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Income Taxes
 12 Months Ended
Mar. 31, 2022
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 2017.

 

 

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:

 

   2022   2021 
Deferred tax assets:          
Percentage depletion carryforwards  $1,117,622   $1,132,352 
Deferred stock-based compensation   30,094    37,977 
Asset retirement obligation   154,458    153,048 
Net operating loss   1,132,918    1,411,017 
Other   10,263    9,840 
Total deferred tax assets   2,445,355    2,744,234 
Deferred tax liabilities:          
Excess financial accounting bases over tax bases of property and equipment   1,691,865    1,485,833 
Deferred tax asset, net  $753,490   $1,258,401 
Valuation allowance   (753,490)   (1,258,401)
Net deferred tax  $-   $- 

 

As of March 31, 2022, the Company has a statutory depletion carryforward of approximately $5,300,000, which does not expire. At March 31, 2022, the Company had a net operating loss carryforward for regular income tax reporting purposes of approximately $5,400,000, which will begin expiring in 2033. 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:

 

   2022   2021 
Tax expense at federal statutory rate (1)  $599,564   $32,746 
Statutory depletion carryforward   14,730    35,242 
Change in valuation allowance   (504,911)   (48,570)
U. S. tax reform, corporate rate reduction   -    - 
Permanent differences   (97,349)   (19,418)
Other   (12,034)   - 
Total income tax  $-   $- 
Effective income tax rate   -    - 

 

(1) The federal statutory rate was 21% for fiscal years ending March 31, 2022 and 2021.

 

For the years ended March 31, 2022 and 2021, 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, 2022 and 2021. Our deferred tax asset is $753,490 as of March 31, 2022 with a valuation amount of $753,490. We believe it is more likely than not that these deferred tax assets will not be realized. Management considers the likelihood that the Company’s net operating losses and other deferred tax attributes will be utilized prior to their expiration, if applicable. The determination to record a valuation allowance was based on management’s assessment of all available evidence, both positive and negative, supporting realizability of the Company deferred tax asset as required by applicable accounting standards. In light of those criteria for recognizing the tax benefit of deferred tax assets, the Company’s assessment resulted in application of a valuation allowance against the deferred tax asset as of March 31, 2022.