Note 15 - Income Taxes

12 Months Ended

Dec. 31, 2011

Income Tax Disclosure [Text Block]

15. Income taxes     

A reconciliation of the statutory income tax provision to the effective income tax provision for the years ended December 31, 2011 and 2010, respectively, are as follows (dollar amounts in thousands).

	December 31,
	2011					2010
Provision at statutory rate	$	1,857		(35.0	)%	$	2,382	(35.0	)%
Non-taxable REIT income		(1,088)		20.5	%		(813)	11.9	%
State and local tax  provision		239		(4.5	)%		414	(6.1	)%
True-ups		(1,810	)	34.1	%		—	—	%
Valuation allowance		1,235		(23.3	)%		(1,983)	29.2	%
Total provision	$	433		(8.2	)%	$	—	—	%

The income tax provision for the year ended December 31, 2011 is comprised of the following components (dollar amounts in thousands):

Current income tax expense	$	433
Deferred income tax expense		—
Total provision	$	433

The income tax provision for the year ended December 31, 2010 is comprised of the following components (dollar amounts in thousands):

Current income tax expense	$	83
Deferred income tax expense		(83	)
Total provision	$	—

The gross deferred tax asset at December 31, 2011 is $27.2 million. The major sources of temporary differences included in the deferred tax assets and their deferred tax effect as of December 31, 2011 are as follows (dollar amounts in thousands):

Deferred tax assets:
Net operating loss carryover	$	27,052
GAAP reserves		105
Gross deferred tax asset		27,157
Valuation allowance		(27,157	)
Net deferred tax asset	$	—

At December 31, 2011, HC had approximately $59 million of net operating loss carryforwards which may be used to offset future taxable income. The carryforwards will expire in 2024 through 2029. The Internal Revenue Code places certain limitations on the annual amount of net operating loss carryforwards that can be utilized if certain changes in the Company’s ownership occur. The Company determined during 2011 that it had undergone an ownership change within the meaning of IRC section 382 that will limit the net loss carryforwards to be used to offset future taxable income to $660,000 per year. The Company has recorded a full valuation allowance against its deferred tax assets because at this time management does not believe the deferred tax assets will be realized.

The gross deferred tax asset at December 31, 2010 is $26.0 million. The major sources of temporary differences included in the deferred tax assets and their deferred tax effect as of December 31, 2010 are as follows (dollar amounts in thousands):

Deferred tax assets:
Net operating loss carryover	$	25,662
GAAP reserves		342
Gross deferred tax asset		26,004
Valuation allowance		(25,921	)
Net deferred tax asset	$	83

The Company files income tax returns with the U.S. federal government and various state and local jurisdictions. The Company is no longer subject to tax examinations by tax authorities for years prior to 2007. HC is presently undergoing an IRS examination for the taxable years ended December 31, 2010 and 2009.

During the years ended December 31, 2011 and 2010, the Company’s two TRSs recorded approximately $0.4 million and $0, respectively, of income tax expense for income attributable to the subsidiaries. The Company’s estimated taxable income differs from the federal statutory rate as a result of state and local taxes, non-taxable REIT income and a valuation allowance.