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, 2017

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, 2017 and December 31, 2016, are as follows:



Deferred Tax Assets and Liabilities
	September 30, 2017			December 31, 2016
Deferred Tax Assets:
Net operating loss carryforwards	$	1,735,011		$	1,144,818
Net unrealized loss on investment securities	—			61,430
Cost recovery of leased and fixed assets	636,614			739,502
Loan Loss Provision	385,180			608,086
Other loss carryforwards	4,404,525			3,187,181
Sub-total	$	7,161,330		$	5,741,017
Deferred Tax Liabilities:
Basis reduction of investment in partnerships	$	(2,191,957	)	$	(2,158,746	)
Net unrealized gain on investment securities	(485,610		)	—
Cost recovery of leased and fixed assets	(2,591,152		)	(1,823,982		)
Sub-total	$	(5,268,719	)	$	(3,982,728	)
Total net deferred tax asset	$	1,892,611		$	1,758,289

As of September 30, 2017, 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 three and nine months ended September 30, 2017 and 2016 to income from operations and other income and expense for the periods presented, as follows:



Income Tax Expense (Benefit)
	For the Three Months Ended						For the Nine Months Ended
	September 30, 2017			September 30, 2016			September 30, 2017			September 30, 2016
Application of statutory income tax rate	$	3,279,099		$	3,400,018		$	9,005,926		$	7,425,354
State income taxes, net of federal tax expense (benefit)	8,784			28,642			(22,867		)	(29,384		)
Federal Tax Attributable to Income of Real Estate Investment Trust	(3,096,312		)	(2,945,508		)	(9,028,359		)	(7,757,506		)
Total income tax expense (benefit)	$	191,571		$	483,152		$	(45,300	)	$	(361,536	)

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 for the three and nine months ended September 30, 2017 and 2.82 percent for the three and nine months ended September 30, 2016. 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, 2017 and 2016. For the three and nine months ended September 30, 2017 and 2016, all of the income tax expense (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 Expense (Benefit)
	For the Three Months Ended				For the Nine Months Ended
	September 30, 2017		September 30, 2016		September 30, 2017			September 30, 2016
Current tax expense (benefit)
Federal	$	58,303	$	88,032	$	79,865		$	(350,698	)
State (net of federal tax benefit)	6,828		7,093		9,157			(28,256		)
Total current tax expense (benefit)	$	65,131	$	95,125	$	89,022		$	(378,954	)
Deferred tax expense (benefit)
Federal	$	124,484	$	366,478	$	(102,298	)	$	18,546
State (net of federal tax benefit)	1,956		21,549		(32,024		)	(1,128		)
Total deferred tax expense (benefit)	$	126,440	$	388,027	$	(134,322	)	$	17,418
Total income tax expense (benefit), net	$	191,571	$	483,152	$	(45,300	)	$	(361,536	)

As of December 31, 2016, the TRSs had an aggregate net operating loss of $3.0 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, $479 thousand and $1.7 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 September 30, 2017 includes amounts for the nine months ended September 30, 2017. 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
	September 30, 2017		December 31, 2016
Aggregate cost for federal income tax purposes	$	3,985,264	$	4,327,077
Gross unrealized appreciation	6,904,503		5,408,242
Gross unrealized depreciation	—		—
Net unrealized appreciation	$	6,904,503	$	5,408,242