13. Income Taxes
The components of the provision for (benefit from) income taxes for the years ended December 31, 2017, 2016, and 2015 are as follows:
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Year Ended |
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Year Ended |
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Year Ended |
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December 31, 2017 |
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December 31, 2016 |
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December 31, 2015 |
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Current: |
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Federal |
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$ |
— |
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|
$ |
— |
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|
$ |
— |
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State |
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239,582 |
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|
191,332 |
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444,538 |
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239,582 |
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|
191,332 |
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|
444,538 |
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Deferred: |
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Federal |
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1,661,153 |
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|
(1,294,408 |
) |
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(1,510,726 |
) |
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State |
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|
(162,931 |
) |
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(264,558 |
) |
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(269,845 |
) |
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1,498,222 |
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(1,558,966 |
) |
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(1,780,571 |
) |
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|
$ |
1,737,804 |
|
|
$ |
(1,367,634 |
) |
|
$ |
(1,336,033 |
) |
A reconciliation of the statutory federal income tax provision (benefit) to the Company’s provision for (benefit from) income tax is as follows:
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Year Ended |
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Year Ended |
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Year Ended |
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December 31, 2017 |
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December 31, 2016 |
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December 31, 2015 |
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Statutory federal income tax provision (benefit) |
|
$ |
600,880 |
|
|
$ |
(158,859 |
) |
|
$ |
1,705,610 |
|
|
Effect of non-taxable REIT income (loss) |
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|
(1,621,526 |
) |
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|
(1,135,549 |
) |
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|
(2,866,950 |
) |
|
Effect of change in federal income tax rate on net deferred tax assets |
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|
2,681,800 |
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|
|
— |
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|
|
— |
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State income tax provision (benefit) |
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|
76,650 |
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|
(73,226 |
) |
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(174,693 |
) |
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|
$ |
1,737,804 |
|
|
$ |
(1,367,634 |
) |
|
$ |
(1,336,033 |
) |
As of December 31, 2017 and 2016, we had a net deferred tax asset of approximately $5.5 million and $6.9 million, respectively, of which, approximately $4.9 million and $6.0 million, respectively, are due to accumulated net operating losses of our TRS Lessee. These loss carryforwards will begin to expire in 2028 if not utilized. As of December 31, 2017 and 2016, the remainder of the deferred tax asset is attributable to year-to-year timing differences of approximately $0.6 million for accrued, but not deductible, employee performance awards, vacation and sick pay, bad debt allowance and depreciation. At the end of the fiscal year, there was a one-time loss effect resulting from a change in the federal income tax rate, due to the TCJA, on the net deferred tax assets which resulted in lowering deferred tax assets in the amount of approximately $2.7 million.
We record a valuation allowance to reduce deferred tax assets to an amount that we believe is more likely than not to be realized. Because of expected future taxable income of our TRS Lessee, we have not recorded a valuation allowance to reduce our net deferred tax asset as of December 31, 2017. We regularly evaluate the likelihood that our TRS Lessee will be able to realize its deferred tax assets and the continuing need for a valuation allowance. At December 31, 2017, we determined, based on all available positive and negative evidence, that it is more-likely-than-not that future taxable income will be available during the carryforward periods to absorb all of the consolidated federal and state net operating loss carryforward of our TRS Lessee. A number of factors played a critical role in this determination, including:
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• |
a demonstrated track record of past profitability and utilization of past NOL carryforwards, |
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• |
reasonable forecasts of future taxable income, and |
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• |
anticipated changes in the lease rental payments from the TRS Lessee to subsidiaries of the Operating Partnership. |
At December 31, 2017, we determined, based on all available positive and negative evidence, that it is more-likely-than-not that future taxable income will be available during the carryforward periods to absorb all of the consolidated federal and state net operating loss carryforward.