INCOME TAXES

9 Months Ended

Jun. 30, 2011

INCOME TAXES

INCOME TAXES

8. INCOME TAXES

The components of the income tax provision for the three and nine months ended June 30, 2011 and 2010 are as follows:

	Three months ended							Nine months ended
	June 30,							June 30,
	2011			2010				2011			2010
Current		$	43,000		$	(627,000	)		$	727,000		$	(15,000	)
Deferred		357,000			345,000				552,000			867,000
		$	400,000		$	(282,000	)		$	1,279,000		$	852,000

Barnwell’s effective consolidated income tax rate for the three and nine months ended June 30, 2011, after adjusting (loss) earnings before income taxes for non-controlling interests, was approximately 33% and 75%, respectively, as compared to approximately (881%) and 18% for the three and nine months ended June 30, 2010, respectively.

Included in the income tax provision for the three months ended June 30, 2011 is a $116,000 benefit primarily from the lapsing of the statute of limitations for an uncertain tax position related to Canadian income taxes.  In addition, the decrease in stock appreciation rights expense during the period did not have a corresponding tax expense as the related deferred tax asset has a full valuation allowance.  These changes were essentially offset by increases in the effective tax rate due to Canadian income taxes that are not estimated to have a future foreign tax credit benefit for U.S. tax purposes.

Included in the income tax provision for the nine months ended June 30, 2011 is a $265,000 benefit primarily from the lapsing of the statute of limitations for uncertain tax positions related to Canadian income taxes.  Offsetting this benefit were increases in the effective tax rate due to the increase in stock appreciation rights expense during the period that did not have a corresponding tax benefit as the related deferred tax asset has a full valuation allowance.  The effective tax rate also increased due to Canadian income taxes that are not estimated to have a future foreign tax credit benefit for U.S. tax purposes.

During the three months ended June 30, 2010, the Company recognized a $213,000 income tax benefit related to a change in the estimated benefit from a net operating loss carryback.  The remainder of the tax benefit for the three months ended June 30, 2010 is due primarily to changes to the estimated effective tax rate for the year.  The estimated effective tax rate is dependent upon estimates of year-end operating results and related deferred tax assets and liabilities.  Changes in facts and circumstances and differences between anticipated and actual outcomes of these future tax considerations will have an impact on the estimated effective tax rate for the fiscal year.  The changes in effective tax rate estimates impacting income taxes for the three months ended June 30, 2010 primarily relate to stock appreciation rights and foreign tax credit carryforwards.

Included in the income tax provision for the nine months ended June 30, 2010 is an approximately $1,465,000 benefit from a change in tax law enacted in November 2009 which expanded the number of years Barnwell can carry back U.S. federal income tax losses.  There was no such benefit in the three and nine months ended June 30, 2011 or in the three months ended June 30, 2010.  Partially offsetting this benefit in the nine months ended June 30, 2010 was an increase in deferred income tax expense due to valuation allowances on U.S. deferred tax assets generated during the period.

Uncertain tax positions consist primarily of Canadian federal and provincial audit issues that involve transfer pricing adjustments.  In November 2010, the Company settled and paid the province of Alberta’s reassessment of Canadian provincial taxes.  The Alberta provincial reassessment resulted from the Canada Revenue Agency’s examination of the Company’s fiscal 2005 and 2006 Canadian federal returns, which was settled in September 2010.  There was no material difference between the province of Alberta’s reassessment and the related uncertain tax provision previously recorded by the Company.  Because of a lack of clarity and uniformity regarding allowable transfer pricing valuations by differing jurisdictions, it is reasonably possible that the total amount of uncertain tax positions may significantly increase or decrease during the next 12 months, and the estimated range of any such variance is not currently estimable based upon facts and circumstances as of June 30, 2011.

Included below is a summary of the tax years, by jurisdiction, that remain subject to examination by taxing authorities at June 30, 2011:

Jurisdiction	Fiscal Years Open
U.S. federal	2006, 2008 – 2010
Various U.S. states	2008 – 2010
Canada federal	2004 – 2010
Various Canadian provinces	2004 – 2010