Quarterly report pursuant to Section 13 or 15(d)

INCOME TAXES

v3.22.2.2
INCOME TAXES
 9 Months Ended
Sep. 30, 2022
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 September 30, 2022 and December 31, 2021, are as follows:
Deferred Tax Assets and Liabilities
September 30, 2022 December 31, 2021
Deferred Tax Assets:
Deferred contract revenue $ 1,271,718  $ 1,333,510 
Net operating loss carryforwards 6,930,319  6,929,821 
Capital loss carryforward 92,418  92,418 
Other 367  366 
Sub-total $ 8,294,822  $ 8,356,115 
Valuation allowance (3,856,804) (3,891,342)
Sub-total $ 4,438,018  $ 4,464,773 
Deferred Tax Liabilities:
Cost recovery of leased and fixed assets $ (4,242,177) $ (4,187,621)
Other (84,160) (70,867)
Sub-total $ (4,326,337) $ (4,258,488)
Total net deferred tax asset $ 111,681  $ 206,285 
As of September 30, 2022, the total deferred tax assets and liabilities presented above relate to the Company's taxable REIT subsidiaries ("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, 2022, the Company had no uncertain tax positions. Tax years beginning with the year ended December 31, 2018 remain open to examination by federal and state tax authorities.
As of September 30, 2022 and December 31, 2021, the TRSs had cumulative net operating loss carryforwards ("NOL") of $28.8 million and $28.7 million, respectively. As of September 30, 2022 and December 31, 2021, net operating losses of $26.0 million and $25.5 million, respectively, that were generated during the periods ended September 30, 2022, December 31, 2021, 2020, 2019, and 2018 may be carried forward indefinitely, subject to limitation. Net operating losses generated for years prior to December 31, 2018 may be carried forward for 20 years.
Management assessed the available evidence and determined that it is more likely than not that the capital loss carryforward will not be utilized prior to expiration. Due to the uncertainty of realizing this deferred tax asset, a valuation allowance of $92 thousand was recorded equal to the amount of the tax benefit of this carryforward at September 30, 2022 and December 31, 2021. Additionally, the Company determined that certain of the federal and state net operating losses would not be utilized prior to their expiration. Due to the uncertainty of realizing these deferred tax assets, a valuation allowance of $3.8 million was recorded at both September 30, 2022 and December 31, 2021. In the future, if the Company concludes, based on existence of sufficient evidence, that it should realize more or less of the deferred tax assets, the valuation allowance will be adjusted accordingly in the period such conclusion is made.
The Company provides for income taxes during interim periods based on the estimated effective tax rate for the year and any discrete adjustments. The effective tax rate is subject to change in the future due to various factors such as the operating performance of the TRSs, tax law changes, and future business acquisitions or divestitures. The TRSs’ effective tax rates were 24.4% and 24.1% for the nine months ended September 30, 2022 and 2021, respectively.
The components of income tax expense include the following for the periods presented:
Components of Income Tax Expense
For the Three Months Ended For the Nine Months Ended
September 30, 2022 September 30, 2021 September 30, 2022 September 30, 2021
Current tax expense (benefit)
Federal $ 31,781  $ (6,690) $ 238,587  $ 31,470 
State (net of federal tax expense) 3,406  (237) 104,521  9,843 
Total current tax expense (benefit) $ 35,187  $ (6,927) $ 343,108  $ 41,313 
Deferred tax expense
Federal $ 5,004  $ 94,699  $ 77,784  $ 184,784 
State (net of federal tax expense) 1,178  18,817  16,820  37,555 
Total deferred tax expense $ 6,182  $ 113,516  $ 94,604  $ 222,339 
Total income tax expense, net $ 41,369  $ 106,589  $ 437,712  $ 263,652