Annual report pursuant to Section 13 and 15(d)

INCOME TAXES

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INCOME TAXES
 12 Months Ended
Dec. 31, 2022
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, 2022 and 2021, are as follows:
Deferred Tax Assets and Liabilities
December 31, 2022 December 31, 2021
Deferred Tax Assets:
Deferred contract revenue $ 1,230,985  $ 1,333,510 
Net operating loss carryforwards 7,027,439  6,929,821 
Capital loss carryforward 92,418  92,418 
Other 338  366 
Sub-total $ 8,351,180  $ 8,356,115 
Valuation allowance (5,168,148) (3,891,342)
Sub-total $ 3,183,032  $ 4,464,773 
Deferred Tax Liabilities:
Cost recovery of fixed assets $ (4,386,744) $ (4,187,621)
Other (88,588) (70,867)
Sub-total $ (4,475,332) $ (4,258,488)
Total net deferred tax (liability) asset $ (1,292,300) $ 206,285 
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. As of December 31, 2022 and 2021, the Company had no uncertain positions. Tax years subsequent to the year ended December 31, 2018, remain open to examination by federal and state tax authorities.
As of December 31, 2022 and 2021, the TRSs had cumulative net operating loss carryforwards ("NOL") of $29.2 million and $28.7 million, respectively. Net operating losses of $26.4 million generated during the years ended December 31, 2022, 2021, 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, $328 thousand, and $1.9 million in the years ending December 31, 2034, 2035, 2036 and 2037, respectively. The Company also has a capital loss carryforward of $440 thousand as of December 31, 2022 and 2021, respectively, which if not utilized, 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 was recorded equal to the amount of the tax benefit of this carryforward at December 31, 2022 and 2021. Additionally, the Company determined that certain of the federal and state net operating losses would not be utilized prior to their expiration. Due to the uncertainty of realizing these deferred tax assets, a valuation allowance of $5.2 million was recorded as of December 31, 2022 and $3.8 million as of December 31, 2021. In the future, if the Company concludes, based on existence of sufficient evidence, that it should realize more or less of the deferred tax assets, the valuation allowance will be adjusted accordingly in the period such conclusion is made.
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, permitted NOL carryovers and carrybacks to offset 100.0% of taxable income for taxable years beginning before 2021. In addition, the CARES Act allowed 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 were 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 21.0% are being carried back to offset taxable income that was taxed at a pre-Tax Cuts and Jobs Act of 2017 rate of 34%. The benefit received from the rate differential is reflected in the income tax provision for the year ended December 31, 2020.
Total income tax expense (benefit) differs from the amount computed by applying the federal statutory income tax rate of 21% for the years ended December 31, 2022, 2021 and 2020, 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,
As Restated
2022 2021 2020
Application of statutory income tax rate $ (2,327,764) $ (278,726) $ (64,292,012)
State income taxes, net of federal tax benefit 68,320  681,342  35,371 
Income of Real Estate Investment Trust not subject to tax 2,664,761  532,952  64,331,160 
Increase in valuation allowance 1,276,806  3,159,313  — 
Other (10,212) (20,122) (159,377)
Total income tax expense (benefit) $ 1,671,911  $ 4,074,759  $ (84,858)
Total income taxes are computed by applying the federal statutory rate of 21% plus a blended state income tax rate.
For the years ended December 31, 2022, 2021 and 2020, 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,
2022 2021 2020
Current tax expense (benefit)
Federal $ 141,544  $ (7,154) $ (420,074)
State (net of federal tax benefit) 31,783  5,623  24,231 
Total current tax expense (benefit) $ 173,327  $ (1,531) $ (395,843)
Deferred tax expense
Federal $ 947,036  $ 3,400,571  $ 299,845 
State (net of federal tax benefit) 551,548  675,719  11,140 
Total deferred tax expense $ 1,498,584  $ 4,076,290  $ 310,985 
Total income tax expense (benefit), net $ 1,671,911  $ 4,074,759  $ (84,858)
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 2022, 2021 and 2020.