FEDERAL INCOME TAXES

12 Months Ended

Dec. 31, 2022

FEDERAL INCOME TAXES.

FEDERAL INCOME TAXES

8. 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 basis 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, 2022 and 2021 include the following components:

	December 31,
	2022		2021
	(thousands of dollars)
Deferred tax assets:
Non‑Current:
Net operating loss carryforwards	$	22,584	$	21,016
Capital loss carryforwards		22,508		22,523
Mineral properties		3,694		5,017
Capitalized joint venture costs		3,427		3,427
Fixed assets		1,921		148
Capitalized transaction costs		1,150		1,157
Share based compensation		418		405
Accrued vacation		62		25
Other		26		61
Deferred tax assets		55,790		53,779
Valuation allowance		(55,769)		(53,723)
Net deferred tax assets		21		56
Deferred tax liabilities:
Non‑Current:
Other		(21)		(56)
Deferred tax liabilities		(21)		(56)
Net deferred tax asset (liability)	$	—	$	—

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

	December 31,
	2022		2021
	(thousands of dollars)
United States	$	44,644	$	42,069
Australia		4,790		5,096
Turkey		6,335		6,558
Total valuation allowance	$	55,769	$	53,723

The valuation allowance increased $2.0 million from the year ended December 31, 2021 to the year ended December 31, 2022. 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, 2022.

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, 2022, the Company had U.S. net operating loss carryforwards of approximately $271.3 million which expire from 2023 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, 2022, the Company had U.S. capital loss carryforwards of approximately $106.1 million, which expire in 2026 if not utilized. In addition, at December 31, 2022, the Company had Australian net operating loss carryforwards of $15.2 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 $3.4 million, which expire from 2023 to 2025.

Federal and state laws impose substantial restrictions on the utilization of NOL carryforwards in the event of an ownership change for income tax purposes, as defined in Section 382 of the Internal Revenue Code (“IRC”). Pursuant to IRC Section 382, annual use of the Company’s NOL carryforwards may be limited in the event a cumulative change in ownership of more than 50% occurs within a three-year period.   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 US net operating loss carryforwards.  However, it is possible that past ownership changes will result in the inability to utilize a significant portion of the Company’s NOL carryforward that was generated prior to any change of control.  The Company’s ability to use its remaining NOL carryforwards may be further limited if the Company experiences an IRC Section 382 ownership change in connection with future changes in the Company’s stock ownership.  Based on information currently available, the Company currently estimates that $211.9 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,
	2022		2021
	(thousands of dollars)
United States	$	(11,082)	$	(16,103)
Australia		(5)		(6)
Turkey		(34)		(35)
	$	(11,121)	$	(16,144)

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

	Year ended December 31,
	2022		2021
	(thousands of dollars)
Net loss	$	(11,121)	$	(16,144)
Statutory tax rate		21%		21%
Tax recovery at statutory rate		(2,335)		(3,390)
State tax rate		(672)		(1,173)
Foreign tax rate		(1)		(2)
Change in U.S. tax rates		(32)		(759)
Other adjustments		180		97
Operating loss carryforward adjustment		685		(1,409)
Operating loss Section 382 adjustment		110		(7)
Nondeductible expenses and other permanent items		19		(78)
Sale of Uranium Entities		—		(799)
Change in valuation allowance		2,046		7,520
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.