statutory income tax		21.00	%		21.00	%
State and local income tax, net of benefits		6.64	%		6.64	%
Amortization of debt discount		0.00	%		0.00	%
Meals & Entertainment		0.02	%	(0.03		%)
Other Income - PPP Loan		0.00	%		7.95	%
Officer life insurance and D&O insurance		2.49	%	(5.73		%)
Stock-based compensation		0.00	%		6.50	%
Tax rate changes and other		0.00	%		0.00	%
Valuation allowance for deferred income tax assets	(30.15		%)	(36.34		%)
Effective income tax rate		0.00	%		0.00	%

Deferred income tax assets as of December 31, 2022, and 2021 are as follows (in thousands):

Deferred Tax Assets	2022			2021
Accretion	$	425		$	132
Difference in depreciation, depletion, and capitalization methods - oil and natural gas properties		1,516			2,389
Interest Expense - PPP Loan		1			0
Impairment		5,343			5,343
Lease Liability		(58	)		(56	)
ROU Assets		80			52
Gain/Loss from sale of FA and/or O&G properties		(59	)		-
Loss on ARO		23			-
Stock options - NQ		(174	)		-
Stock-Based Compensation		1,507		1,149
Net operating loss - federal taxes		24,080			24,422
Net operating loss - state taxes		3,423			3,531
Total deferred tax asset	$	36,106		$	39,963
Less valuation allowance		(36,106	)		(36,963	)
Total deferred tax assets	$	-		$	-

In assessing the realization of deferred tax assets, management considers whether it is more likely than not that some portion or all deferred assets will not be realized. The ultimate realization of the deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible.

Utilization of NOL and tax credit carryforwards may be subject to a substantial annual limitation due to ownership change limitations that may have occurred or that could occur in the future, as required by the Internal Revenue Code (the “Code”), as amended, as well as similar state provisions. In general, an “ownership change” as defined by the Code results from a transaction or series of transactions over a three-year period resulting in an ownership change of more than 50 percent of the outstanding stock of a company by certain shareholders or public groups.

Based on the available objective evidence, management believes it is more likely than not that the net deferred tax assets will not be fully realizable. Accordingly, management has applied a full valuation allowance against its net deferred tax assets on December 31, 2022, and 2021. The net change in the total valuation allowance from December 31, 2022, to December 31, 2021, was a decrease of $858,000.

The Company’s policy is to recognize interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense. As of December 31, 2022, and 2021, the Company did not have any significant uncertain tax positions or unrecognized tax benefits. The Company did not have associated accrued interest or penalties, nor was any interest expense or penalties recognized for the years ended December 31, 2022, and 2021.

Prior to the TCJA amendment, Section 174 allowed taxpayers to either immediately deduct R&E expenditures in the year paid or incurred or elect to capitalize and amortize R&E expenditures over a period of at least 60 months. Starting after December 31, 2021, TCJA’s amendment to Section 174 requires U.S.-based and non-U. S-based research and experimental (R&E) expenditures to be capitalized and amortized over a period of five or 15 years, respectively, for amounts paid in tax years. Additionally, software development costs are specifically included as R&E expenditures under Section 174(c)(3) and, therefore, will be subject to the same mandatory amortization period of five or 15 years. Currently, there are no R&E expenditure that will apply to this regulation.

As of December 31, 2022, the Company has federal net operating loss carryforwards of approximately $115,000,000, which if not utilized, approximately $93,000,000 of which will begin expiring in 2023 and ending 2037, respectively, and $22,000,000 under CARES Act can be carried back up to five years but also, can be carried forward indefinitely, limited to 80% of a given years taxable income.

The Company currently has tax returns open for examination by the Internal Revenue Service for all years, since 2018.