3. Income Taxes
The Company files as a REIT under Sections 856-860 of the Internal Revenue Code of 1986, as amended. In order to qualify as a REIT, the Company is required to distribute at least 90% of its taxable income to stockholders and to meet certain asset and income tests as well as certain other requirements. The Company will generally not be liable for federal income taxes, provided it satisfies these requirements. Even as a qualified REIT, the Company is subject to certain state and local taxes on its income and property.
The Company adopted an accounting pronouncement related to uncertainty in income taxes effective January 1, 2007, which did not result in recording a liability, nor was any accrued interest and penalties recognized with the adoption. Accrued interest and penalties will be recorded as income tax expense, if the Company records a liability in the future. The Company’s effective tax rate was not affected by the adoption. The Company files income tax returns in the U.S. federal jurisdiction and the State of Illinois jurisdiction. The statute of limitations for the Company’s income tax returns is generally three years and as such, the Company’s returns that remain subject to examination would be primarily from 2014 and thereafter.
During the years 2007 to 2017, the Company incurred net operating losses for income tax purposes of approximately $15,845,000 which can be carried forward until it expires between 2027 and 2037. The gross amount of net operating losses available to the Company was $15,845,000 and $14,159,000 as of December 31, 2017 and 2016, respectively.
At December 31, 2017, the Company’s net tax basis of its real estate assets was $165,295,000.
The following schedule reconciles net loss to taxable loss subject to dividend requirements:
|
|
|
Year Ended |
|
Year Ended |
|
||
|
|
|
December 31, |
|
December 31, |
|
||
|
(in thousands) |
|
2017 |
|
2016 |
|
||
|
|
|
|
|
|
|
||
|
Net loss |
|
$ |
(980 |
) |
$ |
(1,268 |
) |
|
|
|
|
|
|
|
||
|
Adjustments: Book depreciation and amortization |
|
7,295 |
|
6,796 |
|
||
|
Amortization of favorable real estate leases |
|
— |
|
59 |
|
||
|
Deferred rent |
|
(291 |
) |
290 |
|
||
|
Allowance for bad debt expenses |
|
35 |
|
(64 |
) |
||
|
Tax depreciation and amortization |
|
(6,142 |
) |
(6,460 |
) |
||
|
Amortization of unfavorable real estate leases |
|
— |
|
(11 |
) |
||
|
Straight-line rent adjustment |
|
(1,603 |
) |
(713 |
) |
||
|
|
|
|
|
|
|
||
|
Taxable loss |
|
$ |
(1,686 |
) |
$ |
(1,371 |
) |
|
|
|
|
|
|
|
|
|
The following schedule summarizes the tax components of the distributions paid for the years ended December 31, 2017 and 2016:
|
|
|
2017 |
|
2016 |
|
||||||
|
(dollars in thousands) |
|
Preferred |
|
% |
|
Preferred |
|
% |
|
||
|
Ordinary income |
|
$ |
— |
|
0 |
% |
$ |
— |
|
0 |
% |
|
Return of Capital |
|
2,950 |
|
100 |
% |
2,095 |
|
100 |
% |
||
|
|
|
|
|
|
|
|
|
|
|
||
|
Total |
|
$ |
2,950 |
|
100 |
% |
$ |
2,095 |
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|