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, 2015

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, 2015, and 2014, are as follows:



Deferred Tax Assets and Liabilities
	December 31, 2015			December 31, 2014
Deferred Tax Assets:
Net operating loss carryforwards	$	543,116		$	679,692
Net unrealized loss on investment securities	251,539			—
Cost recovery of leased and fixed assets	—			1,042,207
Loan Loss Provision	1,257,436			—
Other loss carryforwards	1,833,240			—
Sub-total	$	3,885,331		$	1,721,899
Deferred Tax Liabilities:
Basis reduction of investment in partnerships	$	(2,159,058	)	$	(2,842,332	)
Net unrealized gain on investment securities	—			(142,154		)
Cost recovery of leased and fixed assets	(119,297		)	—
Sub-total	(2,278,355		)	(2,984,486		)
Total net deferred tax asset (liability)	$	1,606,976		$	(1,262,587	)

For the year ended December 31, 2015, the total deferred tax asset presented above relates to 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. 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, 2015, 2014, and 2013, 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 December 31,
	2015			2014			2013
Application of statutory income tax rate	$	3,630,325		$	2,375,903		$	2,608,151
State income taxes, net of federal tax (benefit)	(134,597		)	(47,731		)	273,174
Federal Tax Attributable to Income of Real Estate Investment Trust	(5,189,849		)	(2,607,207		)	(927,254		)
Other	(253,432		)	53,472			995,447
Total income tax expense (benefit)	$	(1,947,553	)	$	(225,563	)	$	2,949,518

Total income taxes are computed by applying the federal statutory rate of 35 percent plus a blended state income tax rate. Corridor Public Inc. and Corridor Private Inc. had a blended state rate of approximately 2.82 percent for the year ended December 31, 2015, 3.92 percent for the year ended December 31, 2014 and 3.11 percent for the year ended December 31, 2013. CorEnergy BBWS Inc. does not record a provision for state income taxes because it operates only in Wyoming, which does not have state income tax. Because Mowood Corridor Inc. and Corridor MoGas Inc. primarily only operate in the state of Missouri, a blended state income tax rate of 5 percent was used for the operations of both TRSs for the years ended December 31, 2015, 2014, and 2013. For year ended December 31, 2015, all of the income tax benefit presented above relates to the assets and activities held in the Company's TRSs. The components of income tax benefit include the following for the periods presented:



Components of Income Tax Expense (Benefit)
	For the Years Ended December 31,
	2015			2014			2013
Current tax expense
Federal	$	781,941		$	3,456,858		$	(7,139	)
State (net of federal tax benefit)	140,069			387,079			20,613
Total current tax expense	922,010			3,843,937			13,474
Deferred tax expense (benefit)
Federal	(2,594,897		)	(3,634,689		)	2,683,483
State (net of federal tax benefit)	(274,666		)	(434,811		)	252,561
Total deferred tax expense (benefit)	(2,869,563		)	(4,069,500		)	2,936,044
Total income tax expense (benefit), net	$	(1,947,553	)	$	(225,563	)	$	2,949,518

As of December 31, 2014 the TRSs had a net operating loss of $894 thousand. For the year ended December 31, 2015, the TRSs incurred a total net operating loss of approximately $478 thousand, resulting in a total net operating loss of approximately $1.4 million as of December 31, 2015. The net operating loss may be carried forward for 20 years. If not utilized, this net operating loss will expire as follows: $90 thousand, $804 thousand, and $478 thousand in the years ending December 31, 2033, 2034, and 2035 respectively. The amount of deferred tax asset for net operating losses as of December 31, 2015, includes amounts for the year ended December 31, 2015. 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 (Unaudited)
	December 31, 2015			December 31, 2014
Aggregate cost for federal income tax purposes	$	4,750,252		$	4,218,986
Gross unrealized appreciation	5,133,908			7,436,696
Gross unrealized depreciation	(97,500		)
Net unrealized appreciation	$	5,036,408		$	7,436,696

The Company provides the following tax information to its common stockholders pertaining to the character of distributions paid during tax years 2013, 2014, and 2015. For a stockholder that received all distributions in cash during 2015, 72 percent (unaudited) will be treated as ordinary dividend income and 28 percent (unaudited) will be treated as return of capital. Of the ordinary dividend income, 3 percent (unaudited) will be treated as qualified dividend income. The per share characterization by quarter is reflected in the following tables:



2015 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
02/13/2015	02/11/2015	02/27/2015	$	0.6500	$	0.4680	$	0.0126	$	—	$	0.1820
05/15/2015	05/13/2015	05/29/2015	0.6750		0.4860		0.0131		—		0.1890
08/17/2015	08/13/2015	08/31/2015	0.6750		0.4860		0.0131		—		0.1890
11/13/2015	11/10/2015	11/30/2015	0.7500		0.5400		0.0146		—		0.2100
Total 2015 Distributions			$	2.7500	$	1.9800	$	0.0534	$	—	$	0.7700



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
01/13/2014	01/09/2014	01/23/2014	$	0.6250	$	0.4640	$	0.2250	$	—	$	0.1610
05/14/2014	05/12/2014	05/22/2014	0.6450		0.4790		0.2320		—		0.1660
08/15/2014	08/13/2014	08/29/2014	0.6500		0.4825		0.2335		—		0.1675
11/14/2014	11/12/2014	11/28/2014	0.6500		0.4825		0.2335		—		0.1675
Total 2014 Distributions			$	2.5700	$	1.9080	$	0.9240	$	—	$	0.6620



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	$	0.6250	$	0.6250	$	0.6250	$	—	$	—
06/28/2013	06/26/2013	07/05/2013	0.6250		0.1835		0.1835		—		0.4415
09/30/2013	09/26/2013	10/04/2013	0.6250		—		—		—		0.6250
Total 2013 Distributions			$	1.8750	$	0.8085	$	0.8085	$	—	$	1.0665

The Company provides the following tax information to its preferred stockholders pertaining to the character of distributions paid during the 2015 tax year. For a stockholder that received all distributions in cash during 2015, 100 percent (unaudited) will be treated as ordinary dividend income and 0 percent (unaudited) will be treated as return of capital. Of the ordinary dividend income, 3 percent (unaudited) will be treated as qualified dividend income. The per share characterization by quarter is reflected in the following table:



2015 Preferred 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
05/15/2015	05/13/2015	06/01/2015	$	0.6351	$	0.6351	$	0.0171	$	—	$	—
08/17/2015	08/13/2015	08/31/2015	0.4609		0.4609		0.0124		—		—
11/13/2015	11/11/2015	11/30/2015	0.4609		0.4609		0.0124		—		—
Total 2015 Distributions			$	1.5569	$	1.5569	$	0.0419	$	—	$	—

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 subsequent tax years. The Company satisfied the annual income test and the quarterly asset tests necessary for us to qualify to be taxed as a REIT for 2013, 2014 and 2015. 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. Distributions made during 2014 and 2015 and treated as qualifying dividend income relate to taxable dividends received from our TRSs that were received and distributed in 2014 and 2015.