Income Tax

12 Months Ended

Dec. 31, 2021

Income Tax

Income Tax

Note 17. Income Tax

Amplify Energy is a corporation and, as a result, is subject to U.S. federal, state, and local income taxes.

On March 11, 2021, the President of the United States signed the ARP Act, to respond to the COVID-19 emergency and address its economic effects. Additionally, the President signed the Infrastructure Investment and Jobs Act “IIJ Act” on November 15, 2021 to authorize funds for Federal-aid highways, highway safety programs, and transit programs, and for other purposes. The enactment of the ARP Act and IIJ Act did not result in any material impact on the Company’s current year income tax provision.

The components of income tax benefit (expense) are as follows:

	For the Year Ended
	December 31,
	2021		2020
	(In thousands)
Current taxes:
Federal	$	—	$	(5)
State		—		(110)
Total current income tax benefit (expense)		—		(115)
Deferred taxes:
Federal		—		—
State		—		—
Total deferred income tax benefit (expense)		—		—
Total income tax benefit (expense)	$	—	$	(115)

The actual income tax benefit (expense) differs from the expected amount computed by applying the federal statutory corporate tax rate of 21% in 2021 and in 2020 as follows:

	For the Year Ended
	December 31,
	2021		2020
	(In thousands)
Expected tax benefit (expense) at federal statutory rate	$	6,734	$	97,423
State income tax benefit (expense), net of federal benefit		447		6,189
Non-deductible expenses		(64)		(45)
Changes in valuation allowances		3,192		(110,445)
State rate change, net of federal benefit		(10,192)		6,100
State prior year adjustment		(1,281)		—
Non-cash compensation		8		(137)
PPP loan forgiveness		1,158		—
Other		(2)		800
Total income tax benefit (expense)	$	—	$	(115)

The Company’s deferred tax position reflects the net tax effects of the temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax reporting. Significant components of the deferred tax assets and liabilities are as follows (in thousands):

	December 31,
	2021		2020
Deferred income tax assets:
Property, Plant & Equipment	$	94,439	$	115,695
Net operating loss carryforward		178,279		174,479
Derivatives		14,438		2,448
Disallowed interest expense		5,579		5,388
Accrued liabilities		1,592		1,226
Other		3,469		1,717
Total deferred income tax assets:		297,796		300,953
Valuation allowance		(297,195)		(300,386)
Net deferred income tax assets		601		567
Deferred income tax liabilities:
Derivatives	$	—	$	—
Other		601		567
Total deferred income tax liabilities		601		567
Net deferred income tax liabilities	$	—	$	—

As of December 31, 2021, the Company had approximately $777.6 million of federal net operating loss (“NOL”) carryovers, of which $757.0 million have no expiration date and the remaining will expire in year 2037. In connection with the merger with Midstates in 2019, the Company is subject to IRC §382 loss limitation on pre-merger NOL and tax attributes. The amount of 2021 federal NOL carryover generated post-merger, and not subject to §382 loss limitation, is $32.2 million. As of December 31, 2021, the Company had approximately $429.8 million of state net operating loss carryovers, of which $376.3 million have no expiration period, and the remaining will expire in varying amounts beginning in 2037.

In assessing deferred tax assets, the Company considers whether a valuation allowance should be recorded for some or all of the deferred tax assets which may not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which the temporary differences become deductible. Among other items, the Company considers the scheduled reversal of deferred tax liabilities, projected future taxable income and available tax planning strategies. A valuation allowance is established against deferred tax assets for which management believes realization is considered to be more likely than not that all of the deferred tax assets will not be realized. As of December 31, 2021, a valuation allowance of $297.2 million had been recorded, which is an increase to the valuation allowance of $3.2 million from the prior year.

Uncertain Income Tax Position. The Company must recognize the tax effects of any uncertain tax positions that the Company may adopt if the position taken by us is more likely than not sustainable based on its technical merits. For those benefits to be recognized, an income tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. The Company had no unrecognized tax benefits as of December 31, 2021.

Tax Audits and Settlements. The Company’s income tax years 2018 through 2020 remain open and subject to examination by the Internal Revenue Service (IRS). For state and local jurisdictions, the Company’s 2017 through 2020 tax years remain open and subject to examination where it conducts operations. In certain jurisdictions where the Company operates through more than one legal entity, each of which may have different open years subject to examination.