New ERA Energy & Digital, Inc. Income Taxes Disclosure

NOTE 13. 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.

 

The components of the Company’s consolidated provision for income taxes from operations are as follows:

 

		December 31, 2025				December 31, 2024
Current provision for income taxes:
Federal			-				-
State			-				-
Total current provision for income taxes			-				-
Deferred income tax benefit:
Federal			-				515,428
State			-				93,072
Total deferred income tax benefit			-				608,500
Total provision for income taxes			-				608,500

 

The Company and its subsidiaries are subject to income taxes on income arising in, or derived from, the tax jurisdictions in which they operate. The Company files federal and New Mexico income tax returns. The Company is current with all its federal and state tax filings. The 2024 through 2025 tax years generally remain subject to examination by the IRS and various state taxing authorities, although the Company is not currently under examination in any jurisdiction.

A reconciliation of the U.S. federal statutory rate to the Company’s effect income tax rate is as follows:

 

		December 31, 2025				Tax Rate				December 31, 2024				Tax Rate
Tax statutory rate			21	%			-				21	%			-
Income tax benefit at the federal statutory rate			(6,213,019	)			21	%			(2,766,516	)			21	%
Change in tax rates			-				-				(21,329	)			0.16	%
Nondeductible expenses			62,209				(0.21	)%			1,232,605				(9.36	)%
Return-to-provision adjustment			-				-				16,729				(0.13	)%
State taxes, net of federal benefit			(1,365,187	)			4.61	%			(340,455	)			2.58	%
Change in valuation allowance			7,515,997				(25.4	)%			2,487,466				(18.88	)%
Other			-				-				-				-
Income tax benefit			-				-				608,500				(4.62	)%
Effective income tax rate			0.0	%							(4.6	)%

 

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 December 31, 2025 and 2024 are as follows:

 

		December 31, 2025				December 31, 2024
Deferred tax assets:
Depreciation and depletion on oil and gas assets			2,560,721				691,341
Impairment			1,445,828				-
Stock based compensation			100,360				311,178
Bad debt			102,557				-
Net operating loss carryforwards			5,831,512				1,494,132
Total deferred tax assets			10,040,978				2,496,651
Deferred tax liabilities:
Prepaid expense			(33,733	)			(4,564	)
Other PPE depreciation			(3,782	)			(4,621	)
Total deferred tax assets (liabilities)			(37,515	)			(9,185	)
Net deferred tax assets (liabilities)			10,003,463				2,487,466
Valuation allowance			(10,003,463	)			(2,487,466	)
Net			-				-

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.

 

As of December 31, 2025 and 2024, the Company has $22,725,194 and $5,822,578 federal net operating losses. The remaining net operating losses are subject to the 80% taxable income limitation. As of December 31, 2025 and 2024, the Company has $22,725,194 and $5,822,578 state net operating losses.

 

When more than a 50% change in ownership occurs, over a three-year period, as defined, the Tax Reform Act of 1986 limits the utilization of net operating loss carry forwards in the years following the change in ownership. In December 2024, the Company issued common stock to various parties in connection with the business combination. A Section 382 ownership study has not been completed yet. The management will continue to evaluate the occurrence of ownership change and the impact on utilization of prior year NOL.

 

We have evaluated whether there were material uncertain tax positions requiring recognition in our financial statements. During the years ended December 31, 2025 and 2024, the Company recognized $0 uncertain tax liability.