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Federal Income Taxes

12 Months Ended

Dec. 31, 2017

Income Tax Disclosure [Abstract]

Federal Income Taxes

11. 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, 2017 and 2016 include the following components:

		December 31,
		2017				2016
		(thousands of dollars)
Deferred tax assets:
Non-Current:
Net operating loss carryforwards		$	56,781			$	85,995
Mineral properties			7,237				10,152
Accrued vacation			17				29
Reclamation provision			224				41
Capital loss carryforwards			1,013				618
Restoration reserves			980				1,623
Capitalized transaction costs			912				1,140
Other			4,123				4,072
Deferred tax assets			71,287				103,670
Valuation allowance			(68,121	)			(99,548	)
Net deferred tax assets			3,166				4,122
Deferred tax liabilities:
Non-Current:
Derivatives			(590	)			(956	)
Mineral properties, Turkey			(1,437	)			(1,489	)
Securities			(106	)			-
Property, plant and equipment			(1,033	)			(1,677	)
Deferred tax liabilities			(3,166	)			(4,122	)

Net deferred tax asset (liability)		$	-			$	-

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

		December 31,
		2017				2016
		(thousands of dollars)
United States		$	60,920			$	92,448
Australia			5,187				5,187
Turkey			2,014				1,913
Total valuation allowance		$	68,121			$	99,548

The valuation allowance decreased $31.4 million from the year ended December 31, 2016 to the year ended December 31, 2017. There was an increase in the net deferred tax assets, primarily net operating loss carryforwards (“NOLs”), equity-based compensation and exploration spending on mineral properties. The decrease in net deferred tax assets resulted primarily from expiring US state net operating loss carryforwards and from US tax legislation signed into law on December 22, 2017. The Tax Cuts and Jobs Act (TCJA) reduced the US corporate tax rate to 21% for tax years beginning after December 31, 2017, resulting in a decrease in the net deferred tax assets.

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

At December 31, 2017, we had U.S. net operating loss carryforwards of approximately $245 million, which expire from 2018 to 2037. As a result of the TCJA legislation, 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. The U.S. net operating loss carryforward included approximately $32.8 million in net operating loss carryforwards associated with the Neutron merger. At December 31, 2017, we had U.S. capital loss carryforwards of approximately $1.9 million, which expire from 2021 to 2022. In addition, at December 31, 2017, we had Australian net operating loss carryforwards of $13.5 million, including approximately $13.3 million associated with the Anatolia Transaction, which are available indefinitely, subject to continuing to meet relevant statutory tests, and net operating loss carryforwards in Turkey of approximately $1.7 million, which expire from 2018 to 2021.

Section 382 of the Internal Revenue Code could apply and limit our 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 and the Anatolia Transaction in 2015, the ability to utilize the net operating loss carryforwards will be severely limited on an annual and aggregate basis. A formal Section 382 study is in process; however, the actual usage of US net operating loss carryforwards has not been determined. Similar limitations apply to the state net operating loss carryforwards related to the Neutron acquisition.

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

		For the calendar year ended December 31,
		2017				2016
		(thousands of dollars)
United States		$	(18,782	)		$	(18,798	)
Australia			(1	)			(158	)
Turkey			(505	)			(649	)
		$	(19,288	)		$	(19,605	)

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

		Year ended December 31,
		2017				2016
		(thousands of dollars)
Net loss		$	(19,288	)		$	(19,605	)
Statutory tax rate			34	%			34	%
Tax recovery at statutory rate			(6,558	)			(6,666	)
Foreign tax rate			71				2,073
Change in US tax rates			37,233				-
Mineral property adjustments			-				(6,709	)
Capital loss carryforward adjustment			(44	)			-
Operating loss carryforward adjustment			710				6,707
Nondeductible write-offs			15				1,250
Change in valuation allowance			(31,427	)			3,345
Income tax expense (recovery)		$	-			$	-

We do not have any uncertain tax positions. Should we 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.

The years still open for U.S. audit are generally the current year plus the previous three. However, because we have NOLs carrying forward, certain items attributable to closed tax years are still subject to adjustment by applicable taxing authorities through an adjustment to tax losses carried forward to open years.

Certain 2016 amounts have been reclassified to conform to the 2017 presentation.