NOTE 12 – INCOME TAXES

The Company elected to be taxed as a REIT under Sections 856 through 860 of the Code commencing with its taxable year ended December 31, 1999. 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 REIT taxable income, determined without regard to the deduction for dividends paid and excluding net capital gain, to its shareholders. It is the Company’s current intention to adhere to these requirements and maintain the Company’s qualification for taxation as a REIT. As a REIT, the Company generally will not be subject to federal corporate income tax on that portion of its net income that is currently distributed to shareholders. If the Company fails to qualify for taxation as a REIT in any taxable year, it will be subject to federal 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. Even if the Company qualifies for taxation as a REIT, the Company may be subject to certain state and local taxes on its income and property, and to federal income and excise taxes on its undistributed taxable income.

Taxable income from non-REIT activities managed through TRSs is subject to federal, state and local income taxes. As a TRS, 44 New England is subject to income taxes at the applicable federal, state and local tax rates.

The provision for income taxes differs from the amount of income tax determined by applying the applicable statutory federal income tax rate to pretax income from continuing operations as a result of the following differences:


		For the year ended December 31,
		2016		2015		2014
Statutory federal income tax provision	$	39,633	$	13,282	$	22,865
Adjustment for nontaxable income for Hersha Hospitality Trust		(44,078)		(15,853)		(25,274)
State income taxes, net of federal income tax effect		(725)		(581)		(367)
Recognition of deferred tax assets		282		11		91

Total income tax benefit	$	(4,888)	$	(3,141)	$	(2,685)

The components of the Company’s income tax expense (benefit) from continuing operations for the years ended December 31, 2016, 2015 and 2014 were as follows:


		For the year ended December 31,
		2016		2015		2014
Income tax expense (benefit):
Current:
Federal	$	-	$	-	$	-
State		-		-		-
Deferred:
Federal	$	(3,790)		(2,261)		(2,130)
State		(1,098)		(880)		(555)
Total		(4,888)	$	(3,141)	$	(2,685)

Income tax expense (benefit):
From continuing operations	$	(4,888)		(3,141)		(2,685)
From discontinued operations		-		-		2
Total		(4,888)	$	(3,141)	$	(2,683)

NOTE 12 – INCOME TAXES (CONTINUED)

The components of consolidated TRS’s net deferred tax asset as of December 31, 2016 and 2015 were as follows:


		As of December 31,
		2016		2015
Deferred tax assets:
Net operating loss carryforwards	$	18,448	$	14,168
Accrued expenses and other		1,494		1,292
Tax credit carryforwards		567		558
Total gross deferred tax assets		20,509		16,018
Valuation allowance		(804)		(804)
Total net deferred tax assets	$	19,705	$	15,214
Deferred tax liabilities:
Depreciation and amortization		3,508		624
Total Net deferred tax assets	$	16,197	$	14,590

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. Based on limitations related to the utilization of certain tax attribute carryforwards, the Company recorded a valuation allowance of approximately $804 as these attributes are not more likely than not to be realized prior to their expiration. Based on the level of historical taxable income, tax planning strategies and projections for future taxable income over the periods in which the remaining deferred tax assets are deductible, Management believes it is more likely than not that the remaining deferred tax assets will be realized.

As of December 31, 2016, we have gross federal net operating loss carryforwards of $46,125 which expire over various periods from 2023 through 2036. As of December 31, 2016, we have gross state net operating loss carryforwards of $54,281 which expire over various periods from 2016 to 2036. The Company has tax credits of $567 available which begin to expire in 2028.

Earnings and profits, which will determine the taxability of distributions to shareholders, will differ from net income reported for financial reporting purposes due to the differences for federal tax purposes in the estimated useful lives and methods used to compute depreciation. The following table sets forth certain per share information regarding the Company’s common and preferred share distributions for the years ended December 31, 2016, 2015 and 2014.


	2016	2015	2014
Preferred Shares - 8% Series B
Ordinary income	100.00%	100.00%	100.00%
Return of Capital	0.00%	0.00%	0.00%
Capital Gain Distribution	0.00%	0.00%	0.00%
Preferred Shares - 6.875% Series C
Ordinary income	100.00%	100.00%	100.00%
Return of Capital	0.00%	0.00%	0.00%
Capital Gain Distribution	0.00%	0.00%	0.00%
Preferred Shares - 6.5% Series D
Ordinary income	100.00%	N/A	N/A
Return of Capital	0.00%	N/A	N/A
Capital Gain Distribution	0.00%	N/A	N/A
Common Shares - Class A
Ordinary income	100.00%	79.49%	76.34%
Return of Capital	0.00%	20.51%	23.66%
Capital Gain Distribution	0.00%	0.00%	0.00%

There were no Preferred Shares Series E dividends paid during 2016.