NOTE 15—INCOME TAXES

The Company elected to be taxed as a REIT under the Internal Revenue Code, commencing with its taxable year ended December 31, 1983. To qualify as a REIT, the Company must meet a number of organizational and operational requirements, including a requirement that it currently distribute at least 90% of its adjusted taxable income to its stockholders. As a REIT, the Company generally will not be subject to corporate level federal, state and local income tax on taxable income it distributes currently to its stockholders. If the Company fails to qualify as a REIT in any taxable year, it will be subject to federal, state and local income taxes at regular corporate rates (including any applicable alternative minimum tax) and may not be able to qualify as a REIT for four subsequent taxable years. It is management's current intention to adhere to these requirements and maintain the Company's REIT status.

Even though the Company qualifies for taxation as a REIT, the Company is subject to certain state and local taxes on its income and property, and to federal income and excise taxes on its undistributed taxable income. As of December 31, 2017, tax returns for the calendar years 2014 through 2017 remain subject to examination by the Internal Revenue Service and various state and local tax jurisdictions.

During 2017, 2016 and 2015, the Company recorded federal excise tax expense of $0, $6,000 and $174,000, respectively, which is based on taxable income generated but not yet distributed. During 2017, 2016 and 2015, the Company did not incur any federal income tax expense. The Company does not have any deferred tax assets or liabilities at December 31, 2017 and 2016.

During 2017, 2016 and 2015, 17%, 27% and 67%, respectively, of the distributions were treated as capital gain distributions, with the balance treated as ordinary income.

The Company treats depreciation expense, straight-line rent adjustments and certain other items differently for tax purposes than for financial reporting purposes. Therefore, its dividends paid deduction differs from its financial statement income.

The following table reconciles cash dividends paid with the dividends paid deduction for the years indicated (amounts in thousands):

	2017 Estimate			2016 Actual			2015 Actual
Dividends paid	$	32,393		$	29,135		$	26,179
Dividend reinvestment plan(a)		252			181			228

		32,645			29,316			26,407
Less: Spillover dividends designated to previous year		(11,916	)		(15,209	)		(18,177	)
Plus: Dividends designated from following year		10,263			11,916			15,209

Dividends paid deduction	$	30,992		$	26,023		$	23,439


(a)	Reflects the up to 5% discount on common stock purchased through the dividend reinvestment plan.