Provision for Income Tax
|9 Months Ended|
Sep. 30, 2022
|Income Tax Disclosure [Abstract]|
|Provision for Income Tax||
NOTE 17 – Provision for Income Tax
Archaea Energy Inc. is organized as a Subchapter C corporation and, as of September 30, 2022, is a 67.6% owner of LFG Acquisition Holdings LLC. LFG Acquisition Holdings LLC is organized as a limited liability company and treated as a partnership for U.S. federal and most applicable state and local income tax purposes and, as such, is generally not subject to any U.S. federal and state entity-level income taxes with the exception of two subsidiary Subchapter C corporations and certain limited state jurisdictions.
The Company recognized federal and state income tax expense of $57 thousand and $186 thousand for the three and nine months ended September 30, 2022, respectively. The Company did not record a tax provision for the three and nine months ended September 30, 2021 primarily due to Archaea Energy LLC's status as a pass-through entity for U.S. federal income tax purposes.
The effective tax rates were (0.52)% and (1.62)% for the three and nine months ended September 30, 2022, respectively, and 0% for both the three and nine months ended September 30, 2021. The difference between the Company’s effective tax rate for the three and nine months ended September 30, 2022, and the U.S. statutory tax rate of 21% was primarily due to a full valuation allowance recorded on the Company’s net U.S. and state deferred tax assets, income (loss) from pass-through entities not attributable to Class A Common Stock, and state and local taxes. The Company evaluates the realizability of the deferred tax assets on a quarterly basis and establishes a valuation allowance when it is more likely than not that all or a portion of a deferred tax asset may not be realized.
As of September 30, 2022, the Company determined it is not more likely than not the Company’s net deferred tax assets will be realized due to significant negative evidence such as cumulative losses and continues to maintain a full valuation allowance. There are no unrecognized tax benefits recorded as of September 30, 2022 and December 31, 2021.
Archaea is analyzing the relevant sections of the recently passed Inflation Reduction Act to determine what, if any, impact it may have on the 2022 financial statements. The Company does not anticipate a material impact on year-to-date activity as of September 30, 2022.
The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.
Reference 1: http://www.xbrl.org/2003/role/disclosureRef