Income Taxes

6 Months Ended

Jun. 30, 2024

Income Tax Disclosure [Abstract]

Income Taxes

INCOME TAXES

The company records actual income tax expense or benefit during interim periods rather than on an annual effective tax rate method. Certain items are given discrete period treatment and the tax effect of those items are reported in full in the relevant interim period. Green Plains Partners is a limited partnership, which is treated as a flow-through entity for federal income tax purposes and is not subject to federal income taxes.

The IRA was signed into law on August 16, 2022. The IRA includes significant law changes relating to tax, climate change, energy and health care. The IRA significantly expands clean energy incentives by providing an estimated

$370 billion of new energy related tax credits over the next ten years. It also permits more flexibility for taxpayers to use the credits with direct-pay and transferable credit options. In addition, the IRA includes key revenue-raising provisions which include a 15% book-income alternative minimum tax on corporations with adjusted financial statement income over $1 billion, a 1% excise tax on the value of certain net stock repurchases by publicly traded companies, and the reinstatement of Superfund excise taxes. The company expects it will benefit from certain energy related tax credits in future years and not be negatively impacted by the revenue raising provisions; however, the company does not have enough information to provide a reasonable estimate of future tax benefits at this time.

On January 9, 2024, the transactions contemplated by the Merger Agreement were completed as described in more detail in Note 3 - Acquisition included herein. For income tax purposes, the total consideration given by the company in exchange for the remaining interest in the partnership, creates a tax basis in the acquired interest. Because the GAAP basis in the acquired interest is less than the total consideration, a new deferred tax asset was created. The company's valuation allowance on deferred tax assets increased by a corresponding amount, which did not have a material impact on the company's consolidated financial statements.

The company recorded income tax benefit of $0.3 million for the three months ended June 30, 2024, compared with income tax benefit of $1.0 million for the same period in 2023. The decrease in the amount of tax benefit recorded for the three months ended June 30, 2024 was primarily due to an increase in the valuation allowance recorded against deferred tax assets related to gains (losses) on derivatives.

The effective tax rate can be affected by variances in the estimates and amounts of taxable income among the various states, entities and activity types, realization of tax credits, adjustments from resolution of tax matters under review, valuation allowances and the company’s assessment of its liability for uncertain tax positions.

Unrecognized tax benefits of approximately $51.4 million have been recorded as a reduction of the deferred tax assets associated with the federal tax credit carryforwards, which are currently under audit. The appeals hearing related to the research and development ("R&D") tax credits is scheduled for September 2024. The results of the current audit may cause the company to significantly increase or decrease the unrecognized tax benefits associated with R&D tax credits for periods under audit and for periods not under audit, which could impact the company's effective tax rate. At this time, the company does not have enough information to be able to estimate the potential financial statement impact.