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, 2018

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, 2018 and December 31, 2017, are as follows:



Deferred Tax Assets and Liabilities
	September 30, 2018			December 31, 2017
Deferred Tax Assets:
Deferred contract revenue	$	1,629,942		$	—
Net operating loss carryforwards	2,013,238			957,719
Net unrealized loss on investment securities	112,450			—
Loan loss provision	263,508			247,814
Basis reduction of investment in partnerships	227,416			261,549
Other loss carryforwards	2,965,320			2,965,321
Sub-total	$	7,211,874		$	4,432,403
Deferred Tax Liabilities:
Net unrealized gain on investment securities	$	—		$	(342,669	)
Cost recovery of leased and fixed assets	(2,343,500		)	(1,845,105		)
Basis reduction in tax goodwill	(14,266		)	—
Sub-total	$	(2,357,766	)	$	(2,187,774	)
Total net deferred tax asset	$	4,854,108		$	2,244,629

As of September 30, 2018, 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, 2014 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 The 2017 Tax Act also repealed the alternative minimum tax for corporations. 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 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 at December 31, 2017. 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 21 percent for the three and nine months ended September 30, 2018 and 35 percent for the three and nine months ended September 30, 2017 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, 2018			September 30, 2017			September 30, 2018			September 30, 2017
Application of statutory income tax rate	$	1,459,638		$	3,279,099		$	4,496,003		$	9,005,926
State income taxes, net of federal tax expense (benefit)	(146,677		)	8,784			(411,696		)	(22,867		)
Federal Tax Attributable to Income of Real Estate Investment Trust	(2,057,531		)	(3,096,312		)	(5,876,965		)	(9,028,359		)
Other	(2,097		)	—			(13,684		)	—
Total income tax expense (benefit)	$	(746,667	)	$	191,571		$	(1,806,342	)	$	(45,300	)

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, 2018			September 30, 2017		September 30, 2018			September 30, 2017
Current tax expense (benefit)
Federal	$	(6,643	)	$	58,303	$	(43,319	)	$	79,865
State (net of federal tax expense (benefit))	(1,750		)	6,828		(11,408		)	9,157
Total current tax expense (benefit)	$	(8,393	)	$	65,131	$	(54,727	)	$	89,022
Deferred tax expense (benefit)
Federal	$	(593,347	)	$	124,484	$	(1,351,327	)	$	(102,298	)
State (net of federal tax expense (benefit))	(144,927		)	1,956		(400,288		)	(32,024		)
Total deferred tax expense (benefit)	$	(738,274	)	$	126,440	$	(1,751,615	)	$	(134,322	)
Total income tax expense (benefit), net	$	(746,667	)	$	191,571	$	(1,806,342	)	$	(45,300	)