Quarterly report pursuant to Section 13 or 15(d)

Income Taxes

v2.4.0.8
Income Taxes
6 Months Ended
Jun. 30, 2014
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, 2014 and December 31, 2013 are as follows:
Deferred Tax Assets and Liabilities
 
 
June 30, 2014
 
December 31, 2013
Deferred Tax Assets:
 
 
 
 
Net operating loss carryforwards
 
$
(147,650
)
 
$
(65,248
)
Cost recovery of leased and fixed assets
 
(891,550
)
 
(966,914
)
Sub-total
 
$
(1,039,200
)
 
$
(1,032,162
)
Deferred Tax Liabilities:
 
 
 
 
Basis reduction of investment in partnerships
 
$
5,481,732

 
$
6,335,805

Net unrealized gain on investment securities
 
1,291,873

 
28,444

Sub-total
 
6,773,605

 
6,364,249

Total net deferred tax liability
 
$
5,734,405

 
$
5,332,087


For the period ended June 30, 2014, 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 June 30, 2014, 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, 2014 and June 30, 2013 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, 2014
 
June 30, 2013
 
June 30, 2014
 
June 30, 2013
Application of statutory income tax rate
 
$
1,310,265

 
$
109,139

 
$
2,228,611

 
$
1,310,934

State income taxes, net of federal tax benefit
 
59,790

 
9,568

 
102,769

 
71,839

Federal Tax Attributable to Income of Real Estate Investment Trust
 
(627,176
)
 
123,047

 
(1,074,988
)
 
(120,075
)
Total income tax expense
 
$
742,879

 
$
241,754

 
$
1,256,392

 
$
1,262,698


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 three and six months ended June 30, 2014 and 2.26 percent for the three and six months ended June 30, 2013. Because Mowood operates only in the state of Missouri, a blended state income tax rate of 5 percent was used for the operations of our Mowood TRS for the three and six months ended June 30, 2014 and 2013. The restructuring done in December 2012 causes us to 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 three and six months ended June 30, 2014, 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, 2014
 
June 30, 2013
 
June 30, 2014
 
June 30, 2013
Current tax expense (benefit)
 
 
 
 
 
 
 
 
Federal
 
$

 
$
546,816

 
$
784,377

 
$
815,021

State (net of federal tax benefit)
 

 
34,941

 
69,698

 
52,627

Total current tax expense (benefit)
 

 
581,757

 
854,075

 
867,648

Deferred tax expense (benefit)
 
 
 
 
 
 
 
 
Federal
 
683,089

 
(314,630
)
 
369,246

 
375,838

State (net of federal tax benefit)
 
59,790

 
(25,373
)
 
33,071

 
19,212

Total deferred tax expense (benefit)
 
742,879

 
(340,003
)
 
402,317

 
395,050

Total income tax expense, net
 
$
742,879

 
$
241,754

 
$
1,256,392

 
$
1,262,698


As of December 31, 2013, the TRS' had a net operating loss for federal income tax purposes of approximately $160 thousand. The net operating loss may be carried forward for 20 years. If not utilized, this net operating loss will expire in the year ending December 31, 2033. A total Net Operating Loss of approximately $82 thousand has been incurred by the TRSs for the six months ended June 30, 2014.
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, 2014
 
December 31, 2013
Aggregate cost for federal income tax purposes
 
$
8,012,960

 
$
6,604,635

Gross unrealized appreciation
 
17,773,825

 
16,699,686

Net unrealized appreciation
 
$
17,773,825

 
$
16,699,686