CorEnergy Infrastructure Trust, Inc. Quarterly report pursuant to Section 13 or 15(d)

Quarterly report pursuant to Section 13 or 15(d)

Income Taxes

Income Taxes

9 Months Ended

Sep. 30, 2016

Deferred income taxes reflect the net tax effect of temporary differences between the carrying amount of assets and liabilities for financial reporting and tax purposes. Components of the Company’s deferred tax assets and liabilities as of September 30, 2016, and December 31, 2015, are as follows:



Deferred Tax Assets and Liabilities
	September 30, 2016			December 31, 2015
Deferred Tax Assets:
Net operating loss carryforwards	$	1,123,214		$	543,116
Net unrealized loss on investment securities	—			251,539
Loan Loss Provision	605,107			1,257,436
Other loss carryforwards	2,930,342			1,833,240
Sub-total	$	4,658,663		$	3,885,331
Deferred Tax Liabilities:
Basis reduction of investment in partnerships	$	(2,103,511	)	$	(2,159,058	)
Net unrealized gain on investment securities	(7,142		)	—
Cost recovery of leased and fixed assets	(958,452		)	(119,297		)
Sub-total	$	(3,069,105	)	$	(2,278,355	)
Total net deferred tax asset	$	1,589,558		$	1,606,976

As of September 30, 2016, the total deferred tax assets and liabilities presented above relates to the Company's TRSs. The Company recognizes the tax benefits of uncertain tax positions only when the position is “more likely than not” to be sustained upon examination by the tax authorities based on the technical merits of the tax position. The Company’s policy is to record interest and penalties on uncertain tax positions as part of tax expense. Tax years subsequent to the year ended December 31, 2012, remain open to examination by federal and state tax authorities.

Total income tax expense/(benefit) differs from the amount computed by applying the federal statutory income tax rate of 35 percent for the three and nine months ended September 30, 2016 and 2015, to income or loss from operations and other income and expense for the years presented, as follows:



Income Tax Expense (Benefit)
	For the Three Months Ended						For the Nine Months Ended
	September 30, 2016			September 30, 2015			September 30, 2016			September 30, 2015
Application of statutory income tax rate	$	3,400,018		$	(497,607	)	$	7,425,355		$	2,492,537
State income taxes, net of federal tax (benefit)	28,642			(141,807		)	(29,384		)	(113,744		)
Federal Tax Attributable to Income of Real Estate Investment Trust	(2,945,508		)	(1,209,539		)	(7,757,507		)	(3,956,244		)
Total income tax expense (benefit)	$	483,152		$	(1,848,953	)	$	(361,536	)	$	(1,577,451	)

Total income taxes are computed by applying the federal statutory rate of 35 percent plus a blended state income tax rate. Corridor Public Holdings, Inc. and Corridor Private Holdings, Inc. had a blended state rate of approximately 2.82 percent for the three and nine months ended September 30, 2016, and 3.92 percent for the three and nine months ended September 30, 2015. CorEnergy BBWS, Inc. does not record a provision for state income taxes because it operates only in Wyoming, which does not have state income tax. Because Mowood Corridor, Inc. and Corridor MoGas, Inc. primarily only operate in the state of Missouri, a blended state income tax rate of 5 percent was used for the operations of both TRSs for the three and nine months ended September 30, 2016 and 2015. All of the income tax benefit presented above relates to the assets and activities held in the Company's TRSs for the three and nine months ended September 30, 2016 and 2015. The components of income tax expense/(benefit) include the following for the periods presented:



Components of Income Tax Expense (Benefit)
	For the Three Months Ended					For the Nine Months Ended
	September 30, 2016		September 30, 2015			September 30, 2016			September 30, 2015
Current tax expense (benefit)
Federal	$	88,032	$	94,277		$	(350,698	)	$	580,535
State (net of federal tax benefit)	7,093		10,743			(28,256		)	64,720
Total current tax expense (benefit)	$	95,125	$	105,020		$	(378,954	)	$	645,255
Deferred tax expense (benefit)
Federal	$	366,478	$	(1,801,423	)	$	18,546		$	(2,044,242	)
State (net of federal tax benefit)	21,549		(152,550		)	(1,128		)	(178,464		)
Total deferred tax expense (benefit)	$	388,027	$	(1,953,973	)	$	17,418		$	(2,222,706	)
Total income tax expense (benefit), net	$	483,152	$	(1,848,953	)	$	(361,536	)	$	(1,577,451	)

As of December 31, 2015, the TRSs had an aggregate net operating loss of $1.4 million. The net operating loss may be carried forward for 20 years. If not utilized, this net operating loss will expire as follows: $90 thousand, $804 thousand and $478 thousand in the years ending December 31, 2033, 2034, and 2035 respectively. The amount of deferred tax asset for net operating losses as of September 30, 2016, includes amounts for the nine months ended September 30, 2016. The aggregate cost of securities for federal income tax purposes and securities with unrealized appreciation and depreciation, were as follows:



Aggregate Cost of Securities for Income Tax Purposes (Unaudited)
	September 30, 2016		December 31, 2015
Aggregate cost for federal income tax purposes	$	4,334,950	$	4,750,252
Gross unrealized appreciation	5,580,785		5,133,908
Gross unrealized depreciation	—		(97,500		)
Net unrealized appreciation	$	5,580,785	$	5,036,408