Tellurian Inc. Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

Income Taxes

Income Taxes

12 Months Ended

Jun. 30, 2015

Note 8 - Income Taxes

The domestic and foreign components of our income (loss) from continuing operations are as follows for the fiscal years ended:



	June 30,
	2015			2014
	(In thousands)
United States	$	(24,798	)	$	4,262
Australia	(16,403		)	(11,563		)
United Kingdom	(1,799		)	(2,741		)
Net loss from continuing operations attributable to Magellan Petroleum Corporation	$	(43,000	)	$	(10,042	)

The following reconciles the Company's effective tax rate to the federal statutory tax rate for the fiscal years ended:



	June 30,
	2015			2014
	(In thousands)
Tax provision computed per federal statutory rate	$	(14,620	)	$	(3,414	)
State taxes, net of federal benefit	(1,005		)	549
Foreign rate differential	908			818
Non taxable Australian revenue	—			(3,144		)
Goodwill write off	—			(58		)
APB 23 adjustment	9,632			—
Change in valuation allowance	2,846			3,476
Taxable dividends from subsidiaries, net of foreign tax credits	—			3,586
Foreign tax credit adjustment	(310		)	(761		)
Capital loss adjustment	1,493			73
Impact of rate change	189			291
Foreign currency translation differential	1,255			(434		)
Stock based compensation forfeitures	545
Contingent consideration payable write off	(630		)	(710		)
Other items	(303		)	(272		)
Consolidated income tax expense (benefit)	$	—		$	—

The following summarizes components of our income tax provision for the fiscal years ended:



	June 30,
	2015			2014
	(In thousands)
Consolidated current income tax provision	—			—
Consolidated deferred income tax provision	—			—
Consolidated income tax provision	$	—		$	—

The consolidated income tax provision is summarized as follows:
Continuing operations	$	—		$	—
Discontinued operations	$	—		$	7,217

Effective tax rate for continuing operations	—		%	—		%

Significant components of the Company's deferred tax assets and liabilities can be summarized as follows for the fiscal years ended:



	June 30,
	2015			2014
	(In thousands)
Deferred tax liabilities:
Land, buildings and equipment	$	—		$	(4,030	)
Foreign investments	(7,451		)
Other items	(128		)	(157		)
Total deferred tax liabilities	(7,579		)	(4,187		)

Deferred tax assets:
Acquisition and development costs	365			—
Asset retirement obligations	990			923
Net operating losses, capital losses, and foreign tax credit carry forwards	18,521			13,891
United Kingdom exploration costs and net operating losses	3,639			3,851
Investments	100			2,378
Stock option compensation	2,184			2,839
Australian capitalized legal costs	116			143
Other items	141			141
Total deferred tax asset	26,056			24,166
Valuation allowance	(18,477		)	(19,979		)
Net long term deferred tax asset	$	—		$	—

For the fiscal year ended June 30, 2015, the valuation allowance decreased by $1.5 million, primarily due to recognition of the deferred tax liability related to reversal of the APB 23 position on all foreign subsidiaries net of additional book losses, including the impairment of oil and gas properties and unrealized losses due to other-than-temporary impairment on available for sale securities reclassed to the statement of operations.

The US gross deferred tax assets and liabilities as of June 30, 2015, and 2014, respectively, consist of foreign tax credits, property, plant and equipment, and stock options. The Australian deferred tax assets and liabilities as of June 30, 2015 consist primarily of unrealized capital loss, and net operating loss carry forwards. The Australian capital loss and net operating losses are carried forward indefinitely. During fiscal year 2015, the Company made a determination that it was no longer permanently invested in its foreign subsidiaries. As of June 30, 2015, the Company has estimated that it has an overall deferred tax asset of $8.6 million, net of a deferred tax liability related to the basis difference in its foreign subsidiaries of $10.9 million.

The Company has $13.7 million of net operating loss carryovers for federal income tax purposes as of June 30, 2015, of which $252 thousand is not benefited for financial statement purposes as it relates to tax deductions that deviate from compensation expense for financial statement purposes. The benefit of these excess tax deductions will not be recognized for financial statement purposes until the related deductions reduce taxes payable.

During fiscal year 2014 the Company sold its Amadeus Basin assets held by MPA, which is reported under discontinued operations. The reduction in gain reported in discontinued operations of $7.2 million for the year ended June 30, 2014 is related to the disposal of the Australian Petroleum Resource Rent Tax deferred tax asset, refer to Note 3 - Discontinued Operations.

During the year ended June 30, 2014, the Company utilized all of its available net operating loss carryforwards from the state of Montana. As a result, the Company is subject to taxation in the state of Montana based upon its apportioned income to that state, calculated using a waters edge methodology.

After reviewing all positive and negative evidence, a valuation allowance is recorded against all the net deferred tax assets in the US, Australia and the UK. As a result, the Company has recorded no deferred tax assets as of June 30, 2015.

As of June 30, 2015, the Company remains subject to examination in the following major tax jurisdictions for the tax years indicated below:



Jurisdiction		Tax Years Subject to Examination:
US Federal		2012 - 2014
Colorado		2012 - 2014
Maine		2012 - 2014
Montana		2010 - 2014
Australia		2011 - 2014
United Kingdom		2011 - 2014

At June 30, 2015, the Company had net operating loss and foreign tax credit carry forwards for US Federal and State income tax purposes, respectively, which are scheduled to expire periodically as follows:



	Federal Net Operating Losses		State Net Operating Losses		Federal Foreign Tax Credit
	(In thousands)
Expires:
2017	$	—	$	8	$	310
2018	—		3,103		—
2019	—		559		1,411
2020	—		2,212		624
2021	—		27		1,443
2022	—		13,309		3,655
2023 and thereafter	13,709		—		1,668
Total	$	13,709	$	19,218	$	9,111

There are no uncertain tax positions that would meet the more-likely-than-not recognition threshold for the fiscal years ended June 30, 2015, or 2014.