CorEnergy Infrastructure Trust, Inc. Quarterly report pursuant to Section 13 or 15(d)

Quarterly report pursuant to Section 13 or 15(d)

Income Taxes

Income Taxes

9 Months Ended

Sep. 30, 2014

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 September 30, 2014 and December 31, 2013 are as follows:



Deferred Tax Assets and Liabilities
	September 30, 2014			December 31, 2013
Deferred Tax Assets:
Net operating loss carryforwards	$	(137,793	)	$	(65,248	)
Cost recovery of leased and fixed assets	(896,700		)	(966,914		)
Sub-total	$	(1,034,493	)	$	(1,032,162	)
Deferred Tax Liabilities:
Basis reduction of investment in partnerships	$	5,633,662		$	6,335,805
Net unrealized gain on investment securities	974,064			28,444
Sub-total	6,607,726			6,364,249
Total net deferred tax liability	$	5,573,233		$	5,332,087

For the period ended September 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 September 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 nine months ended September 30, 2014 and September 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 Nine Months Ended
	September 30, 2014			September 30, 2013		September 30, 2014			September 30, 2013
Application of statutory income tax rate	$	775,982		$	540,602	$	3,004,593		$	1,851,535
State income taxes, net of federal tax benefit	15,321			120,139		118,090			191,978
Federal Tax Attributable to Income of Real Estate Investment Trust	(466,420		)	444,384		(1,541,408		)	324,310
Total income tax expense	$	324,883		$	1,105,125	$	1,581,275		$	2,367,823

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 nine months ended September 30, 2014 and 2.26 percent for the three and nine months ended September 30, 2013. CorEnergy BBWS does pay any state taxes because it operates only in Wyoming, which does not have state income tax. 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 nine months ended September 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 nine months ended September 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 Nine Months Ended
	September 30, 2014			September 30, 2013			September 30, 2014		September 30, 2013
Current tax expense (benefit)
Federal	$	446,391		$	(665,471	)	$	1,230,768	$	149,550
State (net of federal tax benefit)	39,663			(14,810		)	109,361		37,817
Total current tax expense (benefit)	486,054			(680,281		)	1,340,129		187,367
Deferred tax expense (benefit)
Federal	(136,829		)	1,650,457			232,417		2,026,295
State (net of federal tax benefit)	(24,342		)	134,949			8,729		154,161
Total deferred tax expense (benefit)	(161,171		)	1,785,406			241,146		2,180,456
Total income tax expense, net	$	324,883		$	1,105,125		$	1,581,275	$	2,367,823

As of December 31, 2013, the TRSs 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 $182 thousand has been incurred by the TRSs for the nine months ended September 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
	September 30, 2014		December 31, 2013
Aggregate cost for federal income tax purposes	$	8,436,355	$	6,604,635
Gross unrealized appreciation	16,984,522		16,699,686
Net unrealized appreciation	$	16,984,522	$	16,699,686

- Definition

The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.

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