BKV CorpBKV
BKV Corp Income Taxes Disclosure
Note 17 - Income Taxes
The Company's income (loss) before income taxes has been incurred in the United States. The Company’s income tax expense (benefit) consisted of the following:
Tax Expense (Benefit)
| Year Ended December 31, | ||||||||||||||||||||
| (in thousands) | 2025 | 2024 | 2023 | |||||||||||||||||
| Current tax expense (benefit) | ||||||||||||||||||||
| United States federal income tax | $ | (476) | $ | 573 | $ | — | ||||||||||||||
| Various state income taxes | (528) | 633 | (4,169) | |||||||||||||||||
| Total current income tax expense (benefit) | (1,004) | 1,206 | (4,169) | |||||||||||||||||
| Deferred tax expense (benefit) | ||||||||||||||||||||
| United States federal income tax | 36,598 | (44,463) | 29,569 | |||||||||||||||||
| Various state taxes | (163) | (348) | 2,825 | |||||||||||||||||
| Total deferred income tax expense (benefit) | 36,435 | (44,811) | 32,394 | |||||||||||||||||
| Income tax expense (benefit) | $ | 35,431 | $ | (43,605) | $ | 28,225 | ||||||||||||||
In 2025, the Company adopted ASU 2023-09, Income Taxes: Improvement to Income Tax Disclosures (see Note 2 - Summary of Significant Accounting Policies). The following table reconciles the provision for income taxes using the federal statutory rate to the Company's effective tax rate pursuant to the disclosure requirements of ASU 2023-09 for the
years ended December 31, 2025, 2024, and 2023. Income tax expense (benefit) attributable to pre-tax income differed from the amounts computed by applying the U.S. federal statutory income tax rate of 21% to pre-tax income by the following:
| Year Ended December 31, | ||||||||||||||||||||||||||||||||||||||
($ in thousands) | 2025 | 2024 | 2023 | |||||||||||||||||||||||||||||||||||
Amount | Percent | Amount | Percent | Amount | Percent | |||||||||||||||||||||||||||||||||
| Income (loss) before income taxes | $ | 210,275 | $ | (186,475) | $ | 145,143 | ||||||||||||||||||||||||||||||||
| U.S. federal tax at statutory tax rate | $ | 44,158 | 21.0 | % | $ | (39,160) | 21.0 | % | $ | 30,480 | 21.0 | % | ||||||||||||||||||||||||||
| State and local income taxes, net of federal income tax effect | (692) | (0.3) | % | (76) | — | % | (1,344) | (0.9) | % | |||||||||||||||||||||||||||||
Tax credits | ||||||||||||||||||||||||||||||||||||||
Investment tax credit | — | — | % | (1,010) | 0.5 | % | — | — | % | |||||||||||||||||||||||||||||
| Marginal well credit | (10,226) | (4.9) | % | (7,644) | 4.1 | % | — | — | % | |||||||||||||||||||||||||||||
Nontaxable or nondeductible items | ||||||||||||||||||||||||||||||||||||||
| Section 162(m) limitation | 1,756 | 0.8 | % | 8,881 | (4.8) | % | — | — | % | |||||||||||||||||||||||||||||
| Excess tax benefits from vesting of restricted shares | (167) | (0.1) | % | (3,829) | 2.1 | % | (373) | (0.3) | % | |||||||||||||||||||||||||||||
| Section 45Q tax credits | (855) | (0.4) | % | (2,944) | 1.6 | % | (147) | (0.1) | % | |||||||||||||||||||||||||||||
Other, net | 1,391 | 0.7 | % | 67 | — | % | 89 | 0.1 | % | |||||||||||||||||||||||||||||
| Other adjustments | 66 | — | % | 2,110 | (1.1) | % | (480) | (0.3) | % | |||||||||||||||||||||||||||||
| Income tax expense (benefit) | $ | 35,431 | 16.8 | % | $ | (43,605) | 23.4 | % | $ | 28,225 | 19.4 | % | ||||||||||||||||||||||||||
State taxes in Texas and Pennsylvania made up the majority of the tax effect in the state and local income taxes category. Income taxes paid (net of refunds) consisted of the following for the years ended December 31, 2025, 2024, and 2023:
| Year Ended December 31, | ||||||||||||||||||||
| (in thousands) | 2025 | 2024 | 2023 | |||||||||||||||||
Federal | $ | — | $ | — | $ | — | ||||||||||||||
State | 232 | 6 | 1,545 | |||||||||||||||||
Total taxes paid (net of refunds) | $ | 232 | $ | 6 | $ | 1,545 | ||||||||||||||
Deferred income taxes reflect the impact of temporary differences between assets and liabilities for financial reporting purposes and such amounts as measured by tax laws. The tax effect of the temporary differences giving rise to net deferred tax assets and liabilities is as follows:
Recognized Deferred Income Tax Assets and Liabilities
| December 31, | ||||||||||||||
| (in thousands) | 2025 | 2024 | ||||||||||||
| Deferred tax assets | ||||||||||||||
| Fair value of derivative financial instruments | $ | — | $ | 9,018 | ||||||||||
| Asset retirement obligations | 51,528 | 46,240 | ||||||||||||
| Equity-based compensation | 1,649 | 494 | ||||||||||||
| Contingent consideration | 353 | 4,597 | ||||||||||||
| Interest expense carryforward | 34,837 | 33,029 | ||||||||||||
| Net operating loss carryforward | 67,692 | 35,826 | ||||||||||||
| Accrued bonuses | 5,226 | 4,218 | ||||||||||||
| Marginal well credit | 23,669 | 13,180 | ||||||||||||
| Other | 4,441 | 7,373 | ||||||||||||
| Total deferred tax asset | 189,395 | 153,975 | ||||||||||||
| Deferred tax liabilities | ||||||||||||||
| Property and equipment | (243,355) | (193,977) | ||||||||||||
| Investment in joint venture | (50,766) | (46,226) | ||||||||||||
| Fair value of derivative financial instruments | (15,240) | — | ||||||||||||
| Other | (3,389) | (2,460) | ||||||||||||
| Total deferred tax liability | (312,750) | (242,663) | ||||||||||||
| Deferred tax liability, net | $ | (123,355) | $ | (88,688) | ||||||||||
As of December 31, 2025, the Company has an NOL carryforward deferred tax asset for federal tax purposes of $66.3 million, which does not expire and a NOL carryforward deferred tax asset for state tax purposes of $1.3 million, which expires between 2043 and 2045. In addition, as of December 31, 2025, the Company has a Section 163(j) interest expense carryforward deferred tax asset of $34.8 million, which does not expire, marginal well credits of $23.7 million that expire between 2040 and 2045, and investment tax credits of $1.0 million that expire in 2044. Section 382 of the Code limits the use of NOL carryforwards, which includes Section 163(j) interest expense carryforwards and tax credit carryforwards in certain situations where changes occur in the stock ownership of a company. If the Company were to experience an ownership change of more than 50% of the value of its capital stock, utilization of its NOL, interest expense, and tax credit carryforwards could be subject to limitation. As of December 31, 2025, management does not believe that the Company has experienced an ownership change, and therefore, does not believe that its NOL, Section 163(j) interest expense, and tax credit carryforwards are currently subject to limitation under Section 382.
Due to the proportional change in BNAC's beneficial ownership of the Company following the IPO, the Company was deconsolidated from BNAC for federal income tax purposes. In accordance with the Code and related regulations, the Company allocated the cumulative NOL carryforwards, Section 163(j) interest expense carryforwards, and other general business tax credits between BNAC and the Company. These allocations impacted the Company's deferred tax liability, net balance by increasing the NOL carryforward by $1.8 million and $14.3 million as of December 31, 2025 and 2024, respectively, and increasing general business tax credits by $2.5 million, while reducing the Section 163(j) interest expense carryforward by $6.3 million as of December 31, 2024. The net impact was recorded as an adjustment to additional paid-in capital, as reflected in the table above.
In assessing the realizability of deferred tax assets, management considers whether some portion or all of the deferred tax assets will be realized based on a more-likely-than-not standard of judgment. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which the Company’s temporary differences become deductible. Management considers the scheduled reversal of deferred tax assets and liabilities, projected future taxable income, and tax planning strategies in making this assessment. Accordingly, as of December 31, 2025 and 2024, the Company has not recognized a valuation allowance against its deferred tax assets.
The calculation of the Company’s tax liabilities involves uncertainties in the application of complex tax laws and regulations. The Company recognizes those tax positions that it believes are more-likely-than-not to be sustained upon examination by the Internal Revenue Service or state revenue authorities. The Company had no unrecognized tax benefits during the years ended December 31, 2025, 2024, and 2023 and had no unrecognized tax benefit balances as of December 31, 2025 and 2024. The Company is generally subject to potential federal and state examination for the tax years on and after December 31, 2022. For Texas, the Company is subject to examination for the tax years on and after December 31, 2021.
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Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Mar 6, 2026 | Showing above |
| 2024 | Mar 31, 2025 | |
About Income Taxes Disclosures
The income tax disclosure reveals how much a company actually pays in taxes versus what the statutory rate would predict. Analysts focus on the effective tax rate (ETR) reconciliation, which breaks down every item driving the gap between the 21% federal rate and the company's reported ETR — including R&D credits, foreign rate differentials, and state taxes. Deferred tax assets (DTAs) and their valuation allowances signal management's confidence in future profitability: a rising allowance suggests the company doubts it can use accumulated tax benefits. Uncertain tax benefit (UTB) reserves quantify exposure to IRS challenges on aggressive positions.
Key signals to watch: sudden ETR drops without clear operational reasons, large increases in valuation allowances, growing UTB balances, and significant unremitted foreign earnings. Post-TCJA, pay attention to GILTI and BEAT provisions that affect multinational tax structures. Compare the cash taxes paid (from the cash flow statement) against the income tax provision to gauge earnings quality.