USBC, Inc. Income Taxes Disclosure

11. INCOME TAXES   

The Company has opted to implement ASU 2023-09 on a prospective basis. The Company computes its income tax provision by applying the estimated annual effective tax rate to pretax income or loss and adjusts the income tax provision for discrete tax items recorded in the period. A summary of the income expense (benefit) for the period is as follows:

A reconciliation of the United States Federal Statutory rate to the Company’s effective tax rate for the Transition Period is as follows:

The Company’s effective tax rate differs from the federal statutory rate for the Transition Period principally due to the tax effect of the change in valuation allowance and nondeductible expenses.  

The tax effects of temporary differences that give rise to the principal components of the Company’s deferred tax assets and liabilities as of December 31, 2025 and September 30, 2025 are as follows:

There were no income tax payments made during the Transition Period or the fiscal year ended September 30, 2025.

There were no state or foreign income taxes paid (net of refunds) exceeding 5 percent of total income tax paid (net of refunds).

The Company has incurred net losses since inception, which have generated net operating loss (NOL) carryforwards for federal and state tax purposes. 

As of December 31, 2025, the Company had federal net operating loss carryforwards of approximately $81.8 million, expiring in 2028-2038. In accordance with IRC Section 172, losses incurred after 2017 have an indefinite life. The Company does not recognize the majority of its state tax operating loss carryforwards as deferred tax assets as it no longer has any operation in those states.

Because the Company had previously concluded, based upon all available evidence, it was not “more-likely-than-not” that sufficient tax earnings will be generated to utilize the NOL carryforwards, a corresponding valuation allowance equal to 100% of the Company’s total federal and state deferred tax assets of approximately $5.7 million was established as of September 30, 2025. As of December 31, 2025, the Company has reversed the valuation allowance on its deferred tax assets as the unrealized gain on its digital asset holdings may present future taxable income.

Under the Tax Reform Act of 1986, the amounts of, and benefits from, NOLs may be limited in certain circumstances, including following a change in control. Section 382 and Section 383 of the Internal Revenue Code impose an annual limitation on the amount of U.S. tax attribute carry-forwards when a corporation has undergone a change in control. Based on the Company’s analysis of the change in control that occurred in 2025 as a result of the Goldeneye capital investment, the Section 382/383 limitation in conjunction with the twenty-year carryforward limitation caused approximately $74.1 million of tax attributes to be deemed worthless, which resulted in a write-off of the related deferred tax asset and the corresponding valuation allowance as of September 30, 2025.

As of September 30, 2025, the Company recorded a deferred tax liability with respect to the unrealized gain on its digital asset holdings of approximately $24.0 million to reflect the transfer of the 1,000 Bitcoin to the Company as part of the Goldeneye capital investment in a transaction qualifying under Section 351, and fair value adjustments due to extremely volatile digital asset markets.

As of December 31, 2025, the Company recorded a deferred tax liability with respect to the unrealized gain on its digital asset holdings of approximately $18.4 million related to its Bitcoin holdings and fair value adjustments due to extremely volatile digital asset markets.

The Company recognized an income tax benefit of $15,736,607, and $172,843 for the Transition Period, and the year ended September 30, 2025, respectively.

The Company is subject to possible tax examination by the IRS and various state taxing authorities for the years ended September 30, 2021 through December 31, 2025, although the Company is not currently under examination in any jurisdiction.

As of December 31, 2025, there were no uncertain tax positions. Management does not anticipate any future adjustments in the next twelve months which would result in a material change to its tax position. For the Transition Period and the year ended September 30, 2025, the Company did not have any interest and penalties.