Annual report pursuant to Section 13 and 15(d)

Income Taxes

v2.4.0.8
Income Taxes
 12 Months Ended
Dec. 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 December 31, 2013, November 30, 2012 and December 31, 2012 are as follows:
Deferred Tax Assets and Liabilities
 
 
December 31, 2013
 
November 30, 2012
 
December 31, 2012
Deferred Tax Assets:
 
 
 
 
 

Organization costs
 
$
—

 
$
(17,668
)
 
$
(27,188
)
Net operating loss carryforwards
 
(65,248
)
 
(6,411,230
)
 
—

Net unrealized loss on investment securities
 
—

 
—

 
(143,822
)
Cost recovery of leased and fixed assets
 
(966,914
)
 
(36,443
)
 
—

Asset acquisition costs
 
—

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

 
(196,197
)
 
—

Sub-total
 
$
(1,032,162
)
 
$
(6,795,953
)
 
$
(329,545
)
Deferred Tax Liabilities:
 
 
 
 
 

Basis reduction of investment in partnerships
 
$
6,335,805

 
$
11,655,817

 
$
2,675,142

Net unrealized gain on investment securities
 
28,444

 
2,312,269

 
—

Cost recovery of leased assets
 
—

 
—

 
50,446

Sub-total
 
6,364,249

 
13,968,086

 
2,725,588

Total net deferred tax liability
 
$
5,332,087

 
$
7,172,133

 
$
2,396,043


For the period ended December 31, 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 December 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, 2007 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 years ended December 31, 2013, November 30, 2012, November 30, 2011 and for the one-month transition period ended December 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 Years Ended
 
For the One-Month Transition Period Ended
 
 
December 31, 2013
 
November 30, 2012
 
November 30, 2011
 
December 31, 2012
Application of statutory income tax rate
 
$
2,608,151

 
$
6,852,179

 
$
1,331,750

 
$
(848,239
)
State income taxes, net of federal tax benefit
 
273,174

 
442,455

 
133,158

 
(64,771
)
Dividends received deduction
 
—

 
(1,221
)
 
(86
)
 
(7,133
)
Income of Real Estate Investment Trust not subject to tax
 
(927,254
)
 
—

 
—

 
—

Impact of effective tax rate change due to REIT election
 
995,447

 
—

 
—

 
—

Other
 
—

 
(64,479
)
 
(581,965
)
 
—

Total income tax expense
 
$
2,949,518

 
$
7,228,934

 
$
882,857

 
$
(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 3.11 percent for the year ended December 31, 2013 and 2.26 percent for the other periods presented above. As a REIT, we 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 year ended December 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 Years Ended
 
For the One-Month Transition Period Ended
 
 
December 31, 2013
 
November 30, 2012
 
November 30, 2011
 
December 31, 2012
Current tax expense (benefit)
 
 
 
 
 
 
 
 
Federal
 
$
(7,139
)
 
$
—

 
$
—

 
$
3,610,165

State (net of federal tax benefit)
 
20,613

 
38,107

 
53,650

 
245,782

AMT benefit
 
—

 
(8,842
)
 
200,000

 
—

Total current tax expense (benefit)
 
13,474

 
29,265

 
253,650

 
3,855,947

Deferred tax expense (benefit)
 
 
 
 
 

 
 
Federal
 
2,683,483

 
6,762,974

 
585,386

 
(4,465,104
)
State (net of federal tax benefit)
 
252,561

 
436,695

 
43,821

 
(310,986
)
Total deferred tax expense (benefit)
 
2,936,044

 
7,199,669

 
629,207

 
(4,776,090
)
Total income tax expense (benefit), net
 
$
2,949,518

 
$
7,228,934

 
$
882,857

 
$
(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 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 $160 thousand has been incurred by a TRS for the year ended December 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
 
 
December 31, 2013
 
November 30, 2012
 
December 31, 2012
Aggregate cost for federal income tax purposes
 
$
6,604,636

 
$
41,995,195

 
$
22,007,069

Gross unrealized appreciation
 
16,699,686

 
33,892,176

 
2,018,455

Gross unrealized depreciation
 
—

 
(801,340
)
 
—

Net unrealized appreciation
 
$
16,699,686

 
$
33,090,836

 
$
2,018,455


The Company provides the following tax information to its common stockholders pertaining to the character of distributions paid during tax year 2013, 2012, and 2011. For a stockholder that received all distributions in cash during 2013, 43 percent will be treated as qualified dividend income and 57 percent will be treated as return of capital. The per share characterization by quarter is reflected in the following table:
2013 Common Stock Tax Information
Record Date
 
Ex-Dividend Date
 
Payable Date
 
Total Distribution per Share
 
Total Ordinary Dividends
 
Qualified Dividends
 
Capital Gain Distributions
 
Nondividend Distributions
03/08/2013
 
03/06/2013
 
03/19/2013
 
$
0.1250

 
$
0.1250

 
$
0.1250

 
$
—

 
$
—

06/28/2013
 
06/26/2013
 
07/05/2013
 
0.1250

 
0.0367

 
0.0367

 
—

 
0.0883

09/30/2013
 
09/26/2013
 
10/04/2013
 
0.1250

 
—

 
—

 
—

 
0.1250

Total 2013 Distributions
 
$
0.3750

 
$
0.1617

 
$
0.1617

 
$
—

 
$
0.2133

2012 Common Stock Tax Information
Record Date
 
Ex-Dividend Date
 
Payable Date
 
Total Distribution per Share
 
Total Ordinary Dividends
 
Qualified Dividends
 
Capital Gain Distributions
 
Nondividend Distributions
02/22/2012
 
02/17/2012
 
03/01/2012
 
$
0.1100

 
$
—

 
$
—

 
$
—

 
$
0.1100

05/23/2012
 
05/21/2012
 
06/01/2012
 
0.1100

 
—

 
—

 
—

 
0.1100

08/24/2012
 
08/22/2012
 
09/04/2012
 
0.1100

 
—

 
—

 
—

 
0.1100

11/23/2012
 
11/20/2012
 
11/30/2012
 
0.1100

 
—

 
—

 
—

 
0.1100

Total 2012 Distributions
 
$
0.4400

 
$
—

 
$
—

 
$
—

 
$
0.4400

2011 Common Stock Tax Information
Record Date
 
Ex-Dividend Date
 
Payable Date
 
Total Distribution per Share
 
Total Ordinary Dividends
 
Qualified Dividends
 
Capital Gain Distributions
 
Nondividend Distributions
02/18/2011
 
02/16/2011
 
03/01/2011
 
$
0.1000

 
$
0.1000

 
$
0.1000

 
$
—

 
$
—

05/24/2011
 
05/20/2011
 
06/01/2011
 
0.1000

 
0.1000

 
0.1000

 
—

 
—

08/24/2011
 
08/22/2011
 
09/01/2011
 
0.1000

 
0.1000

 
0.1000

 
—

 
—

11/22/2011
 
11/18/2011
 
11/30/2011
 
0.1100

 
0.1100

 
0.1100

 
—

 
—

Total 2011 Distributions
 
$
0.4100

 
$
0.4100

 
$
0.4100

 
$
—

 
$
—



We elected to be treated as a REIT for federal income tax purposes (which we refer to as the “REIT Election”) for the calendar and tax year ended December 31, 2013. The Company satisfied the annual income test and the quarterly assets tests necessary for us to qualify to be taxed as a REIT for 2013. Distributions made during 2013 and treated as qualifying dividend income relate to pre-REIT tax years earnings and profits that were required to be distributed by calendar year end 2013.