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INCOME TAXES

12 Months Ended

Dec. 31, 2020

NOTE 14—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 ordinary 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, 2020, tax returns for the calendar years 2017 through 2020 remain subject to examination by the Internal Revenue Service and various state and local tax jurisdictions.

During 2020, 2019 and 2018, the Company did not incur any federal income tax expense. The Company does not have any deferred tax assets or liabilities at December 31, 2020 and 2019.

Approximately 47% and 8% of the distributions made during 2020 represent capital gains and return of capital to stockholders, respectively, with the balance representing ordinary income. Approximately 27% of the distributions made during 2019 represent return of capital to stockholders and approximately 12% of the distributions made during 2018 represent capital gains to stockholders. The balance of the distributions represent ordinary income. In 2020, 2019 and 2018, the ordinary income portion of the distributions are considered qualified REIT dividends and will be taxed at a rate reduced by up to 20% pursuant to Internal Revenue Code Section 199A.

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

NOTE 14—INCOME TAXES (Continued)

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


	2020		2019		2018
	Estimate		Actual		Actual
Dividends declared	$	36,564	$	35,663	$	34,652
Dividend reinvestment plan (a)		47		247		313
		36,611		35,910		34,965
Less: Spillover dividends designated to previous year		—		—		(10,263)
Less: Spillover dividends designated to following year (b)		(9,261)		(8,976)		(549)
Less: Return of capital		(3,273)		(9,842)		—
Plus: Dividends designated from prior year		8,976		549		—
Plus: Dividends designated from following year		—		—		—
Dividends paid deduction	$	33,053	$	17,641	$	24,153

(a)

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

(b)

The entire dividend paid in January 2021 and 2020 and a portion of the dividend paid in January 2019 are considered 2021, 2020 and 2019 dividends, respectively, as such dividends were in excess of the Company’s earnings and profits during 2020, 2019 and 2018, respectively.

- Definition

The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.

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