Quarterly report pursuant to Section 13 or 15(d)

Income Taxes

v2.4.0.8
Income Taxes
 9 Months Ended
Sep. 30, 2013
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 September 30, 2013 and November 30, 2012 are as follows:
Deferred Tax Assets and Liabilities
 
 
September 30, 2013
 
November 30, 2012
Deferred Tax Assets:
 
 
 
 
Organization costs
 
$
—

 
$
(17,668
)
Net operating loss carryforwards
 
(62,742
)
 
(6,411,230
)
Net unrealized loss on investment securities
 
(636,708
)
 
—

Cost recovery of leased and fixed assets
 
(918,566
)
 
(36,443
)
Asset acquisition costs
 
—

 
(134,415
)
AMT and State of Kansas credit
 
—

 
(196,197
)
Sub-total
 
$
(1,618,016
)
 
$
(6,795,953
)
Deferred Tax Liabilities:
 
 
 
 
Basis reduction of investment in partnerships
 
$
6,194,515

 
$
11,655,817

Net unrealized gain on investment securities
 
—

 
2,312,269

Sub-total
 
6,194,515

 
13,968,086

Total net deferred tax liability
 
$
4,576,499

 
$
7,172,133


For the period ended September 30, 2013, the total deferred tax liability presented above relates to assets held in 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. As of September 30, 2013, the Company had no uncertain tax positions and no penalties and interest were accrued. Tax years subsequent to the year ending November 30, 2006 remain open to examination by federal and state tax authorities.
Total income tax expense 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, 2013 and August 31, 2012 to income or loss from operations and other income and expense for the years presented, as follows:
Income Tax Expense (Benefit)
 
 
For the Three Months Ended
 
For the Nine Months Ended
 
 
September 30, 2013
 
August 31, 2012
 
September 30, 2013
 
August 31, 2012
Application of statutory income tax rate
 
$
540,602

 
$
2,722,054

 
$
1,851,535

 
$
7,055,010

State income taxes, net of federal tax benefit
 
120,139

 
155,106

 
191,978

 
479,459

Dividends received deduction
 
—

 
12

 
—

 
(1,221
)
Income of Real Estate Investment Trust
 
444,384

 
—

 
324,310

 
—

Other
 
—

 
(88,387
)
 
—

 
(88,387
)
Total income tax expense
 
$
1,105,125

 
$
2,788,785

 
$
2,367,823

 
$
7,444,861


Total income taxes are computed by applying the federal statutory rate of 35 percent plus a blended state income tax rate, which was approximately 2.26 percent for the periods presented above. The restructuring done in December 2012 causes us to hold and operate certain of our assets through one or more TRSs. A TRS is a subsidiary of a REIT that is subject to applicable corporate income tax. For the periods ended September 30, 2013, all of the income tax expense presented above relates to the assets and activities held in the Company's TRSs. The components of income tax expense 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, 2013
 
August 31, 2012
 
September 30, 2013
 
August 31, 2012
Current tax expense (benefit)
 
 
 
 
 
 
 
 
Federal
 
$
(665,471
)
 
$
—

 
$
149,550

 
$
—

State (net of federal tax benefit)
 
(14,810
)
 
38,107

 
37,817

 
38,107

AMT benefit
 
—

 
(18,842
)
 
—

 
(8,842
)
Total current tax expense (benefit)
 
(680,281
)
 
19,265

 
187,367

 
29,265

Deferred tax expense
 
 
 
 
 
 
 
 
Federal
 
1,650,457

 
2,601,535

 
2,026,295

 
6,965,804

State (net of federal tax benefit)
 
134,949

 
167,985

 
154,161

 
449,792

Total deferred tax expense
 
1,785,406

 
2,769,520

 
2,180,456

 
7,415,596

Total income tax expense, net
 
$
1,105,125

 
$
2,788,785

 
$
2,367,823

 
$
7,444,861


As of November 30, 2012, the Company had a net operating loss for federal income tax purposes of approximately $17.2 million. The net operating loss may be carried forward for 20 years. If not utilized, this net operating loss would have expired as follows: $8 thousand, $4.0 million, $3.4 million, $24 thousand and $9.8 million in the years ending November 30, 2028, 2029, 2030, 2031 and 2032 respectively. In the period ending December 31, 2012, all Net Operating Losses of the Company were utilized to reduce the Company's current tax liability. A Net Operating Loss of $20 thousand has been incurred by a TRS for the nine months ended September 30, 2013. As of November 30, 2012, an alternative minimum tax credit of $194 thousand was available, which was fully utilized as of December 31, 2012.
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, 2013
 
November 30, 2012
Aggregate cost for federal income tax purposes
 
$
7,251,982

 
$
41,995,195

Gross unrealized appreciation
 
14,916,286

 
33,892,176

Gross unrealized depreciation
 
—

 
(801,340
)
Net unrealized appreciation
 
$
14,916,286

 
$
33,090,836