15. INCOME TAX

Prior to the RTO, Origination was not subject to U.S. income taxes because, as a limited liability company classified as a partnership for U.S. federal income tax purposes, it was treated as a pass-through entity for income tax purposes. As such the members of Origination were subject to income tax with respect to each such member’s allocable share of Origination’s taxable income. Subsequent to the RTO, while Origination remains classified as a partnership for U.S. federal income tax purposes, the Company is taxed as a United States corporation and is subject to U.S. federal (and applicable state) income tax on its allocable share of pass-through taxable income from Origination. Thus, any tax effects related to the Company, together with its share of Origination’s activity, are included in these consolidated financial statements. Any taxable income or loss of Origination that is attributed to its other members is not taxable by the Company. The Company is also taxed as a Canadian corporation and is subject to Canada federal and provincial income tax for its share of Origination’s taxable income combined with its own activity.

The Company's effective income tax rates (benefits) were (4.5%) and 5.9% for the years ended December 31, 2022, and 2021, respectively. The overall change in the Company's effective tax rate for the year ended December 31, 2022, from the previous year is primarily due to: (i) changes in amounts of income (loss) not subject to corporate tax and, (ii) current year activity causing the reversal of a previously recorded deferred tax expense resulting from temporary differences in items related to cost recovery of oil and natural gas properties.

For the years ended December 31, 2022, and 2021, the Company recorded income tax expense (benefit) of ($1,928,319) and $1,928,319, respectively. The Company’s provision for income taxes is comprised of the following items for the period indicated.

Year ended December 31,		2022			2021
Current income tax expense:
United States federal	$	-		$	-
State		-			-
Total current income tax expense		-			-
Deferred income tax expense (benefit):
United States federal	$	(1,928,319	)	$	1,928,319
State		-			-
Total deferred income tax expense (benefit)	$	(1,928,319	)	$	1,928,319
Total income tax expense (benefit)	$	(1,928,319	)	$	1,928,319

The difference in the Company's income tax provision calculated using its effective tax rates (benefits) of (4.5%) and 5.9% for the years ended December 31, 2022, and 2021, respectively, from the amounts calculated by applying the U.S. federal income tax rate of 21% to its pretax income (loss) from continuing operations were due to the following items for the periods indicated:

Year ended December 31,		2022			2021
Net income (loss) before taxes	$	42,485,033		$	(30,654,438	)
U. S. federal statutory income tax rate		21%			21%
Expected federal taxes at statutory rate		8,921,857			(6,437,432	)
Increase (decrease) resulting from:
Canadian income tax		-			-
Non-controlling interests		(7,766,896	)		54,250
Income (loss) not subject to corporate income taxes		(1,154,961	)		6,383,182
Change in tax status		-			1,928,319
Change in valuation allowance - federal		(1,928,319	)		-
Income tax expense (recovery)	$	(1,928,319	)	$	1,928,319

Deferred income taxes primarily represent the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The components of the Company's net deferred tax asset and liability were as follows for the periods indicated:

Year ended December 31,		2022			2021
Deferred tax liabilities
Investment in Origination	$	-		$	(3,437,344	)
Total deferred tax liabilities		-			(3,437,344	)

Deferred tax assets
Investment in Origination	$	10,518,502		$	1,509,025
Canadian federal tax loss carryforwards		339,501			334,198
US federal tax loss carryforwards		9,361,332			-
Total deferred tax assets, gross		20,219,335			1,843,223
Less: Valuation allowance		(20,219,335	)		(334,198	)
Total deferred tax assets, net		-			1,509,025
Net deferred tax assets (liabilities)		-			(1,928,319	)
Presented as follows:
Total deferred tax assets		-			-
Total deferred tax liabilities		-			(1,928,319	)
Net deferred tax assets (liabilities)	$	-		$	(1,928,319	)

The tax years ended December 31, 2019, through December 31, 2022, remain open to examination under the applicable statute of limitations in the United States and other jurisdictions in which the Company and its subsidiaries file income tax returns. In some instances, state statutes of limitations are longer than those under United States federal tax law. The Company believes that it is more likely than not that the benefit from the investment in Origination and its federal loss carryforward will not be realized. In recognitions of this risk, the Company has provided a valuation allowance as of December 31, 2022 and 2021 of $20,219,335 and $334,198, respectively.

The Canadian federal tax losses will expire after 20 years from the date incurred. The US federal tax loss carryforwards do not expire.