Quarterly report pursuant to Section 13 or 15(d)

Income Taxes

v2.4.0.6
Income Taxes
 3 Months Ended
Mar. 31, 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 March 31, 2013,
November 30, 2012 and December 31, 2012 are as follows:
Deferred Tax Assets and Liabilities
 
March 31, 2013
 
November 30, 2012
 
December 31, 2012
Deferred Tax Assets:
 
 
 
 
 

Organization costs
 
$
—

 
$
(17,668
)
 
$
(27,188
)
Net operating loss carryforwards
 
—

 
(6,411,230
)
 
—

Net unrealized loss on investment securities
 
—

 
—

 
(143,822
)
Cost recovery of leased assets
 
—

 
(36,443
)
 
—

Asset acquisition costs
 
—

 
(134,415
)
 
(158,535
)
AMT and State of Kansas credit
 
—

 
(196,197
)
 
—

Sub-total
 
$
—

 
$
(6,795,953
)
 
$
(329,545
)
Deferred Tax Liabilities:
 
 
 
 
 

Basis reduction of investment in partnerships
 
$
2,090,696

 
$
11,655,817

 
$
2,675,142

Net unrealized gain on investment securities
 
1,040,400

 
2,312,269

 
—

Cost recovery of leased assets
 
—

 
—

 
50,446

Sub-total
 
3,131,096

 
13,968,086

 
2,725,588

Total net deferred tax liability
 
$
3,131,096

 
$
7,172,133

 
$
2,396,043


For the period ended March 31, 2013, all deferred tax liability presented above relates to assets held in the Company's Taxable REIT Subsidiaries. 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 March 31, 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 rates of 35 percent for the three-month periods ended March 31, 2013, February 29, 2012 and for the one-month transition period ended December 31, 2012 to income (loss) from operations and other income (expense) for the years presented, as follows:
Income Tax Expense (Benefit)
 
 
For the Three-Month Periods Ended
 
For the One-Month
Transition Period Ended
December 31, 2012

 
March 31, 2013
 
February 29, 2012
 
Application of statutory income tax rate
 
$
1,201,795

 
$
3,224,535

 
$
(848,239
)
State income taxes, net of federal tax benefit
 
62,270

 
241,379

 
(64,771
)
Dividends received deduction
 
—

 
—

 
(7,133
)
Income of Real Estate Investment Trust
 
(243,121
)
 
—

 
—

Total income tax expense (benefit)
 
$
1,020,944

 
$
3,465,914

 
$
(920,143
)

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 Taxable REIT Subsidiaries (“TRSs”). A TRS is a subsidiary of a REIT that is subject to applicable corporate income tax. For the period ended March 31, 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-Month Periods Ended
 
For the One-Month
Transition Period Ended December 31, 2012

 
March 31, 2013
 
February 29, 2012
 
Current tax expense
 
 
 
 
 
 
Federal
 
$
268,205

 
$
—

 
$
3,610,165

State (net of federal tax benefit)
 
17,686

 
—

 
245,782

AMT expense
 
—

 
10,000

 
—

Total current tax expense
 
285,891

 
10,000

 
3,855,947

Deferred tax expense (benefit)
 
 
 
 
 
 
Federal
 
690,468

 
3,215,230

 
(4,465,104
)
State (net of federal tax benefit)
 
44,585

 
240,684

 
(310,986
)
Total deferred tax expense (benefit)
 
735,053

 
3,455,914

 
(4,776,090
)
Total income tax expense (benefit)
 
$
1,020,944

 
$
3,465,914

 
$
(920,143
)

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 will expire 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. No Net Operating Losses remain at March 31, 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
 
March 31, 2013
 
November 30, 2012
 
December 31, 2012
Aggregate cost for federal income tax purposes
 
$
19,734,837

 
$
41,995,195

 
$
22,007,069

Gross unrealized appreciation
 
2,161,017

 
33,892,176

 
2,018,455

Gross unrealized depreciation
 
—

 
(801,340
)
 
—

Net unrealized appreciation
 
$
2,161,017

 
$
33,090,836

 
$
2,018,455