NOTE 11 – INCOME TAXES:
At September 30, 2017 and 2016, we had deferred tax assets arising principally from net operating loss carryforwards for income tax purposes. As our management cannot determine that it is more likely than not that we will realize the benefit of the net deferred tax asset, a valuation allowance equal to 100% of the net deferred tax asset has been recorded at September 30, 2017 and 2016.
The components of our deferred taxes at September 30, 2017 and 2016 are as follows:
| Timberline Resources Corp. (39% effective rate) |
| 2017 |
| 2016 |
| Net deferred tax assets: |
|
|
|
|
| Exploration costs | $ | 684,000 | $ | 847,000 |
| Long-term investments |
| 282,000 |
| 213,000 |
| Share-based compensation |
| 2,181,000 |
| 2,224,000 |
| Alternative minimum tax credit carryforwards |
| 2,000 |
| 2,000 |
| Foreign income tax credit carryforwards |
| 697,000 |
| 697,000 |
| Federal and state net operating loss carryforwards |
| 15,097,000 |
| 14,442,000 |
| Foreign net operating loss carryforwards |
| 1,736,000 |
| 1,736,000 |
| Total deferred tax asset |
| 20,679,000 |
| 20,161,000 |
| Valuation allowance |
| (20,679,000) |
| (20,161,000) |
| Net deferred tax asset | $ | - | $ | - |
|
|
|
|
|
|
| BH Minerals USA, Inc. (35% effective rate) |
|
|
|
|
| Net deferred tax assets (liabilities): |
|
|
|
|
| Property, mineral rights, and equipment | $ | (3,807,000) | $ | (3,809,000) |
| Exploration costs |
| 1,709,000 |
| 2,075,000 |
| Federal and state net operating loss carryforwards |
| 5,091,000 |
| 4,655,000 |
| Total deferred tax asset |
| 2,993,000 |
| 2,921,000 |
| Valuation allowance |
| (2,993,000) |
| (2,921,000) |
| Net deferred tax asset | $ | - | $ | - |
During the year ended September 30, 2017, the Company recognized a tax provision of $68,985, and during the year ended September 30, 2016, the Company recognized an income tax benefit of $68,985, both relating to unrealized gains on available-for-sale equity securities.
The federal income taxes of our wholly owned subsidiary, BH Minerals USA, Inc., are not consolidated with those of the rest of the Company since BH Minerals USA, Inc. is wholly owned by our Canadian subsidiary, Staccato Gold Resources Ltd.
At September 30, 2017, the Company’s total net deferred tax assets prior to the valuation allowance were $23,672,000 compared to $23,082,000 at September 30, 2016. The change is primarily due to the increase in net operating loss.
The annual tax benefit is different from the amount that would be provided by applying the statutory federal income tax rate to our pretax loss for the following reasons:
|
|
| 2017 |
| 2016 |
|
|
|
|
|
|
|
|
|
|
| (1,576,815) |
| (2,826,227) |
|
| Statutory Federal income tax rate |
| 35% |
| 35% |
|
|
|
|
|
|
|
|
| Expected income tax benefit based on statutory rate | $ | (551,885) | $ | (989,179) |
|
| Stock-based compensation |
| - |
| 150,413 |
|
| Effect of state taxes |
| (14,857) |
| (7,036) |
|
| Effect of tax rate changes |
| - |
| - |
|
| Non-recognition due to increase in valuation allowance |
| 590,887 |
| 808,666 |
|
| Other |
| 44,840 |
| 37,136 |
|
|
|
| 68,985 |
| - |
|
| Deferred taxes on unrealized gains |
| - |
| (68,985) |
|
| Income tax provision (benefit) | $ | 68,985 | $ | (68,985) | |
It is not anticipated that there will be any significant changes to unrecognized tax benefits within the next twelve months. If interest and penalties were to be assessed, we would charge interest to interest expense, and penalties to other operating expense. Fiscal years 2014 through 2017 remain subject to examination by state and federal tax authorities.
At September 30, 2017, we had federal net operating loss carryforwards of approximately $31.7 million which will expire in fiscal years ending September 30, 2020 through September 30, 2037. Approximately $14.5 million of state net operating loss carryforwards will expire in fiscal years ending September 30, 2018 through September 30, 2037.
BH Minerals has federal net operating loss carryforwards of $14,546,000 which will expire in fiscal years ending September 30, 2031 through September 30, 2037.
At September 30, 2017, we also have approximately $6.7 million in net operating loss carryforwards in Canada which will expire in fiscal years ending September 30, 2024 through September 30, 2031.
At September 30, 2017, we have $697,000 of foreign tax credit carryforwards that will expire September 30, 2020.
IRS Code Section 382 limits the loss and credit carryforwards in the event of an “ownership change” of a corporation. Due to the change in ownership in 2004, we are restricted in the future use of net operating losses generated before the ownership change. As of September 30, 2017, this limitation is applicable to accumulated federal net operating losses of approximately $240,000.
As a result of a previous acquisition, the Company acquired $9,300,000 of federal net operating loss carryover that is limited by Code Section 382. As of September 30, 2017, the Company has not determined if any other losses are limited by IRS Code Section 382 after the acquisition.
We have reviewed our tax returns and believe we have not taken any unsubstantiated tax positions.