NOTE 14 - INCOME TAXES

The Company has elected to be taxed as a REIT under Sections 856 through 860 of the Internal Revenue 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 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 taxable REIT subsidiaries is subject to federal, state and local income taxes. 44 New England is subject to income taxes at the applicable federal, state and local tax rates. On June 23, 2009, we sold our interest in Revere Hotel Group(“Revere”), a 55% owned taxable REIT subsidiary. Prior to this sale, Revere was subject to income taxes at the applicable federal, state and local tax rates.

In 2011, 2010 and 2009, 44 New England generated net operating losses of $17,790, $4,726, and $6,555, respectively. The ability to utilize these net operating losses may be substantially limited if certain significant changes in ownership have or will occur. There was no income tax expense (benefit) recognized by 44 New England or Revere for 2011, 2010 and 2009.

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

	For the year ended December 31,
	2011			2010			2009
Computed "Expected" federal tax expense (benefit) of TRS, at 35%	$	(6,136	)	$	(1,875	)	$	(1,061	)
State income taxes, net of federal income tax effect		(1,146	)		(304	)		(421	)
Changes in valuation allowance		7,282			2,179			1,482

Total income tax expense	$	-		$	-		$	-

The components of consolidated TRS's deferred tax assets as of December 31, 2011 and 2010 were as follows:

	As of December 31,
	2011			2010
Deferred tax assets:
Net operating loss carryforward	$	13,054		$	5,755
Depreciation		(83	)		(66	)
Net deferred tax assets		12,971			5,689
Valuation allowance		(12,971	)		(5,689	)
Deferred tax assets	$	-		$	-

Upon the sale of our interest in Revere in 2009, we relinquished deferred tax assets related to Revere's net operating loss carry forwards of $1,128 and a valuation allowance in the same amount.

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 the level of historical taxable income and projections for future taxable income over the periods in which the deferred tax assets are deductible, management believes it is more likely than not that 44 New England will not realize the benefits of these deferred tax assets at December 31, 2011.

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, 2011, 2010 and 2009.

	2011			2010			2009
Preferred Shares - 8% Series A
Ordinary income		100.00	%		0.00	%		0.00	%
Return of Capital		0.00	%		100.00	%		100.00	%
Capital Gain Distribution		0.00	%		0.00	%		0.00	%
Preferred Shares - 8% Series B
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		73.30	%		0.00	%		0.00	%
Return of Capital		26.70	%		100.00	%		100.00	%
Capital Gain Distribution		0.00	%		0.00	%		0.00	%