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Income Taxes
 12 Months Ended
Mar. 31, 2020
Income Tax Disclosure [Abstract]  
Income Taxes

7. Income Taxes

 

The Company files a consolidated federal income tax return and various state income tax returns. The amount of income taxes the Company records requires the interpretation of complex rules and regulations of federal and state taxing jurisdictions. With few exceptions, the earliest year open to examination by U.S. federal and state income tax jurisdictions is 2015.

 

On December 22, 2017, the tax legislation referred to as the 2017 Tax Reform Act (“Tax Cuts and Jobs Act”) was enacted. The more significant changes that impact the Company are the reduction in the corporate federal income tax rate from 35% to 21%. Effective April 1, 2018, our corporate federal statutory income tax rate is 21%. GAAP requires deferred income tax assets and liabilities to be measured at the enacted tax rate expected to apply when temporary differences are to be realized or settled.

 

Significant components of net deferred tax assets (liabilities) at March 31 are as follows:

 

    2020     2019  
Deferred tax assets:                
Percentage depletion carryforwards   $ 1,167,594     $ 1,136,210  
Deferred stock-based compensation     36,568       34,771  
Asset retirement obligation     160,180       180,922  
Net operating loss     1,248,528       948,722  
Other     7,372       5,470  
      2,620,242       2,306,095  
Deferred tax liabilities:                
Excess financial accounting bases over tax bases of property and equipment     1,313,271       1,045,974  
Deferred tax asset, net   $ 1,306,971     $ 1,260,121  
Valuation allowance     (1,306,971 )     (1,260,121 )
Net deferred tax   $ -     $ -  

 

As of March 31, 2020, the Company has a statutory depletion carryforward of approximately $5,550,000, which does not expire. At March 31, 2020, the Company had a net operating loss carryforward for regular income tax reporting purposes of approximately $5,950,000, which will begin expiring in 2029. The Company’s ability to use some of its net operating loss carryforwards and certain other tax attributes to reduce current and future U.S. federal taxable income is subject to limitations under the Internal Revenue Code.

 

A valuation allowance for deferred tax assets, including net operating losses, is recognized when it is more likely than not that some or all of the benefit from the deferred tax asset will not be realized. To assess that likelihood, we use estimates and judgment regarding our future taxable income, and we consider the tax consequences in the jurisdiction where such taxable income is generated, to determine whether a valuation allowance is required. Such evidence can include our current financial position, our results of operations, both actual and forecasted, the reversal of deferred tax liabilities, and tax planning strategies as well as the current and forecasted business economics of our industry.

 

A reconciliation of the provision for income taxes to income taxes computed using the federal statutory rate for years ended March 31 follows:

 

    2020     2019  
Tax expense at federal statutory rate (1)   $ (20,891 )   $ (2,719 )
Statutory depletion carryforward     (31,384 )     (24,409 )
Change in valuation allowance     46,850       24,698  
U. S. tax reform, corporate rate reduction     -       -  
Permanent differences     5,427       3,812  
Other     (2 )     (1,382 )
Total income tax   $ -     $ -  
Effective income tax rate     -       -  

 

  (1) The federal statutory rate was 21% for fiscal years ending March 31, 2020 and 2019.

 

For the years ended March 31, 2020 and 2019, the Company did not have any uncertain tax positions.

 

While the amount of unrecognized tax benefits may change in the next 12 months, the Company does not expect any change to have a significant impact on its results of operations. The recognition of the total amount of the unrecognized tax benefits would have an impact on the effective tax rate. If these unrecognized tax benefits are disallowed, the Company will be required to pay additional taxes.

 

Based on the material write-downs of the carrying value of our oil and natural gas properties for the year ending March 31, 2016, we are in a net deferred tax asset position for years ending March 31, 2020 and 2019. Our deferred tax asset is $1,306,971 as of March 31, 2020 with a valuation amount of $1,306,971. We believe it is more likely than not that these deferred tax assets will not be realized. Management assesses the available positive and negative evidence to estimate whether sufficient future taxable income will be generated to permit the use of deferred tax assets. The amount of the deferred tax asset considered realizable, however, could be adjusted if estimates of future taxable income are increased or if objective negative evidence in the form of cumulative losses is no longer present and additional weight is given to subjective evidence such as expected future growth.

  

In March 2020, the President of the United States signed the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) to stabilize the economy during the coronavirus pandemic. The CARES Act temporarily suspends and modifies certain tax laws established by the 2017 Tax Cuts and Jobs Act, including, but not limited to, modifications to net operating loss limitations, business interest limitations and alternative minimum tax. The CARES Act did not have a material impact on the Company’s current year provision and the Company’s consolidated financial statements.