Income Taxes

9 Months Ended

Sep. 30, 2019

12. Income Taxes

The components of the income tax (benefit) provision for the three and nine months ended September 30, 2019 and 2018 are as follows:

	Three Months Ended			Three Months Ended			Nine Months Ended			Nine Months Ended
	September 30, 2019			September 30, 2018			September 30, 2019			September 30, 2018
	(unaudited)			(unaudited)			(unaudited)			(unaudited)
Current:
Federal	$	(33,254	)	$	—		$	(125,587	)	$	—
State		41,839			24,266			112,741			131,306
		8,585			24,266			(12,846	)		131,306
Deferred:
Federal		(569,928	)		(612,703	)		356,590			591,917
State		(132,847	)		(158,487	)		95,579			158,822
		(702,775	)		(771,190	)		452,169			750,739
	$	(694,190	)	$	(746,924	)	$	439,323		$	882,045

A reconciliation of the statutory federal income tax provision to the Company’s income tax provision is as follows:

	Three Months Ended			Three Months Ended			Nine Months Ended			Nine Months Ended
	September 30, 2019			September 30, 2018			September 30, 2019			September 30, 2018
	(unaudited)			(unaudited)			(unaudited)			(unaudited)
Statutory federal income tax provision	$	290,535		$	(573,028	)	$	687,986		$	639,311
Effect of non-taxable REIT loss		(893,717	)		(39,675	)		(456,983	)		(47,394	)
State income tax provision		(91,008	)		(134,221	)		208,320			290,128
	$	(694,190	)	$	(746,924	)	$	439,323		$	882,045

As of September 30, 2019 and December 31, 2018, we had a net deferred tax asset of approximately $4.7 million and $5.1 million, respectively, of which, approximately $4.1 million and $4.4 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 by such time. As of September 30, 2019 and December 31, 2018, the remainder of the deferred tax asset is attributable to year-to-year timing differences of approximately $0.6 million and $0.7 million, respectively, for accrued, but not deductible, employee performance awards, vacation and sick pay, bad debt allowance and depreciation.

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 September 30, 2019 and December 31, 2018, respectively. 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 September 30, 2019 and December 31, 2018, 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:

•

a demonstrated track record of past profitability and utilization of past NOL carryforwards,

•

reasonable forecasts of future taxable income, and

•

changes in the lease rental payments from the TRS Lessee to subsidiaries of the Operating Partnership.