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



Deferred Tax Assets and Liabilities
	December 31, 2017			December 31, 2016
Deferred Tax Assets:
Net operating loss carryforwards	$	957,719		$	1,144,818
Net unrealized loss on investment securities	—			61,430
Cost recovery of leased and fixed assets	—			739,502
Loan Loss Provision	247,814			608,086
Basis reduction of investment in partnerships	261,549			—
Other loss carryforwards	2,965,321			3,187,181
Sub-total	$	4,432,403		$	5,741,017
Deferred Tax Liabilities:
Basis reduction of investment in partnerships	$	—		$	(2,158,746	)
Net unrealized gain on investment securities	(342,669		)	—
Cost recovery of leased and fixed assets	(1,845,105		)	(1,823,982		)
Sub-total	$	(2,187,774	)	$	(3,982,728	)
Total net deferred tax asset	$	2,244,629		$	1,758,289

As of December 31, 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, 2013, remain open to examination by federal and state tax authorities.

The Tax Cuts and Jobs Act (the "2017 Tax Act") was enacted on December 22, 2017. The 2017 Tax Act reduces the US federal corporate tax rate from 35 percent to 21 percent. The 2017 Tax Act also repealed the alternative minimum tax for corporations. At December 31, 2017, the Company has completed its provisional accounting for the tax effects of enactment of the 2017 Tax Act. Due to the timing and complexities of the new legislation, the SEC has issued Staff Accounting Bulletin 118, which allows for the recognition of provisional amounts during a measurement period similar to the measurement period used when accounting for business combinations. The Company has remeasured deferred tax assets and liabilities based on the updated rates at which they are expected to reverse in the future, in the table above, which resulted in a $1.3 million transition adjustment that reduced net deferred tax assets. The Company will continue to assess the impact of the new tax legislation, as well as any future regulations and updates, and will record any additional impacts as identified during the measurement period, if necessary.

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, 2017, 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 Years Ended December 31,
	2017			2016			2015
Application of statutory income tax rate	$	12,231,838		$	10,219,573		$	3,630,325
State income taxes, net of federal tax benefit	352,708			26,215			(134,597		)
Income of Real Estate Investment Trust not subject to tax	(11,975,853		)	(10,663,371		)	(5,189,849		)
Tax reform impact	1,262,444			—			—
Other	474,181			(46,837		)	(253,432		)
Total income tax expense (benefit)	$	2,345,318		$	(464,420	)	$	(1,947,553	)

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, 3.78 percent and 2.82 percent for the years ended December 31, 2017, 2016 and 2015, 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, 2017, 2016 and 2015. For the years ended December 31, 2017, 2016 and 2015, 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 Years Ended December 31,
	2017			2016			2015
Current tax expense (benefit)
Federal	$	2,498,363		$	(321,720	)	$	781,941
State (net of federal tax benefit)	333,295			8,613			140,069
Total current tax expense (benefit)	$	2,831,658		$	(313,107	)	$	922,010
Deferred tax expense (benefit)
Federal	$	(505,753	)	$	(168,915	)	$	(2,594,897	)
State (net of federal tax benefit)	19,413			17,602			(274,666		)
Total deferred tax benefit	$	(486,340	)	$	(151,313	)	$	(2,869,563	)
Total income tax expense (benefit), net	$	2,345,318		$	(464,420	)	$	(1,947,553	)

As of December 31, 2016 and 2015, the TRSs had a net operating loss of $3.0 million and $1.4 million, respectively. For the year ended December 31, 2017, the TRSs incurred a net operating loss of approximately $1.0 million, resulting in a total net operating loss of approximately $4.1 million as of December 31, 2017. 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, $478 thousand, $1.7 million and $1.0 million in the years ending December 31, 2033, 2034, 2035, 2036 and 2037, respectively. The amount of deferred tax asset for net operating losses as of December 31, 2017, includes amounts for the year ended December 31, 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
	December 31, 2017		December 31, 2016
Aggregate cost for federal income tax purposes	$	3,063,430	$	4,327,077
Gross unrealized appreciation	325,130		5,408,242
Gross unrealized depreciation	—		—
Net unrealized appreciation	$	325,130	$	5,408,242

The Company provides the following tax information to its common stockholders pertaining to the character of distributions paid during tax years 2017, 2016 and 2015. For a stockholder that received all distributions in cash during 2017, 79.0 percent will be treated as ordinary dividend income and 21.0 percent will be treated as return of capital. Of the ordinary dividend income, 13.2 percent will be treated as qualified dividend income. The per share characterization by quarter is reflected in the following tables:



2017 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
2/13/2017	2/9/2017	2/28/2017	$	0.7500	$	0.5925	$	0.0785	$	—	$	0.1575
5/16/2017	5/12/2017	5/31/2017	0.7500		0.5925		0.0785		—		0.1575
8/17/2017	8/15/2017	8/31/2017	0.7500		0.5925		0.0785		—		0.1575
11/15/2017	11/14/2017	11/30/2017	0.7500		0.5925		0.0785		—		0.1575
Total 2017 Distributions			$	3.0000	$	2.3700	$	0.3140	$	—	$	0.6300



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

The Company provides the following tax information to its preferred stockholders pertaining to the character of distributions paid during the 2017, 2016 and 2015 tax years. For a stockholder that received all distributions in cash during 2017, 100 percent will be treated as ordinary dividend income and none will be treated as return of capital. Of the ordinary dividend income, 13.3 percent will be treated as qualified dividend income. The per share characterization by quarter is reflected in the following table:



2017 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
2/13/2017	2/9/2017	2/28/2017	$	0.4609	$	0.4609	$	0.0611	$	—	$	—
5/16/2017	5/12/2017	5/31/2017	0.4609		0.4609		0.0611		—		—
8/17/2017	8/15/2017	8/31/2017	0.4609		0.4609		0.0611		—		—
11/15/2017	11/14/2017	11/30/2017	0.4609		0.4609		0.0611		—		—
Total 2017 Distributions			$	1.8436	$	1.8436	$	0.2444	$	—	$	—



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	$	—	$	—

The Company elected, effective for the 2013 tax year, to be treated as a REIT for federal income tax purposes. The Company's 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 2017, 2016 and 2015. Distributions made during 2017, 2016 and 2015 are treated as qualifying dividend income related to taxable dividends received from the Company's TRSs that were received and distributed in the respective years.