Income Tax

12 Months Ended

Dec. 31, 2022

Income Tax

Income Tax

Note 17. Income Tax

Amplify Energy is a corporation and, as a result, is subject to U.S. federal, state, and local income taxes.

In August 2022, the President of the United States signed the Inflation Reduction Act (IRA), to respond to the high inflation and its economic effects. The enactment of the IRA did not impact the Company’s current year income tax provision.  

The components of income tax benefit (expense) are as follows:

	For the Year Ended
	December 31,
	2022		2021
	(In thousands)
Current taxes:
Federal	$	—	$	—
State		(111)		—
Total current income tax benefit (expense)		(111)		—
Deferred taxes:
Federal		—		—
State		—		—
Total deferred income tax benefit (expense)		—		—
Total income tax benefit (expense)	$	(111)	$	—

The actual income tax benefit (expense) differs from the expected amount computed by applying the federal statutory corporate tax rate of 21% in 2022 and in 2021 as follows:

	For the Year Ended
	December 31,
	2022		2021
	(In thousands)
Expected tax benefit (expense) at federal statutory rate	$	(12,177)	$	6,734
Changes in valuation allowances		12,267		3,192
Federal prior year adjustments		1,673		—
Fines & penalties		(1,939)		—
State income tax benefit (expense), net of federal benefit		(1,859)		447
State rate change, net of federal benefit		1,532		(10,192)
State prior year adjustment		(234)		(1,281)
PPP loan forgiveness		—		1,158
Other		626		(58)
Total income tax benefit (expense)	$	(111)	$	—

The Company’s deferred income tax position reflects the net tax effects of the temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax reporting. Significant components of the deferred tax assets and liabilities are as follows (in thousands):

	December 31,
	2022		2021
Deferred income tax assets:
Property, plant & equipment	$	82,152	$	94,439
Net operating loss carryforward		183,050		178,279
Derivatives		4,800		14,438
Disallowed interest expense		7,467		5,579
Accrued liabilities		2,008		1,592
Other		7,103		3,469
Total deferred income tax assets:		286,580		297,796
Valuation allowance		(284,928)		(297,195)
Net deferred income tax assets		1,652		601
Deferred income tax liabilities:
Derivatives	$	—	$	—
Other		1,652		601
Total deferred income tax liabilities		1,652		601
Net deferred income taxes	$	—	$	—

Net Operating Loss Carryforward. As of December 31, 2022, the Company had approximately $796.6 million of federal net operating loss (“NOL”) carryforwards. In connection with the merger with Midstates in 2019, the Company was subject to IRC §382 loss limitations on pre-merger NOL and tax attributes. As of December 31, 2022, the Company had a federal NOL carryforward of $768.4 million subject to §382 loss limitations, of which $20.6 million will expire in 2037 and $747.8 million have no expiration. As of December 31, 2022, the Company has a $28.2 million federal NOL carryforward. All post-merger NOLs are not subject to §382 loss limitations and do not expire.

As of December 31, 2022, the Company had approximately $453.7 million of state net operating loss carryovers, of which $399.5 million have no expiration period and the remaining will expire in varying amounts beginning in 2037.

Valuation Allowance. In assessing deferred tax assets, the Company considers whether a valuation allowance should be recorded for some or all of the deferred tax assets which may not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which the temporary differences become deductible. Among other items, the Company considers the scheduled reversal of deferred tax liabilities, projected future taxable income and available tax planning strategies. As of December 31, 2022, a full valuation allowance of $284.9 million has been recorded against the Company’s total deferred income tax assets, reducing the balance to nil.

Uncertain Income Tax Position. The Company must recognize the tax effects of any uncertain tax positions that the Company may adopt if the position taken by us is more likely than not sustainable based on its technical merits. For those benefits to be recognized, an income tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. The Company had no unrecognized tax benefits as of December 31, 2022.

Tax Audits and Settlements. The Company’s income tax years 2019 through 2021 remain open and subject to examination by the Internal Revenue Service (IRS). For state and local jurisdictions where the Company conduct operations, the Company’s 2018 through 2021 tax years remain open and subject to examination. In certain jurisdictions where the Company operates through more than one legal entity, each of which may have different open years subject to examination.