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

6 Months Ended

Jun. 30, 2020

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 June 30, 2020 and December 31, 2019, are as follows:



Deferred Tax Assets and Liabilities
	June 30, 2020			December 31, 2019
Deferred Tax Assets:
Deferred contract revenue	$	1,458,883		$	1,529,473
Net operating loss carryforwards	6,138,726			5,622,052
Accrued liabilities	—			424,604
Capital loss carryforward	92,418			104,595
Other	6,184			6,184
Sub-total	$	7,696,211		$	7,686,908
Valuation allowance	(92,418		)	(104,595		)
Sub-total	$	7,603,793		$	7,582,313
Deferred Tax Liabilities:
Cost recovery of leased and fixed assets	$	(3,264,463	)	$	(2,953,319	)
Other	(44,294		)	(35,433		)
Sub-total	$	(3,308,757	)	$	(2,988,752	)
Total net deferred tax asset	$	4,295,036		$	4,593,561

As of June 30, 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, 2015 remain open to examination by federal and state tax authorities.

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 net operating loss ("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 three and six months ended June 30, 2020.

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 June 30, 2020 and December 31, 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 June 30, 2020 and December 31, 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.

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 six months ended June 30, 2020 and 2019 to income (loss) from operations and other income and expense for the periods presented, as follows:



Income Tax Expense (Benefit)
	For the Three Months Ended						For the Six Months Ended
	June 30, 2020			June 30, 2019			June 30, 2020			June 30, 2019
Application of statutory income tax rate	$	(28,876,735	)	$	2,078,209		$	(62,910,824	)	$	2,984,102
State income taxes, net of federal tax expense	(9,298		)	7,538			25,211			523,564
Federal Tax Attributable to Income of Real Estate Investment Trust	28,811,858			(2,025,403		)	62,946,202			(2,941,388		)
Other	348			2,355			(159,138		)	(56,244		)
Total income tax expense (benefit)	$	(73,827	)	$	62,699		$	(98,549	)	$	510,034

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 Six Months Ended
	June 30, 2020			June 30, 2019		June 30, 2020			June 30, 2019
Current tax expense (benefit)
Federal	$	(2,431	)	$	—	$	(412,074	)	$	216,093
State (net of federal tax expense (benefit))	—			—		15,000			137,651
Total current tax expense (benefit)	$	(2,431	)	$	—	$	(397,074	)	$	353,744
Deferred tax expense (benefit)
Federal	$	(62,098	)	$	55,161	$	288,314		$	(229,623	)
State (net of federal tax expense (benefit))	(9,298		)	7,538		10,211			385,913
Total deferred tax expense (benefit)	$	(71,396	)	$	62,699	$	298,525		$	156,290
Total income tax expense (benefit), net	$	(73,827	)	$	62,699	$	(98,549	)	$	510,034

- Definition

The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.

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