INCOME TAXES

The components of earnings (loss) before income taxes, after adjusting the earnings (loss) for non-controlling interests, are as follows:



	Year ended September 30,
	2017			2016
United States	$	1,522,000		$	(360,000	)
Canada	(1,431,000		)	(3,977,000		)
	$	91,000		$	(4,337,000	)

The components of the income tax benefit related to the above income (loss) are as follows:



	Year ended September 30,
	2017			2016
Current (benefit) provision:
United States – Federal	$	—		$	—
United States – State
Before operating loss carryforwards	118,000			—
Benefit of operating loss carryforwards	(107,000		)	—
After operating loss carryforwards	11,000			—
	11,000			—
Canadian	(823,000		)	(651,000		)
Total current	(812,000		)	(651,000		)
Deferred (benefit) provision:
United States – Federal	—			—
United States – State	11,000			220,000
Canadian	(279,000		)	(291,000		)
Total deferred	(268,000		)	(71,000		)
	$	(1,080,000	)	$	(722,000	)

Consolidated taxes do not bear a customary relationship to pretax results due primarily to the fact that the Company is taxed separately in Canada based on Canadian source operations and in the U.S. based on consolidated operations, and essentially all deferred tax assets, net of relevant offsetting deferred tax liabilities and any amounts estimated to be realizable through tax carryback strategies, are not estimated to have a future benefit as tax credits or deductions. Income from our non-controlling interest in the Kukio Resort land development partnerships is treated as non-unitary for state of Hawaii unitary filing purposes, thus unitary Hawaii losses provide limited sheltering of such non-unitary income. In addition, the current Canadian income tax benefit for the year ended September 30, 2017 includes a $369,000 benefit from the lapsing of the statute of limitations on a previously accrued uncertain tax position in addition to the benefit attributable to the current year Canadian jurisdiction pretax loss.

A reconciliation between the reported income tax benefit and the amount computed by multiplying the earnings (loss) attributable to Barnwell before income taxes by the U.S. federal tax rate of 35% is as follows:



	Year ended September 30,
	2017			2016
Tax provision (benefit) computed by applying statutory rate	$	32,000		$	(1,518,000	)
(Decrease) increase in the valuation allowance	(1,034,000		)	1,102,000
Uncertain tax positions - lapse of statute	(369,000		)	(173,000		)
Additional effect of the foreign tax provision on the total tax provision	254,000			(484,000		)
U.S. state tax provision, before changes in uncertain tax positions and net of federal benefit	22,000			314,000
Other	15,000			37,000
	$	(1,080,000	)	$	(722,000	)

The changes in the valuation allowance shown in the table above exclude the impact of changes in uncertain tax positions and state taxes, the valuation allowance impacts of which are incorporated within the respective reconciliation line items elsewhere in the table.

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities are as follows:



	September 30,
	2017			2016
Deferred income tax assets:
Foreign tax credit carryover	$	3,062,000		$	4,028,000
Alternative minimum tax credit carryover	460,000			460,000
U.S. federal net operating loss carryover	9,773,000			8,728,000
Tax basis of investment in land and residential real estate in excess of book basis	877,000			836,000
Property and equipment accumulated book depreciation and depletion in excess of tax under U.S. tax law	2,180,000			3,611,000
Liabilities accrued for books but not for tax under U.S. tax law	3,910,000			4,843,000
Liabilities accrued for books but not for tax under Canadian tax law	2,103,000			2,303,000
Other	1,091,000			1,108,000
Total gross deferred income tax assets	23,456,000			25,917,000
Less valuation allowance	(21,158,000		)	(23,410,000		)
Net deferred income tax assets	2,298,000			2,507,000
Deferred income tax liabilities:
Property and equipment accumulated tax depreciation and depletion in excess of book under Canadian tax law	(914,000		)	(1,012,000		)
Book basis of investment in land development partnerships in excess of tax basis	(1,289,000		)	(1,668,000		)
Other	(31,000		)	(31,000		)
Total deferred income tax liabilities	(2,234,000		)	(2,711,000		)
Net deferred income tax asset (liability)	$	64,000		$	(204,000	)
Reported as:
Deferred income tax assets	300,000			—
Deferred income tax liabilities	(236,000		)	(204,000		)
Net deferred income tax asset (liability)	$	64,000		$	(204,000	)

The total valuation allowance decreased $2,252,000 for the year ended September 30, 2017. The decrease was primarily due to decreases in various deferred tax assets for which a full valuation allowance had been provided, partially offset by an increase in the valuation allowance for deferred tax assets under U.S. federal tax law primarily related to an increase in U.S. federal net operating loss carryovers that are not more likely than not to have a future tax benefit. The decrease was also attributable to changes in the estimate of the future benefit of deferred tax assets under Canadian tax law from changes in the impacts of offsetting reversals of relevant deferred tax liabilities and changes in the amounts available for realization through tax strategies. Of the total net decrease in the valuation allowance for fiscal 2017, $1,454,000 was recognized as an income tax benefit and $798,000 was credited to accumulated other comprehensive loss.

Net deferred tax assets at September 30, 2017 of $2,298,000 consists of the portion of deferred tax assets for which it is estimated that it is more likely than not that such future deductions will be realizable as the result of concurrent deferred tax liability reversals or tax loss carryback strategies under Canadian tax law.

At September 30, 2017, Barnwell had foreign tax credit carryovers, alternative minimum tax credit carryovers, and U.S. federal net operating loss carryovers totaling $3,062,000, $460,000 and $28,743,000, respectively. All three items were fully offset by valuation allowances at September 30, 2017. The net operating loss carryovers expire in fiscal years 2032-2037, and the foreign tax credit carryovers expire in fiscal years 2019-2025.

FASB ASC Topic 740, Income Taxes, prescribes a threshold for recognizing the financial statement effects of a tax position when it is more likely than not, based on the technical merits, that the position will be sustained upon examination by a taxing authority.

Below are the changes in unrecognized tax benefits.



	Year ended September 30,
	2017			2016
Balance at beginning of year	$	377,000		$	582,000
Effect of tax positions taken in prior years	—			—
Accrued interest related to tax positions taken	11,000			20,000
Settlements	(10,000		)	—
Lapse of statute	(369,000		)	(173,000		)
Translation adjustments	(9,000		)	(52,000		)
Balance at end of year	$	—		$	377,000

The Company has no remaining uncertain tax positions as of September 30, 2017. Included in the liability for unrecognized tax benefits at September 30, 2016, was accrued interest of $35,000. Uncertain tax positions as of September 30, 2016 consisted primarily of Canadian federal and provincial issues that involved transfer pricing adjustments.

Included below is a summary of the tax years, by jurisdiction, that remain subject to examination by taxing authorities at September 30, 2017:



Jurisdiction	Fiscal Years Open
U.S. federal	2014 – 2016
Various U.S. states	2014 – 2016
Canada federal	2010 – 2016
Various Canadian provinces	2010 – 2016