Annual report pursuant to Section 13 and 15(d)

INCOME TAXES

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INCOME TAXES
 12 Months Ended
Dec. 31, 2023
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, 2023 and 2022, are as follows:
Deferred Tax Assets and Liabilities
December 31, 2023 December 31, 2022
Deferred Tax Assets:
Deferred contract revenue $ —  $ 1,230,985 
Net operating loss carryforwards 206,630  7,027,439 
Capital loss carryforward —  92,418 
Other —  338 
Sub-total $ 206,630  $ 8,351,180 
Valuation allowance —  (5,168,148)
Sub-total $ 206,630  $ 3,183,032 
Deferred Tax Liabilities:
Cost recovery of fixed assets $ —  $ (4,386,744)
Other —  (88,588)
Sub-total $ —  $ (4,475,332)
Total net deferred tax asset (liability) $ 206,630  $ (1,292,300)

Deferred Tax Assets and Liabilities - Held-For-Sale
December 31, 2023
Deferred Tax Assets:
Deferred contract revenue $ 1,062,314 
Net operating loss carryforwards 7,513,823 
Capital loss carryforward 92,418 
Other 282 
Sub-total $ 8,668,837 
Valuation allowance (3,589,514)
Sub-total $ 5,079,323 
Deferred Tax Liabilities:
Cost recovery of leased and fixed assets $ (5,604,576)
Other (106,227)
Sub-total $ (5,710,803)
Total net deferred tax liability(1)
$ (631,480)
(1) The deferred tax liability is recorded within certain parent entities that are not part of the disposal group, however, because the liability was generated from the operations of the disposal group, the Company has included it within liabilities held-for-sale on the Consolidated Balance Sheet.
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, 2023 and 2022, the Company had no uncertain positions. Tax years subsequent to the year ended December 31, 2019, remain open to examination by federal and state tax authorities.
As of December 31, 2023 and 2022, the TRSs had cumulative net operating loss carryforwards ("NOL") of $31.9 million and $29.2 million, respectively. Net operating losses of $31.7 million generated during the years ended December 31, 2023, 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 of $155 thousand will expire in the year ending December 31, 2037. The Company also has a capital loss carryforward of $440 thousand as of December 31, 2023 and 2022, 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 carryforwards 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 both December 31, 2023 and December 31, 2022. Additionally, the Company determined that certain of the federal and state NOLs may not be utilized prior to their expiration. Due to the uncertainty of realizing these deferred tax assets, a valuation allowance of $3.5 million was recorded as of December 31, 2023 and $5.2 million as of December 31, 2022. 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.
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, 2023, 2022 and 2021, 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,
2023 2022 2021
Application of statutory income tax rate $ (56,874,018) $ (2,327,764) $ (278,726)
State income taxes, net of federal tax benefit 77,878  68,320  681,342 
Income of Real Estate Investment Trust not subject to tax 57,537,442  2,664,761  532,952 
Increase (decrease) in valuation allowance (1,578,634) 1,276,806  3,159,313 
Other (3,311) (10,212) (20,122)
Total income tax expense (benefit) $ (840,643) $ 1,671,911  $ 4,074,759 
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, 2023, 2022 and 2021, 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,
2023 2022 2021
Current tax expense (benefit)
Federal $ 13,605  $ 141,544  $ (7,154)
State (net of federal tax benefit) 13,203  31,783  5,623 
Total current tax expense (benefit) $ 26,808  $ 173,327  $ (1,531)
Deferred tax expense
Federal $ (273,901) $ 947,036  $ 3,400,571 
State (net of federal tax benefit) (593,550) 551,548  675,719 
Total deferred tax expense (benefit) $ (867,451) $ 1,498,584  $ 4,076,290 
Total income tax expense (benefit), net $ (840,643) $ 1,671,911  $ 4,074,759 
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 2023, 2022 and 2021.