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INCOME TAXES | 12 Months Ended
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Sep. 30, 2023
Income Tax Disclosure [Abstract] |
INCOME TAXES | INCOME TAXES The components of (loss) earnings before income taxes, after adjusting the (loss) earnings for non-controlling interests, are as follows:
| Year ended September 30,
| 2023 |  | 2022
United States | $ | (2,414,000) |  |  | $ | 739,000 |
Canada | 1,400,000 |  |  | 5,121,000 |
| $ | (1,014,000) |  |  | $ | 5,860,000 |
The components of the income tax (benefit) provision related to the above (loss) earnings are as follows:
| Year ended September 30,
| 2023 |  | 2022
Current provision: |  |  |
United States – Federal |  |  |
Before operating loss carryforwards | $ | — |  |  | $ | 727,000 |
Benefit of operating loss carryforwards | — |  |  | (665,000) |
After operating loss carryforwards | — |  |  | 62,000 |
United States – State |  |  |
Before operating loss carryforwards | 47,000 |  |  | 518,000 |
Benefit of operating loss carryforwards | — |  |  | (62,000) |
After operating loss carryforwards | 47,000 |  |  | 456,000 |
Canadian |  |  |
Before operating loss carryforwards | 274,000 |  |  | 510,000 |
Benefit of operating loss carryforwards | (244,000) |  |  | (510,000) |
After operating loss carryforwards | 30,000 |  |  | — |
Total current | 77,000 |  |  | 518,000 |
Deferred benefit: |  |  |
United States – State | (130,000) |  |  | (171,000) |
Total deferred | (130,000) |  |  | (171,000) |
| $ | (53,000) |  |  | $ | 347,000 |
Consolidated taxes do not bear a customary relationship to pretax results due primarily to the fact that the Company is taxed separately in Canada based on Canadian source operations and in the U.S. based on consolidated operations, and essentially all deferred tax assets, net of relevant offsetting deferred tax liabilities, are not estimated to have a future benefit as tax credits or deductions. The Company operates two subsidiaries in Canada, one of which is a U.S. corporation operating as a branch in Canada that is treated as a non-resident for Canadian tax purposes and thus has operating results that cannot be offset against or combined with the other Canadian subsidiary that files as a resident for Canadian tax purposes. Income from our non-controlling interest in the Kukio Resort Land Development Partnerships is treated as non-unitary for state of Hawaii unitary filing purposes, thus unitary Hawaii losses provide limited sheltering of such non-unitary income. Income from our investment in the Oklahoma oil venture is 100% allocable to Oklahoma. As such, Barnwell receives no benefit from consolidated or unitary losses and, therefore, is subject to Oklahoma state taxes. Consolidated taxes also include the impacts of favorable state jurisdiction provision to tax return true-ups. Our operations in Texas are subject to a franchise tax assessed by the state of Texas, however no significant amounts have been incurred to date. In addition, Canadian jurisdiction net operating loss carryforwards, the benefit of which had not previously been recognized due to the Company's continuing full valuation allowance, were partially utilized in that jurisdiction in the current year. The net operating loss carryforwards beyond the current year’s utilization continue to have a full valuation allowance as realization of their benefit is not more likely than not. Included in the current income tax provision for the year ended September 30, 2022 is a $62,000 expense for income tax penalties and interest thereon for the non-filing of IRS Form 8858 in each of our U.S. federal income tax returns for fiscal years 2019, 2020 and 2021. The Company prepared amended U.S. federal tax returns for each of these years to include Form 8858 and a statement of reasonable cause. The amended returns were filed in September and October 2023 and the Company requested abatement of any potential penalties and interest which could subsequently be assessed. The Company is awaiting a response from the IRS and the probability of success of the abatement request remains uncertain. No additional expenses related to the potential penalties and interest were included in the current income tax provision for the year ended September 30, 2023. A reconciliation between the reported income tax (benefit) expense and the amount computed by multiplying the (loss) earnings attributable to Barnwell before income taxes by the U.S. federal tax rate of 21% is as follows:
| Year ended September 30,
| 2023 |  | 2022
Tax (benefit) provision computed by applying statutory rate | $ | (213,000) |  |  | $ | 1,231,000 |
Increase (decrease) in the valuation allowance | 182,000 |  |  | (1,450,000) |
Additional effect of the foreign tax provision on the total tax provision | (4,000) |  |  | 130,000 |
U.S. state income tax (benefit) provision, net of federal effect | (9,000) |  |  | 330,000 |
U.S. state provision to tax return adjustments | (106,000) |  |  | (45,000) |
Uncertain tax positions | — |  |  | 62,000 |
Other | 97,000 |  |  | 89,000 |
| $ | (53,000) |  |  | $ | 347,000 |
The U.S. state provision to tax return adjustments in the table above was treated as a separate item in fiscal 2023 due to the significance of its impact on the fiscal 2023 reconciliation, and the corresponding fiscal 2022 amount was reclassified to conform to the current year presentation. The reclassification had no impact on previously reported net earnings, cash flows, total assets, or stockholders' equity. Additionally, the changes in the valuation allowance shown in the table above exclude the impact of changes in the valuation allowance of items that are incorporated within the respective reconciliation line items elsewhere in the table. The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities are as follows:
| September 30,
| 2023 |  | 2022
Deferred income tax assets: |  |  |
Foreign tax credit carryover under U.S. tax law | $ | 928,000 |  |  | $ | 953,000 |
U.S. federal net operating loss carryover | 9,406,000 |  |  | 8,258,000 |
U.S. state unitary net operating loss carryovers | 1,177,000 |  |  | 1,117,000 |
Canadian net operating loss carryovers | 1,025,000 |  |  | 877,000 |
Tax basis of investment in land in excess of book basis under U.S. tax law | 25,000 |  |  | 26,000 |
Property and equipment accumulated book depreciation and depletion in excess of tax under U.S. tax law | 275,000 |  |  | 568,000 |
Asset retirement obligation accrued for books but not for tax under U.S. tax law | 1,084,000 |  |  | 959,000 |
Asset retirement obligation accrued for books but not for tax under Canadian tax law | 2,461,000 |  |  | 2,120,000 |
Other liabilities accrued for books but not for tax under U.S. tax law | 612,000 |  |  | 634,000 |
Foreign currency loss under U.S. tax law | 68,000 |  |  | 102,000 |
Foreign currency loss under Canadian tax law | 81,000 |  |  | 124,000 |
Other | 116,000 |  |  | 278,000 |
Total gross deferred income tax assets | 17,258,000 |  |  | 16,016,000 |
Less valuation allowance | (12,439,000) |  |  | (12,608,000) |
Net deferred income tax assets | 4,819,000 |  |  | 3,408,000 |
Deferred income tax liabilities: |  |  |
Property and equipment accumulated tax depreciation and depletion in excess of book under Canadian tax law | (926,000) |  |  | (280,000) |
Book basis of investment in land development partnerships in excess of tax basis under U.S. tax law | (133,000) |  |  | (545,000) |
Book basis of investment in land development partnerships in excess of tax basis under U.S. state non-unitary tax law | (40,000) |  |  | (166,000) |
U.S. oil and gas property and equipment accumulated tax depreciation and depletion in excess of book under U.S. tax law | (906,000) |  |  | (121,000) |
U.S. oil and gas property and equipment accumulated tax depreciation and depletion in excess of book under U.S. state tax law | (19,000) |  |  | (23,000) |
U.S. tax law impact of foreign branch deferred tax asset under Canadian tax law | (1,655,000) |  |  | (1,465,000) |
Retirement plan asset accrued for books but not for tax under U.S. tax law | (939,000) |  | (711,000) |
Other | (259,000) |  |  | (285,000) |
Total deferred income tax liabilities | (4,877,000) |  |  | (3,596,000) |
Net deferred income tax liability | $ | (58,000) |  |  | $ | (188,000) |
Reported as: |  |  |
Deferred income tax assets | — |  |  | — |
Deferred income tax liabilities | (58,000) |  |  | (188,000) |
Net deferred income tax liability | $ | (58,000) |  |  | $ | (188,000) |
The asset retirement obligation accrued for books but not for tax under U.S. tax law and the retirement plan asset accrued for books but not for tax under U.S. tax law amounts in the table above were treated as separate items in fiscal 2023 to provide additional specificity as to the nature of the items, and the corresponding fiscal 2022 amounts were reclassified to conform to the current year presentation. The reclassifications had no impact on the previously reported valuation allowance or previously reported net earnings, cash flows, total assets, or stockholders' equity. The total valuation allowance decreased $169,000 for the year ended September 30, 2023. The decrease was due to current fiscal year operational activity that resulted in changes in deferred tax asset and liability balances, and there were no changes in judgment about the realizability of related deferred tax assets in future years. Of the total net decrease in the valuation allowance for fiscal 2023, $4,000 was recognized as an income tax benefit and $165,000 was credited to accumulated other comprehensive income. Net deferred tax assets at September 30, 2023 of $4,819,000 consists of the portion of deferred tax assets that are estimated to be partially realized through corresponding concurrent reversals of deferred tax liabilities related to the Kukio Resort Land Development Partnerships' excess of book income over taxable income, the book basis of property and equipment in excess of tax basis, foreign branch deferred taxes, retirement plan assets accrued for books but not for tax under U.S. tax law, and certain other minor deferred tax liabilities. At September 30, 2023, Barnwell had U.S. federal foreign tax credit carryovers, U.S. federal net operating loss carryovers, U.S. state net operating loss carryovers and Canadian net operating loss carryovers totaling $928,000, $44,790,000, $18,387,000 and $3,816,000, respectively. All four items were fully offset by valuation allowances at September 30, 2023. The U.S. federal net operating loss carryovers generated through September 30, 2018 expire in fiscal years 2032-2038, the U.S. state unitary net operating loss carryovers generated through September 30, 2017 expire in fiscal years 2033-2037, the Canadian net operating loss carryovers expire in fiscal years 2039-2043, and the foreign tax credit carryovers expire in fiscal years 2024-2025. The U.S. federal net operating loss carryovers generated in fiscal years 2019-2023 and the U.S. state net operating loss carryovers generated in fiscal years 2018-2023 have no expiry, however utilization of the U.S. state and U.S. federal net operating loss carryovers generated in these and future years are limited to 80% of taxable income. FASB ASC Topic 740, Income Taxes, prescribes a threshold for recognizing the financial statement effects of a tax position when it is more likely than not, based on the technical merits, that the position will be sustained upon examination by a taxing authority. Barnwell files U.S. federal income tax returns, income tax returns in various U.S. states, and Canadian federal and provincial tax returns. A number of years may elapse before an uncertain tax position, for which we have unrecognized tax benefits, is audited and finally resolved. We believe that our unrecognized tax benefits are reflected on a more likely than not basis. We evaluate uncertain tax positions based on ongoing facts and circumstances. Any change in judgment related to the expected resolution of uncertain tax positions is recognized in earnings in the period in which such change occurs. Interest and penalties, if any, related to unrecognized tax benefits are recorded as a component of income tax expense. Settlement of any particular position could require the use of cash. Favorable resolution for an amount less than the amount estimated by Barnwell would be recognized as a decrease in the effective income tax rate in the period of resolution, and unfavorable resolution in excess of the amount estimated by Barnwell would be recognized as an increase in the effective income tax rate in the period of resolution. Below are the changes in unrecognized tax benefits.
| Year ended September 30,
| 2023 |  | 2022
Balance at beginning of year | $ | 62,000 |  |  | $ | — |
Effect of tax positions taken in prior years | — |  |  | 60,000 |
Accrued interest related to tax positions taken | — |  |  | 2,000 |
Balance at end of year | $ | 62,000 |  |  | $ | 62,000 |
Uncertain tax positions at September 30, 2023 are related to the potential assessment of penalties and interest for the failure to file a certain foreign information form with each of our U.S. federal income tax returns for fiscal years 2019, 2020 and 2021. The Company filed amended U.S. federal income tax returns which included the missing form and statement of reasonable cause for these years in September and October 2023 and requested abatement of any potential penalties and interest which could subsequently be assessed. The Company is awaiting a response from the IRS and the probability of success of the abatement request remains uncertain. Included below is a summary of the tax years, by jurisdiction, that remain subject to examination by taxing authorities at September 30, 2023:
Jurisdiction | Fiscal Years Open
U.S. federal | 2020 – 2022
Various U.S. states | 2020 – 2022
Canada federal | 2016 – 2022
Various Canadian provinces | 2016 – 2022

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