At September 30, 2019 and 2018, the Company did not record a tax provision or benefit. At September 30, 2019 and 2018, the Company had deferred tax assets arising principally from net operating loss carryforwards for income tax purposes. As the Company’s management cannot determine that it is more likely than not that the Company will realize the benefit of the net deferred tax asset, a valuation allowance equal to 100% of the net deferred tax asset has been recorded at September 30, 2019 and 2018.

The components of the Company’s deferred taxes at September 30, 2019 and 2018 are as follows:

Timberline Resources Corp.		2019		2018
Net deferred tax assets:
Exploration costs	$	32,000	$	218,000
Investments in subsidiaries		184,000		184,000
Share-based compensation		1,452,000		1,451,000
Alternative minimum tax credit carryforwards		2,000		2,000
Foreign income tax credit carryforwards		697,000		697,000
Federal and state net operating loss carryforwards		10,792,000		10,579,000
Foreign net operating loss carryforwards		1,736,000		1,736,000
Total deferred tax asset		14,895,000		14,867,000
Valuation allowance		(14,895,000)		(14,867,000)
Net deferred tax asset	$	-	$	-

BH Minerals USA, Inc.
Net deferred tax assets (liabilities):
Property, mineral rights, and equipment	$	(2,290,000)	$	(2,282,000)
Exploration costs		572,000		810,000
Federal and state net operating loss carryforwards		3,597,000		3,302,000
Total deferred tax asset		1,879,000		1,830,000
Valuation allowance		(1,879,000)		(1,830,000)
Net deferred tax asset	$	-	$	-

The federal income taxes of the Company’s wholly owned subsidiary, BH Minerals USA, Inc., are not consolidated with those of the rest of the Company since BH Minerals USA, Inc. is wholly owned by the Company’s Canadian subsidiary, Staccato Gold Resources Ltd.

The annual tax benefit is different from the amount that would be provided by applying the statutory federal income tax rate to the Company’s pretax loss for the following reasons:

		2019		2018

Net Loss	$	(1,657,000)	$	(5,058,000)
Statutory Federal income tax rate		24.5%		24.5%

Expected income tax benefit based on statutory rate		(406,000)		(1,239,000)
Effect of state taxes		56,000		(47,000)
Effect of tax rate changes		-		8,237,000
Non-recognition due to increase in valuation allowance		77,000		(6,976,000)
Prior year change in estimates		273,000		25,000
Income tax provision	$	-	$	-

At September 30, 2019, the Company had federal net operating loss carryforwards of approximately $44.8 million which will expire in fiscal years ending September 30, 2020 through September 30, 2038. The Company also has federal net operating loss carryforwards of $2.3 million that will not expire and are subject to the 80% of taxable income limitation. Approximately $18.2 million of state net operating loss carryforwards will expire in fiscal years ending September 30, 2020 through September 30, 2039.

BH Minerals has federal net operating loss carryforwards of $16.9 million which will expire in fiscal years ending September 30, 2031 through September 30, 2038. The Company also has federal net operating loss carryforwards of $1.3 million that will not expire and are subject to the 80% of taxable income limitation. At September 30, 2019, the Company also has approximately $6.7 million in net operating loss carryforwards in Canada which will expire in fiscal years ending September 30, 2024 through September 30, 2032. At September 30, 2019, the Company has $697,000 of foreign tax credit carryforwards that will expire September 30, 2020.

The Company has not identified any unrecognized tax benefits. If interest and penalties were to be assessed, the Company would charge interest to interest expense, and penalties to other operating expense. Fiscal years 2016 through 2019 remain subject to examination by state and federal tax authorities. The Company has reviewed its tax returns and believes the Company has not taken any unsubstantiated tax positions.

IRS Code Section 382 limits the loss and credit carryforwards in the event of an “ownership change” of a corporation. Due to the changes in ownership in previous years, the Company will be restricted in the future use of net operating losses generated before the ownership change.