CorEnergy Infrastructure Trust, 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

Dec. 31, 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 December 31, 2016, and December 31, 2015, are as follows:



Deferred Tax Assets and Liabilities
	December 31, 2016			December 31, 2015
Deferred Tax Assets:
Net operating loss carryforwards	$	1,144,818		$	543,116
Net unrealized loss on investment securities	61,430			251,539
Loan Loss Provision	608,086			1,257,436
Other loss carryforwards	3,187,181			1,833,240
Sub-total	$	5,001,515		$	3,885,331
Deferred Tax Liabilities:
Basis reduction of investment in partnerships	$	(2,158,746	)	$	(2,159,058	)
Cost recovery of leased and fixed assets	(1,084,480		)	(119,297		)
Sub-total	$	(3,243,226	)	$	(2,278,355	)
Total net deferred tax asset	$	1,758,289		$	1,606,976

As of December 31, 2016, the total deferred tax assets and liabilities presented above relate 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 years ended December 31, 2016, 2015 and 2014, to income or loss from operations and other income and expense for the years presented, as follows:



Income Tax Benefit
	For the Years Ended December 31,
	2016			2015			2014
Application of statutory income tax rate	$	10,219,573		$	3,630,325		$	2,375,903
State income taxes, net of federal tax benefit	26,215			(134,597		)	(47,731		)
Income of Real Estate Investment Trust not subject to tax	(10,663,371		)	(5,189,849		)	(2,607,207		)
Other	(46,837		)	(253,432		)	53,472
Total income tax benefit	$	(464,420	)	$	(1,947,553	)	$	(225,563	)

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 3.78 percent, 2.82 percent, and 3.92 percent for the years ended December 31, 2016, 2015 and 2014, respectively. 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 years ended December 31, 2016, 2015 and 2014. For the year ended December 31, 2016, all of the income tax benefit presented above relates to the assets and activities held in the Company's TRSs. The components of income tax expense/(benefit) include the following for the periods presented:



Components of Income Tax Benefit
	For the Years Ended December 31,
	2016			2015			2014
Current tax expense (benefit)
Federal	$	(321,720	)	$	781,941		$	3,456,858
State (net of federal tax benefit)	8,613			140,069			387,079
Total current tax expense (benefit)	$	(313,107	)	$	922,010		$	3,843,937
Deferred tax benefit
Federal	$	(168,915	)	$	(2,594,897	)	$	(3,634,689	)
State (net of federal tax benefit)	17,602			(274,666		)	(434,811		)
Total deferred tax benefit	$	(151,313	)	$	(2,869,563	)	$	(4,069,500	)
Total income tax benefit, net	$	(464,420	)	$	(1,947,553	)	$	(225,563	)

As of December 31, 2015, the TRSs had a net operating loss of $1.4 million. For the year ended December 31, 2016, the TRSs incurred a total net operating loss of approximately $1.6 million, resulting in a total net operating loss of approximately $3.0 million as of December 31, 2016. 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, $479 thousand, and $1.6 million in the years ending December 31, 2033, 2034, 2035 and 2036 respectively. The amount of deferred tax asset for net operating losses as of December 31, 2016, includes amounts for the year ended December 31, 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)
	December 31, 2016		December 31, 2015
Aggregate cost for federal income tax purposes	$	4,327,077	$	4,750,252
Gross unrealized appreciation	5,408,242		5,133,908
Gross unrealized depreciation	—		(97,500		)
Net unrealized appreciation	$	5,408,242	$	5,036,408

The Company provides the following tax information to its common stockholders pertaining to the character of distributions paid during tax years 2016, 2015 and 2014. For a stockholder that received all distributions in cash during 2016, 39.4 percent will be treated as ordinary dividend income and 60.6 percent will be treated as return of capital. Of the ordinary dividend income, 0 percent will be treated as qualified dividend income. The per share characterization by quarter is reflected in the following tables:



2016 Common Stock Tax Information
Record Date	Ex-Dividend Date	Payable Date	Total Distribution per Share		Total Ordinary Dividends		Qualified Dividends		Capital Gain Distributions		Nondividend Distributions
02/12/2016	02/10/2016	02/29/2016	$	0.7500	$	0.2955	$	—	$	—	$	0.4545
05/13/2016	05/11/2016	05/31/2016	0.7500		0.2955		—		—		0.4545
08/17/2016	08/15/2016	08/31/2016	0.7500		0.2955		—		—		0.4545
11/15/2016	11/11/2016	11/30/2016	0.7500		0.2955		—		—		0.4545
Total 2016 Distributions			$	3.0000	$	1.1820	$	—	$	—	$	1.8180



2015 Common Stock Tax Information
Record Date	Ex-Dividend Date	Payable Date	Total Distribution per Share		Total Ordinary Dividends		Qualified Dividends		Capital Gain Distributions		Nondividend Distributions
02/13/2015	02/11/2015	02/27/2015	$	0.6500	$	0.4680	$	0.0126	$	—	$	0.1820
05/15/2015	05/13/2015	05/29/2015	0.6750		0.4860		0.0131		—		0.1890
08/17/2015	08/13/2015	08/31/2015	0.6750		0.4860		0.0131		—		0.1890
11/13/2015	11/11/2015	11/30/2015	0.7500		0.5400		0.0146		—		0.2100
Total 2015 Distributions			$	2.7500	$	1.9800	$	0.0534	$	—	$	0.7700



2014 Common Stock Tax Information
Record Date	Ex-Dividend Date	Payable Date	Total Distribution per Share		Total Ordinary Dividends		Qualified Dividends		Capital Gain Distributions		Nondividend Distributions
01/13/2014	01/09/2014	01/23/2014	$	0.6250	$	0.4640	$	0.2250	$	—	$	0.1610
05/14/2014	05/12/2014	05/22/2014	0.6450		0.4790		0.2320		—		0.1660
08/15/2014	08/13/2014	08/29/2014	0.6500		0.4825		0.2335		—		0.1675
11/14/2014	11/12/2014	11/28/2014	0.6500		0.4825		0.2335		—		0.1675
Total 2014 Distributions			$	2.5700	$	1.9080	$	0.9240	$	—	$	0.6620

The Company provides the following tax information to its preferred stockholders pertaining to the character of distributions paid during the 2016 and 2015 tax years. For a stockholder that received all distributions in cash during 2016, 100 percent will be treated as ordinary dividend income and 0 percent will be treated as return of capital. Of the ordinary dividend income, 0 percent will be treated as qualified dividend income. The per share characterization by quarter is reflected in the following table:



2016 Preferred Stock Tax Information
Record Date	Ex-Dividend Date	Payable Date	Total Distribution per Share		Total Ordinary Dividends		Qualified Dividends		Capital Gain Distributions		Nondividend Distributions
02/12/2016	02/10/2016	02/29/2016	$	0.4609	$	0.4609	$	—	$	—	$	—
05/13/2016	05/11/2016	05/31/2016	0.4609		0.4609		—		—		—
08/17/2016	08/15/2016	08/31/2016	0.4609		0.4609		—		—		—
11/15/2016	11/11/2016	11/30/2016	0.4609		0.4609		—		—		—
Total 2016 Distributions			$	1.8436	$	1.8436	$	—	$	—	$	—



2015 Preferred Stock Tax Information
Record Date	Ex-Dividend Date	Payable Date	Total Distribution per Share		Total Ordinary Dividends		Qualified Dividends		Capital Gain Distributions		Nondividend Distributions
05/15/2015	05/13/2015	06/01/2015	$	0.6351	$	0.6351	$	0.0171	$	—	$	—
08/17/2015	08/13/2015	08/31/2015	0.4609		0.4609		0.0124		—		—
11/13/2015	11/11/2015	11/30/2015	0.4609		0.4609		0.0124		—		—
Total 2015 Distributions			$	1.5569	$	1.5569	$	0.0419	$	—	$	—

We elected, effective for our 2013 tax year, to be treated as a REIT for federal income tax purposes. Our REIT election, assuming continued compliance with the applicable tests, will continue in effect for subsequent tax years. The Company satisfied the annual income test and the quarterly asset tests necessary for us to qualify to be taxed as a REIT for 2016, 2015 and 2014. Distributions made during 2016, 2015 and 2014 are treated as qualifying dividend income related to taxable dividends received from our TRSs that were received and distributed in the respective years.