Annual report pursuant to Section 13 and 15(d)

Income Taxes

v3.20.4
Income Taxes
 12 Months Ended
Dec. 31, 2020
Income Tax Disclosure [Abstract]  
INCOME TAXES INCOME TAXES
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, 2020 and 2019, are as follows:
Deferred Tax Assets and Liabilities
December 31, 2020 December 31, 2019
Deferred Tax Assets:
Deferred contract revenue $ 1,474,962  $ 1,529,473 
Net operating loss carryforwards 6,438,628  5,622,052 
Accrued liabilities —  424,604 
Capital loss carryforward 92,418  104,595 
Other 420  6,184 
Sub-total $ 8,006,428  $ 7,686,908 
Valuation allowance (92,418) (104,595)
Sub-total $ 7,914,010  $ 7,582,313 
Deferred Tax Liabilities:
Cost recovery of leased and fixed assets $ (3,578,283) $ (2,953,319)
Other (53,151) (35,433)
Sub-total $ (3,631,434) $ (2,988,752)
Total net deferred tax asset $ 4,282,576  $ 4,593,561 
As of December 31, 2020, 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, 2017, remain open to examination by federal and state tax authorities.
As of December 31, 2020 and 2019, the TRSs had a cumulative net operating loss ("NOL") of $26.7 million and $23.5 million, respectively. On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act") was enacted in response to the COVID-19 pandemic. The CARES Act, among other things, permits NOL carryovers and carrybacks to offset 100 percent of taxable income for taxable years beginning before 2021. In addition, the CARES Act allows NOLs originating in 2018, 2019 and 2020 to be carried back to each of the five preceding taxable years to generate a refund of previously paid income taxes. Certain of the Company’s TRSs have NOLs totaling approximately $1.2 million that are eligible for carryback under the CARES Act. The benefit of these carrybacks has been recorded as an increase to income taxes receivable and a reduction to deferred tax assets. Certain NOLs which were initially measured at the current corporate income tax rate of 21 percent are being carried back to offset taxable income that was taxed at a pre-Tax Cuts and Jobs Act of 2017 rate of 34 percent. The benefit received from the rate differential is reflected in the income tax provision for the year ended December 31, 2020.
Net operating losses of $23.3 million generated during the years ended December 31, 2020, 2019 and 2018 may be carried forward indefinitely, subject to limitation. Net operating losses generated for years prior to December 31, 2018 may be carried forward for 20 years. If not utilized, the net operating loss will expire as follows: $328 thousand, $176 thousand, $993 thousand and $2.0 million in the years ending December 31, 2034, 2035, 2036 and 2037, respectively.
For the year ended December 31, 2019, the Company generated a capital loss carryforward resulting from the liquidation of Lightfoot. The capital loss decreased upon receipt of the final 2019 K-1's in the first quarter of 2020. The amount of the carryforward for tax purposes was approximately $440 thousand and $500 thousand as of December 31, 2020 and 2019, respectively, and if not utilized, this carryforward will expire as of December 31, 2024. Management assessed the available evidence and determined that it is more likely than not that the capital loss carryforward will not be utilized prior to expiration. Due to the uncertainty of realizing this deferred tax asset, a valuation allowance of $92 thousand and $105 thousand was recorded equal to the amount of the tax benefit of this carryforward at December 31, 2020 and 2019, respectively. In the future, if the Company concludes, based on existence of sufficient evidence, that it should realize more or less of its deferred tax assets, the valuation allowance will be adjusted accordingly in the period such conclusion is made.
The Tax Cuts and Jobs Act (the "2017 Tax Act") was enacted on December 22, 2017. The 2017 Tax Act reduced the US federal corporate tax rate from 35 percent to 21 percent. The 2017 Tax Act also repealed the alternative minimum tax for corporations. In December 2018, the Company completed its accounting for the tax effects of enactment of the 2017 Tax Act as allowed under SEC Staff Accounting Bulletin 118. The Company remeasured deferred tax assets and liabilities based on the updated rates at which they are expected to reverse in the future, which resulted in a $1.3 million transition adjustment that reduced net deferred
tax assets. One of the Company's TRSs qualifies for the regulated utility and real property business exceptions under the new proposed treasury regulations for Section 163(j). Therefore, previously disqualified interest from years prior to 2018 was deducted and resulted in a reclassification from other deferred tax assets to deferred tax assets for net operating loss carryforwards during the year ended December 31, 2018. The Company will continue to assess the impact of new tax legislation, as well as any future regulations and updates provided by the tax authorities.
Total income tax expense (benefit) differs from the amount computed by applying the federal statutory income tax rate of 21 percent for the years ended December 31, 2020, 2019 and 2018, 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,
2020 2019 2018
Application of statutory income tax rate $ (64,292,012) $ 904,111  $ 8,671,562 
State income taxes, net of federal tax benefit 35,371  409,839  (583,186)
Income of Real Estate Investment Trust not subject to tax 64,331,160  (941,900) (10,339,520)
Other (159,377) (137,432) (167,582)
Total income tax expense (benefit) $ (84,858) $ 234,618  $ (2,418,726)
Total income taxes are computed by applying the federal statutory rate of 21 percent plus a blended state income tax rate. Corridor Public and Corridor Private had a blended state rate of approximately 5.53 percent for the year ended December 31, 2018. In the first quarter of 2019, the state rate for Corridor Public and Corridor Private was adjusted to zero for current and future state liabilities. The decrease in the state rate was the result of the 2018 sale or disposition of assets within the investments held by Corridor Private. CorEnergy BBWS had a blended state income tax rate of approximately 3 percent for the year ended December 31, 2020 and approximately 5 percent for the year ended December 31, 2019 due to its operations in Missouri. CorEnergy BBWS did not record a provision for state income taxes for the year ended December 31, 2018 because it only operated in Wyoming, which does not have state income tax. Because Corridor MoGas primarily only operates in the state of Missouri, a blended state income tax rate of 3 percent was used for the operation of the TRS for the year ended December 31, 2020 and 5 percent was used for the years ended December 31, 2019 and 2018. For CorEnergy BBWS and Corridor MoGas, the blended state rate includes the enacted decrease in the Missouri state income tax rate effective in 2020. As a result of the decreased rate, additional deferred state income taxes of $315 thousand resulting from the application of the newly enacted rate to existing deferred balances was recorded in the first quarter of 2019.
For the years ended December 31, 2020, 2019 and 2018, 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,
2020 2019 2018
Current tax expense (benefit)
Federal $ (420,074) $ (159,381) $ (413,248)
State (net of federal tax benefit) 24,231  39,357  (172,138)
Total current tax benefit $ (395,843) $ (120,024) $ (585,386)
Deferred tax expense (benefit)
Federal $ 299,845  $ (15,840) $ (1,422,292)
State (net of federal tax benefit) 11,140  370,482  (411,048)
Total deferred tax expense (benefit) $ 310,985  $ 354,642  $ (1,833,340)
Total income tax expense (benefit), net $ (84,858) $ 234,618  $ (2,418,726)

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, 2020 December 31, 2019
Aggregate cost for federal income tax purposes $ 301,314  $ 345,241 
Gross unrealized appreciation —  — 
Gross unrealized depreciation —  — 
Net unrealized appreciation $ —  $ — 
The Company provides the following tax information to its common stockholders pertaining to the character of distributions paid during tax years 2020, 2019 and 2018. For a common stockholder that received all distributions in cash during 2020, 100.0 percent will be treated as return of capital. The per share characterization by quarter is reflected in the following tables:
2020 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 Section 199A Dividends
2/14/2020 2/13/2020 2/28/2020 $ 0.7500  $ —  $ —  $ —  $ 0.7500  $ — 
5/15/2020 5/14/2020 5/29/2020 0.0500  —  —  —  0.0500  — 
8/17/2020 8/14/2020 8/31/2020 0.0500  —  —  —  0.0500  — 
11/16/2020 11/13/2020 11/30/2020 0.0500  —  —  —  0.0500  — 
Total 2020 Distributions $ 0.9000  $ —  $ —  $ —  $ 0.9000  $ — 

2019 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 Section 199A Dividends
2/14/2019 2/13/2019 2/28/2019 $ 0.7500  $ 0.5803  $ —  $ 0.0156  $ 0.1541  $ 0.5803 
5/17/2019 5/16/2019 5/31/2019 0.7500  0.4578  —  0.0150  0.2772  0.4578 
8/16/2019 8/15/2019 8/30/2019 0.7500  0.4578  —  0.0150  0.2772  0.4578 
11/15/2019 11/14/2019 11/29/2019 0.7500  0.4578  —  0.0150  0.2772  0.4578 
Total 2019 Distributions $ 3.0000  $ 1.9537  $ —  $ 0.0606  $ 0.9857  $ 1.9537 

2018 Common Stock Tax Information
Record Date Ex-Dividend Date Payable Date Total Distribution per Share Total Ordinary Dividends Qualified Dividends Capital Gain Distributions Unrecaptured Section 1250 Gain Section 199A Dividends
2/14/2018 2/13/2018 2/28/2018 $ 0.7500  $ 0.5346  $ —  $ 0.2154  $ 0.1007  $ 0.5346 
5/17/2018 5/16/2018 5/31/2018 0.7500  0.5346  —  0.2154  0.1007  0.5346 
8/17/2018 8/16/2018 8/31/2018 0.7500  0.5346  —  0.2154  0.1007  0.5346 
11/15/2018 11/14/2018 11/30/2018 0.7500  0.5346  —  0.2154  0.1007  0.5346 
Total 2018 Distributions $ 3.0000  $ 2.1384  $ —  $ 0.8616  $ 0.4028  $ 2.1384 
The Company provides the following tax information to its preferred stockholders pertaining to the character of distributions paid during the 2020, 2019 and 2018 tax years. For a preferred stockholder that received all distributions in cash during 2020, 100.0 percent will be treated as return of capital. The per share characterization by quarter is reflected in the following tables:
2020 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 Section 199A Dividends
2/14/2020 2/13/2020 2/28/2020 $ 0.4609  $ —  $ —  $ —  $ 0.4609  $ — 
5/15/2020 5/14/2020 5/29/2020 0.4609  —  —  —  0.4609  — 
8/17/2020 8/14/2020 8/31/2020 0.4609  —  —  —  0.4609  — 
11/16/2020 11/13/2020 11/30/2020 0.4609  —  —  —  0.4609  — 
Total 2020 Distributions $ 1.8436  $ —  $ —  $ —  $ 1.8436  $ — 

2019 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 Section 199A Dividends
2/14/2019 2/13/2019 2/28/2019 $ 0.4609  $ 0.4483  $ —  $ 0.0126  $ —  $ 0.4483 
5/17/2019 5/16/2019 5/31/2019 0.4609  0.4463  —  0.0146  —  0.4463 
8/16/2019 8/15/2019 8/30/2019 0.4609  0.4463  —  0.0146  —  0.4463 
11/15/2019 11/14/2019 11/29/2019 0.4609  0.4463  —  0.0146  —  0.4463 
Total 2019 Distributions $ 1.8436  $ 1.7872  $ —  $ 0.0564  $ —  $ 1.7872 
2018 Preferred Stock Tax Information
Record Date Ex-Dividend Date Payable Date Total Distribution per Share Total Ordinary Dividends Qualified Dividends Capital Gain Distributions Unrecaptured Section 1250 Gain Section 199A Dividends
2/14/2018 2/13/2018 2/28/2018 $ 0.4609  $ 0.3285  $ —  $ 0.1324  $ 0.0619  $ 0.3285 
5/17/2018 5/16/2018 5/31/2018 0.4609  0.3285  —  0.1324  0.0619  0.3285 
8/17/2018 8/16/2018 8/31/2018 0.4609  0.3285  —  0.1324  0.0619  0.3285 
11/15/2018 11/14/2018 11/30/2018 0.4609  0.3285  —  0.1324  0.0619  0.3285 
Total 2018 Distributions $ 1.8436  $ 1.3140  $ —  $ 0.5296  $ 0.2476  $ 1.3140 
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 2020, 2019 and 2018.