12. Commitments and Contingencies

Income Taxes

We have maintained and intend to maintain our election as a REIT under the Internal Revenue Code. In order for us to continue to qualify as a REIT we must meet a number of organizational and operational requirements, including a requirement to distribute annual dividends to our shareholders equal to a minimum of 90% of our REIT taxable income, computed without regard to the dividends paid deduction and our net capital gains. As a REIT, we generally will not be subject to federal income tax on our taxable income at the corporate level to the extent such income is distributed to our shareholders annually. Any current year taxable income generated by the Company may be offset by carrying forward unused prior year net operating losses (“NOLs”). If our taxable income after application of NOL carryforwards exceeds our dividends in a tax year, REIT tax rules allow us to designate dividends from the subsequent tax year in order to avoid current taxation on undistributed income. If we fail to qualify as a REIT in any taxable year, we will be subject to federal and state income taxes at regular corporate rates, including any applicable alternative minimum tax (“AMT”). In addition, we may not be able to requalify as a REIT for the four subsequent taxable years. Taxable income from non-REIT activities managed through taxable REIT subsidiaries is subject to applicable federal, state, and local income and margin taxes. Our operating partnerships are flow-through entities and are not subject to federal income taxes at the entity level.

For the year ended December 31, 2017, we had a federal taxable loss of approximately $2.1 million, which included the disposal of the Courtyard Kauai Coconut Beach Hotel, and had remaining federal NOL carryovers of approximately $15.2 million as of December 31, 2017. We did not pay any distributions during the year ended December 31, 2017. We have continued to establish a valuation allowance against our deferred tax assets as the utilization of any deferred tax asset is not at a level of more likely than not that they will be realized prior to their expiration. During the year ended December 31, 2017, we recorded an aggregate income tax benefit of approximately $1.6 million consisting of (i) a refund of foreign income tax of approximately $0.8 million and (ii) the reversal of our previously estimated taxes payable $0.8 million related to the sales of AJS and Holstenplatz.

For the year ended December 31, 2016, we had federal taxable income of approximately $7.0 million, which included the disposal of Lakewood Flats. We paid special cash distributions of $38.4 million during the year and had remaining federal NOL carryovers of approximately $13.1 million as of December 31, 2016. During the year ended December 31, 2016, we recorded an income tax benefit of less than $0.1 million representing the difference in the actual taxes due and the originally estimated taxes payable on the sale of Holstenplatz.

We originally estimated federal taxable income of $3.8 million for the year ended December 31, 2015. Actual federal taxable income for the year ended December 31, 2015 was $4.8 million, which included the disposals of Babcock, AJS, Holstenplatz, and Wimberly. We paid special cash distributions of $25.7 million during the year and had remaining federal NOL carryovers of approximately $13.1 million as of December 31, 2015. During 2015, we recorded provision for income tax of approximately $2.7 million as a result of estimated foreign income tax related to the sales of AJS and Holstenplatz which were both located in Germany. The foreign income tax, which related to both dispositions, was calculated on gains recognized at the applicable exchange rate in effect on the respective dates of sale and calculated using then current tax rates.

We have a TRS which is subject to federal and state income taxes. As of December 31, 2017, our TRS had NOL carryforwards of approximately $4.5 million which expire in years 2030 to 2035. Because NOL’s are subject to certain change of ownership, continuity of business, and separate return year limitations, and because it is unlikely the available NOL’s will be utilized or because we consider any amounts possibly utilized to be immaterial, no benefits related to these NOL’s have been recognized in our consolidated financial statements. We have no significant temporary differences or tax credits associated with our TRS.

We and our subsidiaries’ income tax returns are subject to examination by federal, state, and local tax jurisdictions for years 2014 through 2017. If a return filed was examined and a substantial error was discovered, the Internal Revenue Service has the right to add additional years to their audit, but will not go back more than six years. Net income tax loss carry forwards and other tax attributes generated in years prior to 2014 are also subject to challenge in any examination of those tax years. We and our subsidiaries were not under any notice of audit from any taxing authority as of December 31, 2017. We have reviewed our tax positions under GAAP guidance that clarifies the relevant criteria and approach for the recognition and measurement of uncertain tax positions. The guidance prescribes a recognition threshold and measurement attribute for the financial statement recognition of a tax position taken, or expected to be taken, in a tax return. A tax position may only be recognized in the financial statements if it is more likely than not that the tax position will be sustained upon examination. We believe it is more likely than not that the tax positions taken relative to our status as a REIT will be sustained in any tax examination.