CorEnergy Infrastructure Trust, Inc. Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

Income Taxes

Income Taxes

12 Months Ended

Dec. 31, 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 December 31, 2014 and December 31, 2013 are as follows:



Deferred Tax Assets and Liabilities
	December 31, 2014			December 31, 2013
Deferred Tax Assets:
Net operating loss carryforwards	$	(679,692	)	$	(65,248	)
Cost recovery of leased and fixed assets	(1,042,207		)	(966,914		)
Sub-total	$	(1,721,899	)	$	(1,032,162	)
Deferred Tax Liabilities:
Basis reduction of investment in partnerships	$	2,842,332		$	6,335,805
Net unrealized gain on investment securities	142,154			28,444
Sub-total	2,984,486			6,364,249
Total net deferred tax liability	$	1,262,587		$	5,332,087

For the period ended December 31, 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 December 31, 2014, 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, 2014, December 31, 2013, November 30, 2012 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, 2014			December 31, 2013			November 30, 2012			December 31, 2012
Application of statutory income tax rate	$	2,375,903		$	2,608,151		$	6,852,179		$	(848,239	)
State income taxes, net of federal tax benefit	(47,731		)	273,174			442,455			(64,771		)
Dividends received deduction	—			—			(1,221		)	(7,133		)
Income of Real Estate Investment Trust not subject to tax	(2,607,207		)	(927,254		)	—			—
Other	53,472			995,447			(64,479		)	—
Total income tax expense	$	(225,563	)	$	2,949,518		$	7,228,934		$	(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 3.92 percent for the year ended December 31, 2014, 3.11 percent for the year ended December 31, 2013 and 2.26 percent for the other periods presented above. CorEnergy BBWS does not record a provision for state income taxes because it operates only in Wyoming, which does not have state income tax. Because Omega and MoGas primarily only operate in the state of Missouri, a blended state income tax rate of 5 percent was used for the operations of our Omega and MoGas TRSs for the years ended December 31, 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 year ended December 31, 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 Years Ended									For the One-Month Transition Period Ended
	December 31, 2014			December 31, 2013			November 30, 2012			December 31, 2012
Current tax expense (benefit)
Federal	$	3,456,858		$	(7,139	)	$	—		$	3,610,165
State (net of federal tax benefit)	387,079			20,613			38,107			245,782
AMT benefit	—			—			(8,842		)	—
Total current tax expense (benefit)	$	3,843,937		$	13,474		$	29,265		$	3,855,947
Deferred tax expense (benefit)
Federal	(3,634,689		)	2,683,483			6,762,974			(4,465,104		)
State (net of federal tax benefit)	(434,811		)	252,561			436,695			(310,986		)
Total deferred tax expense (benefit)	(4,069,500		)	2,936,044			7,199,669			(4,776,090		)
Total income tax expense (benefit), net	$	(225,563	)	$	2,949,518		$	7,228,934		$	(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. As of December 31, 2013 the TRSs had a net operating loss of $145 thousand. For the year ended December 31, 2014, the TRSs incurred a total net operating loss of approximately $1.56 million, resulting in a total net operating loss of approximately $1.70 million as of December 31, 2014. If not utilized, this net operating loss will expire as follows: $145 thousand, and $1.56 million in the years ending December 31, 2033 and 2034. 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, 2014		December 31, 2013
Aggregate cost for federal income tax purposes	$	4,218,986	$	6,604,636
Gross unrealized appreciation	7,436,696		16,699,686
Gross unrealized depreciation	—		—
Net unrealized appreciation	$	7,436,696	$	16,699,686

The Company provides the following tax information to its common stockholders pertaining to the character of distributions paid during tax year 2012, 2013, and 2014. For a stockholder that received all distributions in cash during 2014, 74 percent will be treated as ordinary dividend income and 26 percent will be treated as return of capital. Of the ordinary dividend income, 48 percent will be treated as qualified dividend income. The per share characterization by quarter is reflected in the following table:



2014 Common Stock Tax Information (unaudited)
Record Date	Ex-Dividend Date	Payable Date	Total Distribution per Share		Total Ordinary Dividends		Qualified Dividends		Capital Gain Distributions		Nondividend Distributions
01/03/2014	01/13/2014	1/23/2014	$	0.1250	$	0.0928	$	0.0450	$	—	$	0.0322
04/30/2014	05/14/2015	05/22/2014	0.1290		0.0958		0.0464		—		0.0332
07/31/2014	08/15/2014	08/29/2014	0.1300		0.0965		0.0467		—		0.0335
10/31/2014	11/14/2014	11/28/2014	0.1300		0.0965		0.0467		—		0.0335
Total 2014 Distributions			$	0.5140	$	0.3816	$	0.1848	$	—	$	0.1324



2013 Common Stock Tax Information (unaudited)
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 (unaudited)
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

We elected effective for our 2013 tax year to be treated as a REIT for federal income tax purposes. Our REIT election, assuming continued compliance with the applicable tests, will continue in effect for 2014 and subsequent tax years. 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 and 2014. 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.

- 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.

+ References + Details