Income Taxes

3 Months Ended

Mar. 31, 2020

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

Income taxes are accounted for under the provisions of ASC 740, Income Taxes, which generally requires the Company to record deferred income taxes for the tax effect of differences between book and tax bases of its assets and liabilities.

Deferred income taxes reflect the available net operating losses and the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Realization of the future tax benefits related to deferred tax assets is dependent on many factors, including the Company’s past earnings history, expected future earnings, the character and jurisdiction of such earnings, unsettled circumstances that, if unfavorably resolved, would adversely affect utilization of its deferred tax assets, carryback and carryforward periods, and tax strategies that could potentially enhance the likelihood of realization of a deferred tax asset.

The Company recorded an income tax expense of approximately $0.5 million for each of the three months ended March 31, 2020 and 2019, respectively. As a REIT, the Company is entitled to a deduction for dividends paid, resulting in a substantial reduction in the amount of federal income tax expense it recognizes. Substantially all of the Company’s income tax expense is incurred based on the earnings generated by its foreign operations and a portion of those earnings is permanently reinvested.

On March 27, 2020, President Trump signed into law the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”). The CARES Act, among other things, includes provisions relating to refundable payroll tax credits, deferment of employer side social security payments, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations and technical corrections to tax depreciation methods for qualified improvement property. While we are still assessing the impact of the legislation, we do not expect there to be a material impact to our consolidated financial statements at this time. The Company plans on accelerating the refund of approximately $1.9 million in previously paid alternative minimum taxes in 2020.

The Company recorded an opening deferred tax liability of $8.9 million and $0.7 million in 2019 for the purchase of Cloverleaf and Lanier, respectively, further discussed in Note 3. Deferred taxes for the acquisition arose primarily from book to tax differences in the basis of fixed and intangible assets. Purchase accounting for Cloverleaf and Lanier has not yet been completed and the Company recorded additional deferred tax liability of approximately $1.0 million for the quarter ended March 31, 2020 based on additional information obtained during the quarter. Furthermore, a deferred income tax benefit of approximately $1.0 million was also recognized during the quarter as result of a reduction in the Company’s existing valuation allowance due to the aforementioned deferred tax liability for the Cloverleaf and Lanier acquisitions recorded during the quarter that became available to be used as a positive source of income for valuation allowance assessment purposes.

The Company recorded an opening deferred tax liability of $42.0 million for the purchase of Novacold in January of 2020, further discussed in Note 3. Deferred taxes for the acquisition arose primarily from book to tax differences in the basis of fixed and intangible assets. Purchase accounting for Novacold has not yet been completed, and additional amounts may be recorded as additional information is obtained.

Income Tax Contingencies

ASC 740 prescribes a recognition threshold and measurement attribute for the financial statements recognition and measurement of a tax position taken or expected to be taken in a tax return. The guidance prescribed in ASC 740 establishes a recognition threshold of more likely than not that a tax position will be sustained upon examination. The measurement attribute requires that a tax position be measured at the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement.

The Company has $0.4 million of uncertain tax positions outstanding as of March 31, 2020 and December 31, 2019. The Company recognizes interest and penalties related to unrecognized tax positions in income tax expense.