US ENERGY CORP Income Taxes Disclosure

11. INCOME TAXES

 

Adoption of ASU 2023-09

 

The Company adopted Accounting Standards Update (ASU) 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, effective January 1, 2025. The amendments expand the Company’s income tax disclosure requirements but do not impact its consolidated financial position, results of operations, or cash flows.

 

Components of Income Tax Expense

 

The components of the income tax provision for the years ended  December 31, 2025 and 2024 are as follows:

 

		2025				2024
		(in thousands)
Current:
Federal		$	-			$	-
State			6				36
Total current income tax		$	6			$	36
Deferred:
Federal		$	-			$	456
State			-				(472	)
Total deferred income taxes		$	-			$	(16	)
Total income tax expense (benefit)		$	6			$	20

 

Rate Reconciliation

 

The following table presents a reconciliation of the U.S. federal statutory income tax rate to the Company’s effective income tax rate for the years ended  December 31, 2025 and 2024 ($ in thousands):

 

		2025						%		2024						%
Reconciling Item
Pretax income (loss)			(14,368	)			0.0	%		$	(25,613	)			0.0	%
Tax at U.S. federal statutory rate (21%)			(3,032	)			21.0	%			(5,410	)			21.0	%
State income taxes, net of federal benefit			5				1.7	%			(444	)			1.6	%
Tax credits			-				0.0	%			-				0.0	%
Foreign tax effects			-				0.0	%			-				0.0	%
Effects of tax law changes			-				0.0	%			-				0.0	%
Nondeductible expenses			93				0.6	%			155				0.7	%
Changes in valuation allowance			2,911				22.1	%			5,705				20.1	%
Changes in unrecognized tax benefits			-				0.0	%			-				0.0	%
Other, net			28				0.0	%			13				-0.9	%
Income tax expense (benefit)		$	6				0.1	%		$	20				-2.7	%

 

The Company’s effective tax rate differs from the U.S. federal statutory rate primarily due to changes in valuation allowance, state income taxes, and nondeductible expenses. The Company does not have foreign operations, tax credit activity, or uncertain tax positions that materially impact the effective tax rate.

 

Deferred Tax Assets and Liabilities

 

The components of deferred tax assets and liabilities as of December 31, 2025 and 2024 are as follows:

 

	2025			2024
	(in thousands)
Deferred tax assets:
Net operating loss carryover	$	13,613		$	9,787
Property and equipment		7,808			6,781
Percentage depletion and contribution carryovers		2,007			1,988
Deferred compensation liability		9			188
Asset retirement obligations		1,843			3,215
Stock-based compensation		408			379
Lease obligations		94			138
Other		218			220
Total deferred tax assets		26,000			22,695
Deferred tax liabilities:
Lease assets		(81	)		(119	)
Total deferred tax liabilities		(81	)		(119	)
Net deferred tax assets		25,919			22,576
Less valuation allowance		(25,919	)		(22,576	)
Net deferred tax liability	$	-		$	-

 

Cash Taxes Paid

 

Cash paid for income taxes was as follows for the years ended  December 31, 2025 and 2024 (in thousands):

 

		2025				2024
		(in thousands)
Jurisdiction:
Federal			-				-
State			-				17
Foreign			-				-
Total Cash Taxes Paid		$	-			$	17

 

The Company has no foreign operations.

 

Other Disclosures 

 

As of December 31, 2025, the Company has approximately $28.1 million in net operating loss carryovers for federal income tax purposes. Net operating losses incurred prior to January 5, 2022 are subject to an Internal Revenue Code (IRC) Section 382 limitations due to a change of control on that date.

 

The Company also has approximately $10.6 million of realized built-in loss ("RBIL") carryovers that carry forward indefinitely subject to annual limitations.

 

The Company recognizes, measures, and discloses uncertain tax positions under the “more-likely-than-not” threshold. The Company has no uncertain tax positions. 

 

The Company files income tax returns in U.S. federal and multiple state jurisdictions. It is generally not subject to federal tax examinations for years prior to 2021 and remains open for various state tax examinations for tax years 2020 and later.