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INCOME TAXES | 12 Months Ended
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Sep. 30, 2024
Income Tax Disclosure [Abstract] |
INCOME TAXES | INCOME TAXES The components of loss before income taxes, after adjusting the loss for non-controlling interests, are as follows:
| Year ended September 30,
| 2024 |  | 2023
United States | $ | (2,820,000) |  |  | $ | (2,414,000) |
Canada | (2,532,000) |  |  | 1,400,000 |
| $ | (5,352,000) |  |  | $ | (1,014,000) |
The components of the income tax provision (benefit) related to the above losses are as follows:
| Year ended September 30,
| 2024 |  | 2023
Current provision: |  |  |
United States – State |  |  |
Before operating loss carryforwards | $ | 23,000 |  |  | $ | 47,000 |
Benefit of operating loss carryforwards | — |  |  | — |
After operating loss carryforwards | 23,000 |  |  | 47,000 |
Canadian |  |  |
Before operating loss carryforwards | 148,000 |  |  | 274,000 |
Benefit of operating loss carryforwards | — |  |  | (244,000) |
After operating loss carryforwards | 148,000 |  |  | 30,000 |
Total current | 171,000 |  |  | 77,000 |
Deferred provision (benefit): |  |  |
United States – State | 42,000 |  |  | (130,000) |
Total deferred | 42,000 |  |  | (130,000) |
| $ | 213,000 |  |  | $ | (53,000) |
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. A reconciliation between the reported income tax expense (benefit) and the amount computed by multiplying the loss attributable to Barnwell before income taxes by the U.S. federal tax rate of 21% is as follows:
| Year ended September 30,
| 2024 |  | 2023
Tax benefit computed by applying statutory rate | $ | (1,124,000) |  |  | $ | (213,000) |
Increase in the valuation allowance | 1,383,000 |  |  | 182,000 |
Additional effect of the foreign tax provision on the total tax provision | (129,000) |  |  | (4,000) |
U.S. state income tax provision (benefit), net of federal effect | 70,000 |  |  | (9,000) |
U.S. state provision to tax return adjustments | (12,000) |  |  | (106,000) |
Other | 25,000 |  |  | 97,000 |
| $ | 213,000 |  |  | $ | (53,000) |
The change in the valuation allowance shown in the table above excludes 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,
| 2024 |  | 2023
Deferred income tax assets: |  |  |
Foreign tax credit carryover under U.S. tax law | $ | 916,000 |  |  | $ | 928,000 |
U.S. federal net operating loss carryover | 10,382,000 |  |  | 9,406,000 |
U.S. state unitary net operating loss carryovers | 1,334,000 |  |  | 1,177,000 |
Canadian net operating loss carryovers | 1,331,000 |  |  | 1,025,000 |
Tax basis of investment in land in excess of book basis under U.S. tax law | 11,000 |  |  | 25,000 |
Property and equipment accumulated book depreciation and depletion in excess of tax under U.S. tax law | 548,000 |  |  | 275,000 |
Asset retirement obligation accrued for books but not for tax under U.S. tax law | 907,000 |  |  | 1,084,000 |
Asset retirement obligation accrued for books but not for tax under Canadian tax law | 2,141,000 |  |  | 2,461,000 |
Other liabilities accrued for books but not for tax under U.S. tax law | 669,000 |  |  | 612,000 |
Foreign currency loss under U.S. tax law | 68,000 |  |  | 68,000 |
Foreign currency loss under Canadian tax law | 79,000 |  |  | 81,000 |
Other | 168,000 |  |  | 116,000 |
Total gross deferred income tax assets | 18,554,000 |  |  | 17,258,000 |
Less valuation allowance | (13,896,000) |  |  | (12,439,000) |
Net deferred income tax assets | 4,658,000 |  |  | 4,819,000 |
Deferred income tax liabilities: |  |  |
Property and equipment accumulated tax depreciation and depletion in excess of book under Canadian tax law | (117,000) |  |  | (926,000) |
Book basis of investment in land development partnerships in excess of tax basis under U.S. tax law | (282,000) |  |  | (133,000) |
Book basis of investment in land development partnerships in excess of tax basis under U.S. state non-unitary tax law | (86,000) |  |  | (40,000) |
U.S. oil and gas property and equipment accumulated tax depreciation and depletion in excess of book under U.S. tax law | (698,000) |  |  | (906,000) |
U.S. oil and gas property and equipment accumulated tax depreciation and depletion in excess of book under U.S. state tax law | (16,000) |  |  | (19,000) |
U.S. tax law impact of foreign branch deferred tax asset under Canadian tax law | (2,215,000) |  |  | (1,655,000) |
Asset for retirement benefits | (1,029,000) |  | (939,000) |
Other | (315,000) |  |  | (259,000) |
Total deferred income tax liabilities | (4,758,000) |  |  | (4,877,000) |
Net deferred income tax liability | $ | (100,000) |  |  | $ | (58,000) |
Reported as: |  |  |
Deferred income tax assets | $ | — |  |  | $ | — |
Deferred income tax liabilities | (100,000) |  |  | (58,000) |
Net deferred income tax liability | $ | (100,000) |  |  | $ | (58,000) |
The total valuation allowance increased $1,457,000 for the year ended September 30, 2024. The increase 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 increase in the valuation allowance for fiscal 2024, $1,392,000 was recognized as an income tax expense and $65,000 was charged to accumulated other comprehensive income. Net deferred tax assets at September 30, 2024 of $4,658,000 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, asset for retirement benefits accrued for books but not for tax under U.S. tax law, and certain other minor deferred tax liabilities. At September 30, 2024, 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 $916,000, $49,439,000, $20,848,000 and $4,958,000, respectively. 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 2039-2044, and the foreign tax credit carryover expires in fiscal year 2025. The U.S. federal net operating loss carryovers generated in fiscal years 2019-2024 and the U.S. state net operating loss carryovers generated in fiscal years 2018-2024 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 or unfavorable resolution for an amount less than or greater than the amount estimated by Barnwell will result in a decrease or increase to income tax expense in the period of resolution. There were no changes in unrecognized tax benefits during the years ended September 30, 2024 or 2023.
| Year ended September 30,
| 2024 |  | 2023
Balance at beginning of year | $ | 62,000 |  |  | $ | 62,000 |
Effect of tax positions taken in prior years | — |  |  | — |
Accrued interest related to tax positions taken | — |  |  | — |
Balance at end of year | $ | 62,000 |  |  | $ | 62,000 |
Uncertain tax positions at September 30, 2024 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, 2024:
Jurisdiction | Fiscal Years Open
U.S. federal | 2019 – 2023
Various U.S. states | 2021 – 2023
Canada federal | 2017 – 2023
Various Canadian provinces | 2017 – 2023

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