USBC, Inc. Income Taxes Disclosure

11. INCOME TAXES 

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 reconciliation of the United States Federal Statutory rate to the Company’s effective tax rate for the years ended September 30, 2025 and 2024 is as follows:

The Company’s effective tax rate differs from the federal statutory rate for the year ended September 30, 2025 principally due to the tax effect of nondeductible expenses in addition to the deferred tax expense to record a valuation allowance against the Company’s deferred tax asset due to the net operating loss incurred during each of the periods presented.   

The tax effects of temporary differences that give rise to the principal components of the Company’s deferred tax assets and liabilities as of September 30, 2025 and 2024 are as follows:

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

As of September 30, 2025, the Company had federal net operating loss carryforwards of approximately $76.6 million, expiring in 2028-2038. In accordance with IRC Section 172, losses incurred after 2017 having 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 has 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 and $17.4 million was established as of September 30, 2025 and 2024, respectively. 

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 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.

The company recognized an income tax benefit of $172,843 for the year ended September 30, 2025 and did not have an income tax benefit for the year ended September 30, 2024.

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

As of September 30, 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 years ended September 30, 2025 and 2024, the Company did not have any interest and penalties.