Quarterly report pursuant to Section 13 or 15(d)

Income Taxes

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

 
$
(17,668
)
Net operating loss carryforwards
 
(40,912
)
 
(6,411,230
)
Net unrealized loss on investment securities
 
(1,166,612
)
 
—

Cost recovery of leased and fixed assets
 
(1,354,659
)
 
(36,443
)
Asset acquisition costs
 
—

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

 
(196,197
)
Sub-total
 
$
(2,562,183
)
 
$
(6,795,953
)
Deferred Tax Liabilities:
 
 
 
 
Basis reduction of investment in partnerships
 
$
5,353,276

 
$
11,655,817

Net unrealized gain on investment securities
 
—

 
2,312,269

Sub-total
 
5,353,276

 
13,968,086

Total net deferred tax liability
 
$
2,791,093

 
$
7,172,133


For the period ended June 30, 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 June 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 six months ended June 30, 2013 and May 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 Six Months Ended

 
June 30, 2013
 
May 31, 2012
 
June 30, 2013
 
May 31, 2012
Application of statutory income tax rate
 
$
109,139

 
$
1,108,421

 
$
1,310,934

 
$
4,332,956

State income taxes, net of federal tax benefit
 
9,568

 
82,974

 
71,839

 
324,353

Dividends received deduction
 
—

 
(1,233
)
 
—

 
(1,233
)
Income of Real Estate Investment Trust
 
123,047

 
—

 
(120,075
)
 
—

Total income tax expense
 
$
241,754

 
$
1,190,162

 
$
1,262,698

 
$
4,656,076


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 periods ended June 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 Six Months Ended

 
June 30, 2013
 
May 31, 2012
 
June 30, 2013
 
May 31, 2012
Current tax expense
 
 
 
 
 
 
 
 
Federal
 
$
546,816

 
$
—

 
$
815,021

 
$
—

State (net of federal tax benefit)
 
34,941

 
—

 
52,627

 
—

AMT expense
 
—

 
—

 
—

 
10,000

Total current tax expense
 
581,757

 
—

 
867,648

 
10,000

Deferred tax expense
 
 
 
 
 
 
 
 
Federal
 
(314,630
)
 
1,107,275

 
375,838

 
4,322,506

State (net of federal tax benefit)
 
(25,373
)
 
82,887

 
19,212

 
323,570

Total deferred tax expense (benefit)
 
(340,003
)
 
1,190,162

 
395,050

 
4,646,076

Total income tax expense, net
 
$
241,754

 
$
1,190,162

 
$
1,262,698

 
$
4,656,076


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. A Net Operating Loss of $41 thousand has been incurred by a TRS for the Six months ended June 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
 
June 30, 2013
 
November 30, 2012
Aggregate cost for federal income tax purposes
 
$
10,003,584

 
$
41,995,195

Gross unrealized appreciation
 
11,236,351

 
33,892,176

Gross unrealized depreciation
 
—

 
(801,340
)
Net unrealized appreciation
 
$
11,236,351

 
$
33,090,836