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INCOME TAXES
 12 Months Ended
Dec. 31, 2014
INCOME TAXES  
INCOME TAXES

NOTE 11.     INCOME TAXES

 

For tax periods ending before August 31, 2012, ARL was part of the ARL consolidated federal return.  After that date, ARL and the rest of the ARL group joined the MRHI consolidated group for tax purposes.  The income tax expense (benefit) for the first part of the 2012 tax period was calculated under a tax sharing and compensating agreement between ARL, TCI and IOT.  That agreement continued until August 31, 2012 at which time a new tax sharing and compensating agreement was entered into by ARL, TCI, IOT and MRHI for the remainder of 2012 and subsequent periods.  For 2012 and 2014, MRHI, ARL, TCI and IOT had a combined net taxable loss and ARL recorded no current tax (benefit) or expense. For 2013, MRHI had net taxable income and ARL consolidated with TCI and IOT had a net taxable loss resulting in a tax (benefit) to ARL.  The expense (benefit) in each year was calculated based on the amount of losses absorbed by taxable income multiplied by the maximum statutory rate of 35%.

 

 Current expense (benefit) is attributable to (dollars in thousands):

 

 

 

2014

 

 

2013

 

 

2012

 

 

 

 

 

 

 

 

 

 

 

Loss from continuing operations

 

$

(1,169

)

 

$

(24,217

)

 

$

(5,387

)

Income from discontinued operations

 

 

1,169

 

 

 

17,415

 

 

 

5,387

 

The full 2013 tax (benefit) to ARL comes from MRHI

 

$

-

 

 

$

(6,802

)

 

$

-

 

 

The Federal income tax expense differs from the amount computed by applying the corporate tax rate of 35% to the income before income taxes as follows (dollars in thousands):

 

 

 

2014

 

 

2013

 

 

2012

 

 

 

 

 

 

 

 

 

 

 

Computed "expected" income tax (benefit) expense

 

$

14,061

 

 

$

15,684

 

 

$

(1,955

)

Book to tax differences in gains on sale of property

 

 

(2,350

)

 

 

(20,373

)

 

 

(8,503

)

Book to tax differences from entities not consolidated for tax purposes

 

 

(23,900

)

 

 

(33,565

)

 

 

(3,831

)

Book to tax differences of depreciation and amortization

 

 

1,415

 

 

 

1,250

 

 

 

1,460

 

Valuation allowance against current net operating loss benefit

 

 

20,125

 

 

 

17,415

 

 

 

5,387

 

Other book to tax differences

 

 

(9,351

)

 

 

17,208

 

 

 

7,442

 

Total

 

$

-

 

 

$

(2,381

)

 

$

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Alternative minimum tax

 

$

-

 

 

$

-

 

 

$

-

 

 

Deferred income taxes reflect the tax effects of temporary timing differences between carrying amounts of assets and liabilities reflected on the financial statements and the amounts used for income tax purposes.  ARL’s tax basis in its net assets differs from the amount at which its net assets are reported for financial statement purposes, principally due to the accounting for gains and losses on property sales, and depreciation on owned properties.  The tax effects of temporary differences and net operating loss carry forwards that give rise to the deferred tax assets are presented below (amounts in thousands):

 

 

 

2014

 

 

2013

 

 

2012

 

 

 

 

 

 

 

 

 

 

 

Net operating losses

 

$

74,357

 

 

$

88,486

 

 

$

68,034

 

AMT credits

 

 

2,201

 

 

 

2,201

 

 

 

2,201

 

Basis difference of:

 

 

 

 

 

 

 

 

 

 

 

 

   Real estate holdings and equipment

 

 

10,337

 

 

 

11,959

 

 

 

1,159

 

   Notes receivable

 

 

6,946

 

 

 

7,448

 

 

 

8,248

 

   Investments

 

 

(14,950

)

 

 

(14,960

)

 

 

(13,824

)

   Notes payable

 

 

8,189

 

 

 

13,360

 

 

 

17,691

 

   Deferred gains

 

 

18,086

 

 

 

18,746

 

 

 

18,170

 

Total

 

$

105,166

 

 

$

127,240

 

 

$

101,679

 

Deferred tax valuation allowance

 

 

(105,166

)

 

 

(127,240

)

 

 

(101,679

)

Net deferred tax asset

 

$

-

 

 

$

-

 

 

$

-

 

 

At December 31, 2014, 2013 and 2012 ARL had a net deferred tax asset due to tax deductions available to it in future years. However, as management could not determine that it was more likely than not that ARL would realize the benefit of the deferred tax asset, a 100% valuation allowance was established.

 

ARL has prior tax net operating losses and capital loss carryforwards of approximately $53.0 million expiring through the year 2033.  The alternative minimum tax credit balance did not change in 2014 and remains at approximately $2.2 million.  The credit has no expiration.

 

ARL is subject to routine audits by taxing jurisdictions; however, there are currently no audits in progress for any tax periods.  Management believes ARL is no longer subject to income tax examinations for years prior to 2011.