FEDERAL INCOME TAXES

12 Months Ended

Dec. 31, 2021

FEDERAL INCOME TAXES.

FEDERAL INCOME TAXES

9. FEDERAL INCOME TAXES

The Company recognizes future tax assets and liabilities for each tax jurisdiction based on the difference between the financial reporting and tax bases of assets and liabilities using the enacted tax rates expected to be in effect when the taxes are paid or recovered. A valuation allowance is provided against net future tax assets for which the Company does not consider the realization of such assets to meet the required “more likely than not” standard.

The Company’s future tax assets and liabilities at December 31, 2021 and 2020 include the following components:

	December 31,
	2021		2020
	(thousands of dollars)
Deferred tax assets:
Non‑Current:
Net operating loss carryforwards	$	21,016	$	16,009
Mineral properties		5,017		3,177
Accrued vacation		25		18
Capital loss carryforwards		22,523		22,176
Restoration reserves		405		—
Capitalized transaction costs		1,157		1,138
Other		3,580		3,686
Deferred tax assets		53,723		46,204
Valuation allowance		(53,723)		(46,204)
Net deferred tax assets		—		—
Deferred tax liabilities		—		—
Net deferred tax asset (liability)	$	—	$	—

The composition of the valuation allowance by tax jurisdiction is summarized as follows:

	December 31,
	2021		2020
	(thousands of dollars)
United States	$	42,069	$	34,190
Australia		5,096		5,380
Turkey		6,558		6,634
Total valuation allowance	$	53,723	$	46,204

The valuation allowance increased $7.5 million from the year ended December 31, 2020 to the year ended December 31, 2021. There was an increase in the net deferred tax assets, net operating loss carryforwards (“NOLs”), equity-based compensation and exploration spending on mineral properties.

In December 2017, the United States enacted comprehensive tax reform legislation known as the “Tax Cuts and Jobs Act’ that, among other things, reduces the U.S. Federal corporate income tax rate from 35% to 21% and implements a territorial tax system, but imposes an alternative ‘base erosion and anti-abuse tax’ (‘BEAT’), and incremental tax on global intangible low tax foreign income (‘GILTI’) effective January 1, 2018. The Company has selected an accounting policy with respect to both the new BEAT and GILTI rules to compute the related taxes in the period the Company become subject to these rules. There were no inclusions of either taxes during the year ended December 31, 2021.

Because the Company does not believe it is more likely than not that the net deferred tax assets will be realized, the Company continues to record a 100% valuation against the net deferred tax assets.

At December 31, 2021, the Company had U.S. net operating loss carryforwards of approximately $266.3 million which expire from 2022 to indefinite availability. As a result of the Tax Cuts and Jobs Act of 2017, U.S. net operating losses generated in years ending after 2017 have an indefinite carryforward rather than the previous 20-year carryforward. This does not impact losses incurred in years ended in 2017 or earlier. At December 31, 2021, the Company had U.S. capital loss carryforwards of approximately $106.1 million, which expire in 2025 if not utilized. In addition, at December 31, 2021, the Company had Australian net operating loss carryforwards of $16.2 million, including approximately $13.3 million associated with the Anatolia Transaction which are available indefinitely, subject to continuing to meet relevant statutory tests. In Turkey, the Company had net operating loss carryforwards of approximately $4.4 million, which expire from 2022 to 2024.

Section 382 of the Internal Revenue Code could apply and limit the Company’s ability to utilize a portion of the U.S. net operating loss carryforwards. Following the issuance of the Company’s Common Stock in 2001, the Neutron merger in 2012, the Anatolia Transaction in 2015 and the Alabama Graphite acquisition in 2018, the ability to utilize the net operating loss carryforwards will be severely limited on an annual and aggregate basis. A formal Section 382 study would be required to determine the actual allowable usage of U.S. net operating loss carryforwards. However, based on information currently available, the Company currently estimates that $215.1 million of the U.S. net operating losses will not be able to be utilized and have reduced the Company’s deferred tax asset accordingly. This resulted in a decrease in the valuation allowance.

For financial reporting purposes, loss from operations before income taxes consists of the following components:

	For the year ended December 31,
	2021		2020
	(thousands of dollars)
United States	$	(16,103)	$	(13,881)
Australia		(6)		8
Turkey		(35)		(39)
	$	(16,144)	$	(13,912)

A reconciliation of expected income tax on net income at statutory rates is as follows:

	Year ended December 31,
	2021		2020
	(thousands of dollars)
Net loss	$	(16,144)	$	(13,912)
Statutory tax rate		21%		21%
Tax recovery at statutory rate		(3,390)		(2,922)
State tax rate		(1,173)		938
Foreign tax rate		(2)		1
Change in US tax rates		(759)		309
Other adjustments		97		(9)
Capital loss carryforward adjustment		—		(21)
Operating loss carryforward adjustment		(1,409)		(218)
Operating loss Section 382 adjustment		(7)		978
Anatolia Energy Ltd Share issue Cost adjustment		—		270
Nondeductible write‑offs		(78)		7
Sale of Uranium Entities		(799)		(10,553)
Change in valuation allowance		7,520		11,220
Income tax expense (recovery)	$	—	$	—

The Company does not have any uncertain tax positions. Should the Company incur interest and penalties relating to tax uncertainties, such amounts would be classified as a component of the interest expense and operating expense, respectively.

Westwater Resources, Inc., and its wholly owned subsidiaries, files in the U.S. federal jurisdiction and various state jurisdictions. Anatolia Energy Limited and Anatolia Uranium Pty Ltd file in the Australian jurisdiction and Adur Madencilik files in the Turkish jurisdiction. Alabama Graphite Corporation files in U.S. federal and state jurisdictions.