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INCOME TAXES
 12 Months Ended
Dec. 31, 2011
INCOME TAXES  
INCOME TAXES

NOTE 8.   INCOME TAXES

 

For tax periods before July 17, 2009, IOT was required to file a consolidated federal return.  Due to change of ownership in July, 2009, IOT has joined the American Realty Investors, Inc. (ARL) consolidated group for tax purposes.  The income tax expense (benefit) for 2009, 2010 and 2011 in the accompanying financial statement was calculated under a tax sharing and compensating agreement between ARL, TCI and IOT.  For 2011, ARL, TCI and IOT had a net taxable loss.  For 2011, IOT recorded a current tax expense of $647,000.  The benefit or expense is calculated based on the amount of losses absorbed by taxable income multiplied by the statutory rate of 35%.

 

 

 

Current income tax expense (benefit) is attributable to:

 

 

 

2011

 

 

2010

 

 

2009

 

Income from continuing operations

 

 

 

 

 

 

 

 

 

Income from discontinued operations

 

$

444

 

 

$

626

 

 

$

494

 

 

 

 

203

 

 

 

(828

)

 

 

1

 

 

 

$

647

 

 

$

(202

)

 

$

495

 

 

           IOT’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.

 

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.  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):

 

 

 

2011

 

 

2010

 

 

2009

 

 

 

 

 

 

 

 

 

 

 

Accumulated depreciation and amortization

 

$

(514

)

 

$

(2,433

)

 

$

203

 

Allowance for loss

 

 

694

 

 

 

694

 

 

 

694

 

Other

 

 

24

 

 

 

1,077

 

 

 

203

 

Federal benefit of NOL carryforward

 

 

1,078

 

 

 

1,081

 

 

 

984

 

Federal benefit of AMT caryforward

 

 

164

 

 

 

164

 

 

 

164

 

Deferred tax asset

 

$

1,446

 

 

$

583

 

 

$

2,248

 

Less valuation allowance

 

 

(1,446

)

 

 

(583

)

 

 

(2,248

)

Total deferred tax asset

 

$

-

 

 

$

-

 

 

$

-

 

 

Recognition of the benefits of deferred tax assets will require the Company to generate future taxable income.  There is no assurance that the Company will generate earnings in future years.  Therefore, the Company has established a valuation allowance for deferred tax assets of approximately $1,446,000, $583,000 and $2,248,000 as of December 31, 2011, 2010 and 2009, respectively.

 

In 2011, IOT used approximately 1,847,000 of current losses from the consolidated group.  In 2010, the company used no current losses from the ARL consolidated group.  In 2009, IOT used approximately 1,415,000 of current losses from the consolidated group.  In 2008 and prior, the company generated taxable loss carryforwards totaling $2,589,587.  The most recent loss year is 2010, which, if not used, will expire in 2030.  The alternative minimum tax credit balance did not change in 2011 and remains at approximately $164,000.  The credit has no expiration date.

 

The following table presents the principal reasons for the differences between the Company’s effective tax rate and the United States statutory income tax rate of 35% (amounts in thousands).

 

 

 

2011

 

 

2010

 

 

2009

 

Federal income tax at statutory rate

 

$

647

 

 

$

(202

)

 

$

495

 

State tax expense

 

 

12

 

 

 

33

 

 

 

19

 

Gain on sale differences

 

 

-

 

 

 

-

 

 

 

-

 

Other

 

 

(12

)

 

 

(33

)

 

 

(19

)

Utilization of net operating loss and minimum tax credit carry forwards

 

 

-

 

 

 

6,678

 

 

 

-

 

Effective income tax rate

 

 

35

%

 

 

35

%

 

 

35

%