Note 4. Income Taxes

As a result of the Up‑C Transaction, we became the sole managing member of RMR LLC. RMR LLC is treated as a partnership for U.S. federal and most applicable state and local income tax purposes. In addition, on June 1, 2015 and June 3, 2015, respectively, RMR Intl and RMR Advisors became wholly owned disregarded subsidiaries of RMR LLC. As a partnership, RMR LLC is generally not subject to U.S. federal and most state income taxes. Any taxable income or loss generated by RMR LLC is passed through to and included in the taxable income or loss of its members, including RMR Inc. and ABP Trust, based on each member’s respective ownership percentage. We are a corporation subject to U.S. federal and state income tax with respect to our allocable share of any taxable income of RMR LLC and its wholly owned subsidiaries.

For the three and nine months ended June 30, 2016, we recognized income tax expense of $4,504 and $19,904, respectively, which includes $2,837 and $16,182, respectively, of U.S. federal income tax and $1,667 and $3,722, respectively, of state income taxes. For the three and nine months ended June 30, 2015, we recognized income tax expense of $651 and $654, respectively, which includes $574 of U.S. federal income tax for both periods and $77 and $80, respectively, of state income taxes.

As of June 30, 2016, we had a net deferred tax asset of $45,383, which is primarily a result of the Up-C Transaction. For further information about the Up-C Transaction, please refer to Note 6 below and our Annual Report.

A reconciliation of the statutory income tax rate to the effective tax rate is as follows:


	Three Months Ended		Nine Months Ended
	June 30, 2016		June 30, 2016
Income taxes computed at the federal statutory rate	35.0	%	35.0	%
State taxes, net of federal benefit	4.8	%	4.8	%
Net income attributable to non-controlling interest	(19.2)	%	(23.7)	%
Income tax rate	20.6	%	16.1	%

Prior to June 5, 2015, RMR LLC was a single member limited liability company and together with its sole owner was classified as an S corporation for tax purposes and generally not subject to federal and most state income taxes. Also prior to June 5, 2015, RMR Advisors and RMR Intl were classified as an S corporation and partnership, respectively, for income tax purposes and were also generally not subject to federal and most state income taxes. RMR Intl conducted business in Australia through a foreign entity that was subject to Australian income tax and has certain deferred tax assets. We have determined that it is more likely than not that RMR Intl will not realize the benefit of its deferred tax assets, and therefore, we maintain a full valuation allowance for its deferred tax assets.

ASC 740, Income Taxes, provides a model for how a company should recognize, measure and present in its financial statements uncertain tax positions that have been taken or are expected to be taken with respect to all open years and in all significant jurisdictions. We recognize a tax benefit only if it is “more likely than not” that a particular tax position will be sustained upon examination or audit. To the extent the “more likely than not” standard has been satisfied, the benefit associated with a tax position is measured as the largest amount that is greater than 50% likely of being realized upon settlement. As of June 30, 2016 and September 30, 2015, we have no uncertain tax positions.